Forex Today - Short term players drive the bus as the USD rally stalls

Market Analysis /
Greg McKenna / 11 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

EU negotiator Barnier continues to add volatility to Sterling and the Euro with his back and forth comments on the outlook for a deal. Last night he was (apparently) positive which gave both currencies a lift against the USD and crosses.  GBPUSD is up 0.83% to 1.3028 while Euro is at 1.1595 for a gain of 0.4%. USDJPY is higher at 111.17.

On the commodity bloc the US was stronger. The Aussie dollar has underperformed the Euro and copper over recent days and sits at 0.7112 for a gain of 0.1%. Obviously the Aussie has been hosed against the Pound and Euro which have made fresh 2 and 9 year closing highs respectively overnight. The Kiwi lost 0.2% to 0.6522 while the CAD is barely changed at 1.3161.

BIGGER PICTURE

It’s fair to say that the past 24 hours of forex trade were dominated by short-term players. Euro – among others – was belted to the days lows as early European traders entered the fray and saw the downside as the path of least resistance.

In many ways it was just the situation normal we see in Asian afternoons where European traders do a little probing for bids (or offers depending on the recent trend and movements) before a reversal. In some ways it often feels like a stop run. But it’s a natural move for traders looking to see where the buyers and sellers really are.  

The result of the Euro stop run, if I can call it that, was that Euro traded down to a low around 1.1525/26 to make a marginal new low for this run. That was a few points below the 1.1529 level I identified as a critical level the Euro must hold to avoid a cascade toward 1.1465. I didn’t sell that break – nor would I usually – given the circumstances of when and how it happened. I entreat you to do yourself a favour and watch the reversals we often see after European traders enter the fray. It’s not universal, but it’s often enough that every Euro morning has a little bit of Asia Monday’s in them.  

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

For the moment the Euro’s downtrend continues as you can see in this 4-hour chart. I’d need to see the channel break and 1.1650/60 break to open up the outlook back toward 1.1730/50 once again.

If you read what I wrote about Reuters reports traders have the wrong end of the stick on Barnier’s Brexit comments, (see Markets Morning for more detail) then the GBPUSD rally is one to fade. Cautiously fade I’d say because as the moves we’ve seen in recent days and week’s show there is a lot of comment and headline volatility in the Pound right now. That said though, what the chart shows is the emergence of a clear uptrend in GBPUSD at the moment – but it’s nearing the top of the that range – I’m watching for a break back below 1.3000.

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

 

The key to everything here is that neither the USD Index or Euro have broken their recent range high or low respectively. So for the moment we are mapping out a range.

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

DATA:

Looking at the day ahead the NAB business survey is the highlight for me because it will help give a steer as to whether worries about households are likely to impact growth materially. Tonight it’s UK unemployment, EU employment and ZEW economic sentiment survey while Germany has its version of the survey out as well. In the US it’s JOLTS and wholesale inventories.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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