Forex Today - BoC hints at rate rises, as forex traders wait for non-farms

Market Analysis /
Greg McKenna / 07 Sep 2018

Welcome to my Forex Today column where I'll give a brief wrap on the key drivers of Forex markets and throw in a chart of the day. 

As ever, feedback welcome....oh and for AUDUSD specifically you can find that in My Australia Today piece each morning on the blog. 

And, for a deeper dive into more currencies and the charts please see my daily markets video.

QUICK SUMMARY

I’m wondering if currency traders aren’t betting on a benign non-farm payrolls tonight. At least in the G10 anyway. I say that because despite Ism manufacturing shooting the lights out earlier this week, despite ISM non-manufacturing last night hitting 58.5 (55.7 last, 56.8 exp), and despite jobless claims falling to another post 1969 low, the USD is strangely impotent. That’s important price action to consider of course. But it’s interesting nonetheless.

Anyway, EURUSD is flat at 1.1622, GBPUSD is up 0.2% on faint Brexit hopes at 1.2928 while USDJPY, which recovered as stocks in the US did is now lower – yes lower – on news President Trump may have Japan next in his sights for a trade battle. USDJPY is now at 110.70, down 0.74% and off the low around 110.50 as the article in the WSJ reads as conjecture on the authors part.

The Aussie has had an interesting 24 hours, not a massive range but buffeted by events and it sits up 0.15% at 72 cents. The Kiwi is flat at 0.6589 while the CAD is a little stronger by 0.2% at 1.3147 as the parties inch toward new NAFTA and as BoC’s Wilkins hints the Canadian central bank might be keen to raise rates sooner rather than later – USDCAD is at 1.3144.

BIGGER PICTURE

Interesting comments from the BoC’s, Deputy Governor Carolyn Wilkins who said that he bank had contemplated doing away with the word “gradual” in its guidance for interest rates at this week’s meeting. Bloomberg reports she said, “It is a natural question to ask, given that the economy has been operating at potential for the past year and it is in this part of the cycle when interest rates typically rise to pre-empt a buildup in inflation pressures”.  NAFTA is still on the radar for the BoC but it doesn’t seem overly troubled by it at the moment.

That’s helped the CAD recover from overnight weakness against the USD, as you can see in the large red candle on the daily chart below. The stochastics are a little overdone and we could see a retest of the breakout of this recent move before the USD fires higher once more. 1.3077 is the key level of support and a break of last night’s high is required to kick things on again.

Click on me, I'll expand
Click on me, I'll expand

Elsewhere on forex it’s worth wondering again what I wrote in the Aussie blog this morning about positioning before the release of non-farms this evening. I can’t figure out the divergence between economists bullish expectations and the markets under-reaction to some strong data this week for the US.

What I do know though based on the rhetoric from overnight Fed speakers, is that if we get a solid non-farms tonight that little bit of pricing reduction we’ve seen in Dec Fed Funds expectations this week will wash away pretty quickly and the USD will get a bid. BUT, BUT, BUT, in the same way that bullish news was a little lost on oil trader over the past 24 hours it is clear in the price action the market seems to want to sell dollars if it can get the chance. So I won’t be standing in the way if the data prints poorly.

One thing worth noting was the hawkish rhetoric from the Fed overnight which I highlighted in Markets Morning earlier. 

Levels to watch in the Euro as a bellwether are – 1.1655 which would open a run toward 1.1730/50 resistance while a break of 1.1577, then 1.1525 would open a way into the mid 1.14’s maybe lower.

Here’s the 4 – hour chart.

Click on me, I'll expand
Click on me, I'll expand


I'll discuss all the majors I follow in my video which will be out a little later this morning.

DATA:

On the day then, we get AIGroup construction PMI in Australia today, along with the latest home loans data, the coincident and leading economic indexes out of Japan and then trade data for France and Germany before the EU Q2 GDP 3rd estimate. We also get Chinese reserves data this evening and of course US and Canadian employment data. The Reuters survey says in the US expectations are for jobs to print 191,000, unemployment to print 3.8%, and average earnings to print 0.2% for a 2.7% yoy rate.

China trade is out tomorrow. AND, AND, AND, watch out for the possible announcement of the next tranche of tariffs on China which could come as early as tonight or the weekend

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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