Forex Today - The USD is on the cusp of a break higher

Market Analysis /
Greg McKenna / 10 Aug 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

It is almost here folks.

The day USD bulls have been waiting for, the break of the range and the move to higher levels. We aren’t there yet but at 95.60 the USD index has had a strong surge and is sitting right at the top of the recent range. A close above this level to end the week – maybe CPI will be the catalyst – will set the USD on its way. Probably toward 100, maybe above.

The corollary of the USD move in DXY terms is a big fall in Euro of 0.7% to 1.1532, a drop of 0.4% for the Pound, and a massive 1.9% fall for the New Zealand dollar as the combination of USD strength and overt dovishness from the RBNZ yesterday knocked the Kiwi down to 0.6615 this morning. The Aussie has lost 0.7% in sympathy with these moves and is at 0.7377 but the Yen and CAD have resisted losing just 0.1% and 0.15% respectively with USDJPY and USDCAD sitting at 111.06 and 1.3038.

That renewed USD strength, this renewed strength, will again roil markets. So, watch this space.

BIGGER PICTURE

And as noted above 

The USD is almost there. It’s at the top of the recent consolidation range with the best and strongest close since July 2017. This looks like a massive reverse head and shoulders folks. I’m targeting 102 longer term.

Source: Investing.com
Source: Investing.com

If you are a small open economy in the South Pacific, with little to worry about on the inflation front and some concerns about growth what’s an easy way to try to get things moving along? Issue a really dovish hold on interest rates and let the market collapse your exchange rate. That’s exactly what the RBNZ did yesterday and with a 2% fall this morning they have got the desired result with the Kiwi at 66 cents and change. Yesterday I wrote and then chatted in my video about 0.6425/30 as the target. But last Saturday what I wrote in my weekly up date – with reference to the monthly charts – is that a break of 0.6687  gives 0.6125! Anyway, here’s the weekly chart.

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

GBPUSD is lower this morning t 1.2828 but had a run back above 1.29 at one point last night after news broke that the EU is likely to offer Britain a deal. That it was a kind of locked in half way house the UK Parliament would reject only dawned after the short sharp rally. So, the bias remains lower and I’m still targeting 1.2800 as my FIbo projection and then a possible run at 1.2550/1.2600. Prominent hedge fund manager Crispin Odey says he’s still selling Sterling and it could hit 1.21. This simple weekly chart suggests if 1.2550 breaks we could easily see that level. Perhaps 1.1997.

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

And a Reuters poll says the chances of a “no-deal” Brexit are only 25% but would hurt Sterling.  Dr Pangloss anyone? A hard Brexit is still not priced folks. .

DATA:

On the day its CPI tonight in the US which is a monster number overhanging everything. The market is expecting 0.1% and 2.9% for headline and 0.2% and 2.3% for core. But before that we have plenty to get our teeth into. Japanese GDP for Q2 is out, the RBA releases its quarterly Statement on Monetary Policy, China releases loans data and money supply growth, and the UK has a raft of data out including Q2 GDP, manufacturing, inventory, and industrial production data. And of course Canada releases its jobs data.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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