Forex Today - The market is still very long USD's but not against the Euro

Market Analysis /
Greg McKenna / 10 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

US non-farms were around expectations with a few tweaks here and there like revisions to previous month's data. But it was the 0.4% lift in hourly earnings which lifted the annual rate to 2.9% - a post GFC high - which got the USD moving. 

As a result, we had the US dollar move pretty much everyone thought was coming. The Euro, which had been strangely elevated in European trade at one point despite the data flow from the region, fell from around 1.1640/50 prior to the jobs data by about 1 cent and is at 1.1557 this morning. Sterling’s also lost about a cent from the highs and is at 1.2926 this morning while USDJPY is back at 110.91.

On the commodity bloc the Aussie had its weakest close in about two and a half years and is at 71.10 cents this morning for its second big weekly fall in a row. The Kiwi is down at 0.6530 and under pressure while USDCAD is at 1.3164 with hopes of a resolution to NAFTA seemingly the only thing between it and 1.33. Comments from US Agriculture Secretary Perdue on Canadian milk are worth noting in that regard.

Emerging market remain fragile. The market bullies are moving on from Argentina and Turkey for the moment targetting India and Indonesia it seems presently. 

BIGGER PICTURE

The USD is stronger this morning after Friday’s non-farm payrolls. But it seems clear to me – based on the price action that either the market is too heavily skewed with long dollar positions (see CFTC data below) or traders and investors are still focussed on a slowdown they expect to come to the US in 2019 or 2020 rather than what they see in front of them today.

Alternatively, what’s actually going on with the relative strength of the Euro, Yen, and Sterling relative to the Aussie, Kiwi, and many emerging market currencies is that the overall bet is on a global slowdown on the back of the trade war and that the US will get caught in that maelstrom at some point. That’s probably a decent bet, even if the US remains the standout for global growth globally – not counting Australia of course where the strength shown in Q2 GDP of 3.4% year on year  has already been discounted.  

Anyway, the price action is the ultimate arbiter of what folks are thinking and doing and where they are placing their bets. And to that end it is worth noting the USD Index (heavily EUR weighted obviously) is still only sitting at 95.33 this morning. That’s well below the recent 97 peak and is a warning that – for the moment – against the “senior majors” if I can call them that, the USD’s rally is stalling. It’s obviously very different elsewhere.

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

And talking of senior majors, the Euro is leaning on important support at 1.1529.  It’s the key level as last week’s low and with multiple supports there and down to 1.1516. A break opesn 1.1465 and perhaps a full retest back toward 1.13 support. 

And if we see a break in the Euro (or a hold alternatively) it will inform forex markets and the moves, more broadly. 

Looking at CFTC positioning is interesting. There will have been a few Euro longs who had their backsides handed to them late last week (recall the CFTC data released Friday is as at cob Tuesday). And while I clearly have a few issues with the arrows and my conditional formatting the message I take away from the Euro move, the GBP move as well, is that traders might be long USD’s and short most other things overall the stall in momentum of the positioning shift tells us the market is not yet ready to buy USD’s with abandon.

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:

Looking at the day ahead we are still waiting on President Trump’s next tranche of tariffs, while we get NZ manufacturing data, Japanese Q2 GDP (final), Chinese inflation and vehicle sales along with a speech - at 1.05 pm AEST - from Michele Bullock, RBA Assistant Governor (Financial System) on “ The Evolution of Household Sector Risks”. That might be worth a read folks given the outlook and falling house prices. Tonight it’s UK Q2 GDP, industrial production, and manufacturing data in an otherwise quiet evening of releases.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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