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.
After the Turkish Lira fell around 20% last week as the argument with the US over the release of a Pastor intensified and as the ECB becomes increasingly worried about EU exposures to Turkey, the Lira has opened up in early Asia was down another 10% earlier at 7.09 but it’s caught a bid now and has “only” lost 5.38% at 6.77 as more traders enter the fray.
It’s only early Asia and it is a Monday. So this could be a head fake and get washed away in the next 6, let alone 24 hours.
But, the trouble in Turkey and the risk of sentiment helped the USD break out and close above significant resistance in DXY terms and below the head and shoulders neckline in EURUSD terms Friday. Structurally that's more important than this morning's funk.
Anyway, this morning the DXY is at 96.19 while the Euro was down again – Turkish Lira impact – in early Asia trade at 1.1371. It's since recovered to 1.1400 now.
That US July CPI Friday printed 2.4% in core terms and 2.9% in headline terms (post financial crisis high) also helps the USD as it reinforces the Fed’s tightening cycle and the relative strength of the US economy.
Elsewhere on forex markets the Yen is a little stronger with all the market funkiness and is trading at 110.60 this morning. Naturally, that also means the Aussie dollar is lower but it's regained most of its losses and is at 0.7290, down 0.15%. Sterling is now flat at 1.2770 while the Kiwi is now in the black at 0.6588 up 0.15% while USDCAD is flat at 1.3138.
The market is getting longer of USD’s according to CFTC data released Friday. Or at least the big spec accounts I watch are getting longer as at last Tuesday. My guess would be that as at the close of business in New York Friday the market is even longer of Dollars and maybe even this very stocky Euro long might have reduced.
The context of this table and the fact that the USD is still gaining even when the market is long is the old adage rewritten. That is, I’d rewrite “the market can stay irrational longer than you can stay solvent” to “the market can get push further with longs [or shorts] than you think until it gets to an extreme and runs out of position limits”. I know the first one is more elegant. But the key here is position limits. We aren’t there yet – as you can see in the chart below.
The key here is that the USD move might be short term overdone by some technical measures. This whole Turkey mess may not lead to contagion in other markets and a big market funk. But the EURUSD move, the USD move more broadly. looks like the start of a very big break. One that aligns with both the technical and the fundamentals. The US economy, the Fed, and inflation are aligned in such a way as to drive the USD higher. Just look at this head and shoulders pattern in the Euro.
Looking ahead it is very quiet on the data calendar front. Chinese loan and money supply data is about it. All eyes are gong to be on Turkey and worries of contagion. For the moment that’s not happened to the extent we’ve seen in the past.
Have a great day's trading.
Chief Market Strategist
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