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.
The pressure on EM forex was released a little overnight. The Argentine peso and Turkish lira both gained around 1.25% against the USD, while the BRL and MXN were both around 0.3-0.4% better against the Greenback overnight. But Asia’s currencies were under pressure again yesterday and any hiatus in the forex universe is just a little calm in an enduring storm.
Looking at Majors forex now the Brexit news, along with Italian deputy PM Salvini’s promise to play nice on the deficit, and the Italian government’s announcement of a debt buyback all combined to give the Pound and Euro a lift and knock the USD off its perch. GBPUSD and EURUSD are both up o.45% at 1.2909 and 1.1631 respectively. USDJPY sits around 111.53 for a gain of 0.1%.
On the commodity bloc the USD weakness and a little rally in copper seems to have helped the Aussie which sits at 0.7193, up 0.22%. The Kiwi did better though with a 0.6% gain to 0.6592 while the CAD lagged with a gain of just 0.1% with USDCAD at 1.3172 as the BoC left rates on hold, NAFTA is still unresolved, and oil prices fell.
The USD is under a little pressure this morning as EM currencies appear to stabilise and as headline risk in GBP and Euro drives the dollar lower. The question today is whether this is a correction we can trade or whether this is just the calm in the storm. My sense is that if Deutsche Bank and Morgan Stanley are right about positions in EM not really being adjusted yet (please see "Markets Morning" for more) then we are not far off the type of selling in EM markets which will really drive markets into a funk.
But that still doesn’t answer my question of whether this is a tradeable move does it?
My sense is that the markets, forex in particular, are very data, event, and headline driven. So, given there wasn’t a lot of USD positive news last night it makes sense that the USD came under a little pressure. But what about tonight and the release of services ISM and associated data? What about tomorrow night and the release of non-farm payrolls.
Where is the path of least resistance?
Right here and right now for the USD it is probably lower in the short term. There is much positioning skewed toward a higher US dollar. There is much expectation of a move lower in the Euro, the Pound, the Aussie and many other currencies. So any misses on the data could provide that trigger for a short-term reversal in a way that the stronger data may not. It’s a question of a traders time frame and their approach I guess.
Taking a step back, or getting in the helicopter, my sense is that there is still move USD strength to come. But I note that the Euro and GBP are hanging in there above the recent lows in a way the currencies of EM and those used as risk proxies are not. So we are getting a divergence of potential outcomes. EM as the main game due to trade and their own problems. Aussie and others as a derivative of the EM crisis and USD strength, and then Euro and GBP as the result of USD moves, strength/weakness, the economy, and the Fed. Easy right?
That's pretty bullish EURUSD candle there off the previous day's low. Lets see if 1.1650/55 can be broken, if it can Euro can have a decent run.
I'll discuss all the majors I follow in my video which will be out a little later this morning.
On the day today we get Australian trade data for July, South Korean current account, and German factory orders before the release of the Challenger and ADP precursors to tomorrow night’s non-farms. We also non-farm productivity, the Markit and ISM services PMI’s and factory orders. Not to mention the EIA crude data.
Have a great day's trading.
Chief Market Strategist
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