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 reversal didn't kick on yesterday the way I thought it might. Indeed watching the rprice action yesterday, and a little Euro trendline on the 4 hours it became obvious it was unlikely to.
So this morning the USD selling has abated (despite weaker than expected existing home sales which fell 0.6% in June) and the dollar index is up 0.2% to 94.66, Euro has lost the same amount and is back below 1.17 at 1.1691. USDJPY which reacted so harshly to the BoJ rumours yesterday is at 111.37, roughly flat but well off the low of 110.75. Sterling is down 0.2% at 1.3102.
On the commodity bloc the Aussie dollar has done worse after being unable to break up and through last week high in the low 0.7440’s. AUDUSD made a higher around 0.7437, but it’s back at 0.7380 this morning for a loss of 0.5% as it’s caught between the Euro and the Yuan which hit 6.80 in USDCNY terms. The Kiwi is 0.35% lower at 0.6782 while the CAD lost just 0.12% with USDCAD at 1.3165.
Japanese markets went into a bit of a funk yesterday as rumours swirled that the BoJ is on the cusp of a policy change. 10 year rates climbed off 0% to lofty levels near 0.1% but the bank, under its QQE program, offered to buy unlimited amounts to keep a lid on the rate rise.
USDJPY caught a downdraft as a result as well. It’s hardly unprecedented. But I highlight it here because if a move like this from essentially no positive yield to very very little positive yield can drive USDJPY down 50 points from Friday’s close and then reverberate through other global bond markets then it’s another example that policy rates and expectations of same matter.
Something forex traders need to keep an eye on.
And to that end, the outlook for the US economy is going to remain a key driver of forex rates because it will speak to policy and economic divergence. In a world of uncertainty, the US continues to stand out as the bastion of strength. expectations for a print of 4.2% Q2 GDP is a high hurdle though even if President Trump is said to be sprouting 4.8% to his mates. Please note I have no way to know but the journo who reported this first is a solid reporter.
Before that though we have to see what the ECB has to say about the outlook. And to that end it’s worth noting the Bundesbank report last night says the German economy showed improved momentum in the second quarter. That’s kind of strange given what Handesblatt report Jens Weidmann had told the German cabinet. At least until you read that there is a caveat to the reflection of improved growth. It’s relative to the first quarters awful 0.3% rate. The report said, “Although it is unlikely that the high growth rates of the past year will be repeated, manufacturing was once again the key economic driving force”. So just not terrible growth.
But that is important in the context of the current debate about forex levels because the lift in bond rates has also lifted the EU 2 year forward 2 year rate which suggests maybe the Euro might find some support. It’s one of those indicators which is part of the tool kit not the whole toolkit as the chart shows. But in the week the ECB could reiterate the end to QE this may be important before the Q2 GDP Friday.
Chart of the day today is the weekly USDJPY. It’s an interesting chart which shows a break of the 3 year trendline, a move back below it this week but a bounce off the lows. Momentum indicators are telling me anything much. But I highlight this chart as an important overall directional indicator for the USD. This week is a big one for this cross.
Oh, and chart, chart of the day. Here's the 4 hour Euro with that little trendline I mentioned in the summary.
On the day today it’s “flash” PMI day with releases in Japan, across Europe and the US giving a window into the “official” figure which will be released early next month. Other than that it’s the Richmond Fed index in the US as the other semi-interesting datapoint.
Have a great day's trading.
Chief Market Strategist
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies