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Forex Today - Major forex still range bound but the CAD caught a bid on NAFTA hopes

Market Analysis /
Greg McKenna / 12 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.


The USD was getting pummelled at one point with Euro up at 1.1643 and the Pound up at 1.3086 before a little flash crash in Sterling saw it back under 1.30 very quickly before recovering. UK employment and labour data last night was fairly positive for the economy as wages growth rose to 2.9% and as Mark Carney agreed to stay on. As it stan this morning Euro is at 1.1595 – flat day on day – while Sterling is flat as well at 1.3026. USDJPY is higher though with stocks and yield differentials at 111.56, up 0.42%.

For the commodity bloc the big news this morning is the breaking news NAFTA might be getting closer to a deal. Apparently the Canadians are prepared to discuss dairy. The result is a rally in the CAD which has seen USDCAD fall from a high of 1.3174 to 1.3072 as I write for a CAD gain of 0.7%. The Aussie, which had been knocked from its highs as Euro pulled back is a little higher and just in the black now at 0.7116 for a 0.05% gain. The Kiwi is at 0.6518, down 0.1%.


I saw someone tweet earlier that it was funny the US was getting closer to a trade deal with Canada and the US dollar was falling. That’s something that’s worth highlighting because folks often forget that every currency trade is a pair trade. In this case it was USDCAD so the US dollar versus the Canadian dollar. There are clearly two sides to that trade and thus it’s not always just about the US dollar but rather that a NAFTA trade deal would take away uncertainty for the Canadian economy, for business investment, and for the central bank policy and rates. SO it should be no surprise the US dollar weakened in this circumstance. It’s not always about the Greenback even though of late it mostly has been.

As you can see in this chart the USDCAD is now back at an important level. A break of 1.3040 would see USDCAD back below the top of the old trend channel and recommencing its downward move. A bounce would be equally important. Watch this space folks.

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

But it’s not just the CAD which is being driven by CAD specific events and that side of the cross. Take the Euro for example and the moves versus the EUgov2yrfwd2yr rate. It’s been a reasonable directional indicator for a while now – not perfect, but a driver nonetheless. AS you can see in this chart – that EU forward rate suggests some support for EURUSD.

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

 It’s another example that there are two sides to every forex pair you’ll ever trade. Indeed one of the reasons we have not really seen 1997/98 style contagion in EM right now is because of this very fact. It’s still very idiosyncratic in the size of the moves. SO the takeaway from me is that until Euro breaks either 1.13 or 1.1730 we are in a USD range for forex more broadly. The EM crisis hasn’t ended. And the Fed meeting this month could really change things. But there are two sides to any cross.

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.


Looking ahead the Westpac Consumer Sentiment data today will be important. Where yesterday’s NAB business survey showed a dip in confidence but resilient underpinnings consumer confidence could print poorly given all the headwinds. We’ll see. Otherwise it’s a fairly quiet 24 hours of data. The EIA inventory data tonight is going to be important – especially after the massive draw (8.6 million barrels) just announced for API. We also have PPI in the US, mortgage applications and speeches from the Fed’s Bullard and Brainard. Before that the Euro Area has industrial production.

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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