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 USD was stronger against everything but the Yen overnight. Euro is back under 1.16 at 1.1584 for a loss of 0.64%, the Yen is at 111.64 roughly flat, and the Pound is down 0.82% after failing to break downtrend resistance and the BoE governor Carney signaled the most gradual of rate hiking cycles – around one per year. GBPUSD is at 1.3017, down 0.82%.
The Aussie and Kiwi are under pressure as well. The Euro fall has dragged both lower and AUDUSD is at 0.7363 for a loss of 0.55% while NZDUSD is down 0.74% to 0.6735. The CAD is only down 0.14% after oil bounced back from the previous night’s fall. USDCAD is at 1.3021.
Sterling collapsed after the BoE hiked rates last night.
That’s for two reasons I think. First GBPUSD had spent a number of days trying and failing to break the downtrend line it has been in for many week’s and secondly because Mark Carney intimated to the BBC that rates can probably rise once a year for a few years. So it was a dovish hike. Indeed I read the statement and Minutes to the meeting before I went to bed last night and thought it was probably as consistent with a hold meeting as a hike meeting, possibly more so.
The minutes said, “In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years”. Small margin, late 2019...and Brexit coming. Why bother. But if Carney’s intention with “gradual” rate hikes is the one a year he mentioned then whether rates are 0.5% or the new 0.75% hardly matters. Or if it does the UK economy is much more precariously placed than any of us think.
Anyway, 1.2957 is the recent low of a couple of weeks back. If that breaks GBP is a shot duck – target 1.2800/10. It has to break first though.
More broadly the USD strength seemed to come out of nowhere other than as a result of the recent inability of the Euro, and others, to break resistance.
Whether it was the Euro’s wedge within the range, the Aussie below 0.7450, the Kiwi below 0.6850, the Pound’s trendline above, and of course the further collapse in EM currencies including the Yuan, the USD move was a reaction to the weight on all these other pairs rather than USD buying outright – the sum of the parts and all that.
As we head toward non-farms tonight then it’s worth noting that while EM currencies like the Turkish Lira are getting battered further in DXY and Euro terms the range is still holding. If that changes with a big print then we’ll know the next leg of the USD move has begun. If we are looking at Euro 1.1720 and DXY at 94.70 this time tomorrow morning then we’ll know there is still wood to chop in this consolidation.
And on non-farms, here’s a little tweet worth looking at:
On the day here in Australia we get the very important retail sales reports. The market is expecting 0.3% for the month of June and 0.8% in quarterly terms. It’s a big one in terms of where the economy is right now and could move the market.
Offshore its services/non-manufacturing PMI day. The Caixin print in China will be worth a look as will Japan, Asia, and of course everywhere else. Services need to hold up to balance out the dip we are seeing in manufacturing at the moment. But nothing really matters other than the release of July’s US non-farm payrolls. Economists are forecasting 190,000 jobs, 3.9% unemployment, and earnings to rise 0.3%.
Have a great day's trading.
Chief Market Strategist
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US equities continue to welcome any high-risk event being put in the rear-view mirror – especially when rates markets look prime to consolidate lower