Forex Today - USD a little weaker after Brexit and NAFTA chatter

Market Analysis /
Greg McKenna / 30 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

GBP was the big mover against the USD and then on the crosses after news the UK and Europe are getting closer to what the EU's Michel Barnier called "a partnership such as there has never been with any other third country". After that the Pound surged 1.15% in GBPUSD terms to 1.3022 and 1% in EURGBP terms which fell to 0.8989 after that pair went vertical then broke the support I highlighted in Forex Today yesterday

That GBP move has also resonated in a weaker USD against many pairs (even though US Q@ GDP was upgraded to 4.2%) which came off their overnight lows – the USD was stronger earlier – at the time the Pound started to rock and roll. As a result, the Euro is at 1.1705 off a low of 1.1653 for a 0.12% gain. USDJPY is up 0.43% at 111.66 as risk appetite rises and the need for a safe haven evaporates.

Of the commodity bloc the Aussie is again the laggard with a 0.3% loss to sit at 0.7313 this morning after a low in the mid 0.7270’s last night. You have to think the Westpac rate hike has folks worried about the domestic economy. The Kiwi is up 0.1% to 0.6712 while the CAD is at 1.2909 in USDCAD for a 0.15% gain against the Greenback.

EM markets are still under some pressure. Argentina asked the IMF for an early release of cash and the USDTRY rate is now up 6.43 after the Turkish finance minister said nothing to see here move along please and Moody's suggested that may not be the case. 

BIGGER PICTURE

So what’s next for the Greenback in this environment?

The Pound has benefitted from the Brexit chatter, the MXN and CAD from NAFTA chatter, and as result of these moves the USD is a little bit weaker. But as I’ve highlighted in the main body all these things are positive for global and US growth. For the USD though the issue is whether folks decide that means we go back toward the synchronised growth that hurt the USD of late last year early this year or whether traders and investors believe that the USD and the US economy is still the place to be.

I’ll be interested in the BAML big fund manager survey shows next month. My guess would be investors will still be cautious because China remains unresolved – almost intractably so I think. And given the market seems to want to read the Fed as dovish, ignore decent data like last night’s US GDP, and wile the US CESI is in negative territory the USD is still likely to be on the back foot.

It feels like a USD range trade might be setting up till things become a little clearer. Of course GBP might continue to surge if the UK does genuinely get a decent deal out of the EU and if NAFTA does get sorted the MXN and CAD should benefit. Other pairs will get dragged along for the ride. So there is no guaranteed the recent lows in DXY and highs in EURUSD are the limits of the range. Time will tell. Here’s daily Euro. Respect, but watch, that trendline.

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

EURGBP decisively reversed its vertical move overnight. As I highlighted yesterday \, because of the vertical nature of the recent move I was “on watch for a reversal”. And in my video yesterday morning I suggested 0.9072 was the level. I must say though I didn’t expect the collapse to 0.8985 so swiftly though. But such is the nature of vertical moves when they give way – as you can see in the chart below. Support is 0.8973, then 40/45 and if that breaks it’s 0.8895.

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:

On the data front today the release of CapEx for the second quarter is a big deal for the Aussie as it will be an important input in the soon to be released GDP for the quarter. Building approvals is also out as is retail sales in Japan and Kiwi business confidence and building permits. Tonight its German import prices, unemployment, and inflation  while credit and mortgage lending data is out in the UK. Euro area business and consumer confidence are out as is Canadian Q2 GDP. And then we get PCE prices, income and spending data out of the US.

That’s plenty to get our teeth into

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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