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 Euro is lower by 0.3% as it– like many pairs – reverses off recent range tops. It’s at 1.1663 this morning as we wait now for non-farms on Friday. The Yen gained 0.2% as stocks and risk appetite goes a little off and the Yen catches the tiniest of bids – it’s at 111.62. GBPUSD is unchanged as we await the BoE and it’s expected rate hike tonight – it’s at 1.3125.
The Aussie dollar is lower and reversed yesterday’s outperformance with a 0.25% loss overnight to 0.7406. No big deal, still ratcheting in this range. Trade data today will be important. The Kiwi lost about the same amount and is at 0.6796 while the Canadian dollar did better even with the big collapse in oil – USDCAD is at 1.2997, down 0.09%.
Bond rates at the back end of the curve are rising in the wake of the BoJ's moves this week.
That's something to watch even though it's ridiculous that a few points here and there on bonds can change a trader or investors perception about the relative merits of a currency.
Why exactly would you switch from the US at 3% for a 10 year into a German rate of half a percent or a 10 year JGB at the lofty level of 0.128%? You wouldn’t. But folks do. So forex traders need to watch this space, the moves in bonds, as potential drivers of forex rates.
At present they are only marginally important. But a big part of that is because the Fed made clear in its statement last night that it sees the US economy as strong and that, as a result, it is clearly on track for more rate hikes. So US rates are rising with global rates at he moment.
But given the heavy weight of US dollar longs in forex land right now we are only one weaker than expected NFP away from the USD reversal the dollar bulls are waiting for to get long once more. My bet would be it's another strong number this Friday however.
I’m a dollar bull, so I see things through that lens.
But I am a pragmatic trader who recognises we have some pretty solidly entrenched ranges that currency pairs are trading through right now. Ranges that traders have lacked the power to sustainably break and ranges that should be respected.
And, as I said in the Aussie dollar piece in Australia today, these are exactly the types of coiled markets we see before a big move higher. But the range has to break. If it does we could see some powerful moves.
Take the Kiwi for example. 0.6850 has been the wall that first the bears couldn’t breach and now the bulls can’t best. It’s been the critical level for NZDUSD since April. And it remains so still. I thought we might get another pop at it in the past few days, but after last week’s failure the bulls were wary.
The other thing about these types of ranges, worth noting here for the Kiwi and for asset markets in general, is that there are two types of consolidation – price and time. Price is your 38.2% retracement before the move reasserts itself while time is an extended period of range trading before the move recommences (these are stylised examples obviously as there are many nuances). So for the Kiwi, as well as the AUD, EUR, GBP and others, if the USD does not reverse a break of the other side of the ranges would really get things moving.
I'll talk about Sterling and the BoE in my Daily Video this morning.
On the day we get trade in Australia with the market expecting a $900 million surplus.
Euro area PPI is out tonight but everything pales into insignificance when compared to the BoE meeting decision. The market expects rates to be lifted 0.25% to 0.75%. But there will be much poring over the statement, minutes, and Mark Carney’s press conference.
US factory orders and ISM manufacturing will be interesting later in the night.
Have a great day's trading.
Chief Market Strategist
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support