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.
President Trump’s comments on the Fed and the currencies continued to reverberate through G10 forex markets last night as traders again focus on the battle that is likely to be fought as the fed continues to raise rates over the coming year.
That's something Dallas Fed president Robert Kaplan said expressly last night when he noted the Fed has 3 or 4 more hikes to get back to Neutral.
So this morning the USD index is down 0.66% at 92.26 while the Euro, fresh from a stop run through 1.15 in our timezone yesterday fell back below that level before a surge saw it trade to a high of 1.1600. It’s back at 1.1569 now – up 0.8%. USDJPY is at 110.40 for a 0.3% gain. It seems to be lagging because risk appetite is ebullient.
In many ways, the most remarkable performance is of the Pound which rose 0.8%, in step with the Euro. But what’s remarkable about that is there are more and more signs a hard Brexit is coming. The EU negotiator Barnier essentially said if the UK wants a deal they have to abide by EU rules – sounds like Brexit in name only and hard to get through the UK Parliament surely.
Of the commodity bloc the Kiwi made up for lost time with a 0.8% gain after trailing badly the previous day. It’s at 0.6691. The CAD is largely unchanged with USDCAD at 1.3036 while the Aussie dollar’s lock step move with the Euro has lost some of its tightness. In no small part that’s probably because yesterday’s leadership vote seems to have settled nothing for the rabble currently running the country. AUDUSD is still up 0.34% though at 0.7365 off a high of 0.7381 overnight.
Emerging market currencies continue their rolling crisis. I’ll say rolling rather than contagion because it doesn’t look or feel like that. The Brazilian real was in the firing line last night and has lost 1.73% against the USD with USDBRL at 4.0371. USDTRY is largely unchanged at 6.07, while the Greenback has lost one per cent against the South African rand and 0.6% against the Mexican peso. Of EM Asia it’s fairly quiet save for the Baht which gained 0.88% on the buck.
The US move in the past 48 hours has been quite strong driven by positioning and a real sense that President Trump is going to fight the Fed’s plans to raise rates. If you actually read what he said when he spoke to Reuters his position looks a little more nuanced. IT strikes me that he’s not exactly against what the Fed is doing. Rather it seems that he understands the Fed rate hikes are strengthening the USD which then gives the Chinese and Europeans a get out of jail – relatively – free card.
Here’s the two comments from Reuters strung together. I’ve highlighted the last sentence so you can get a sense of where I’m coming from.
“I’m not thrilled with his raising of interest rates, no. I’m not thrilled…We’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated,”
Am I making it up or does he actually get it? I think the latter, what say you?
Either way though it doesn’t matter because it does imply he’ll fight the Fed and the price action tells you that traders think that too.
That Robert Kaplan suggested the Fed will continue to chart its own course last night highlighting that the Fed has another 3-4 hikes before it hits neutral has been lost for the moment on forex markets. No doubt that’s because after such a strong run and a swift build-up of positions the USD was and remains vulnerable to a reversal.
The 4-hour charts and the dailies are in a little conflict though for the Euro right now. The 4 hours suggest the 1.1600 high last night requires a consolidation while the dailies suggest a run at the trendline now that the break donw level of 1.1500/10 has been bested. Reconciling both suggests a move toward 1.1500/20 before the next leg higher.
And just quickly. Here's the USDBRL chart breaking out.
I don't watch this closely, but the break out suggests USDBRL could run to 4.2988 as a 138.2% Fibo Projection.
On the day we get retail sales in New Zealand which might be interesting for Kiwi traders and then we the Westpac leading index and construction work done here in Australia along with a speech from Guy Debelle, RBA deputy-governor, on low inflation!!!! That’s at 1.10pm AEST. Retails sales are out in Canada and them its existing home sales in the US, EIA crude data, and then the FOMC minutes are released at 4am my time tomorrow morning
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