A Breather In The US Dollar's Rally But A Reversal Is No Certainty

Originally published by AxiTrader

QUICK SUMMARY

The PBOC fix and the news of the trade delegation yesterday see the US dollar a little weaker against the majors this morning. But against the Greenback it's also true the majors are off their highs.

Euro is at 1.1370 up 0.3% after a 1.1337-1.1409 range over the past 24 hours. The pound was similarly ebullient at one point with retail sales shooting the lights out. But GBP/USD is at 1,2711 up 0.1%. The yen is down by 0.15% with USD/JPY at 110.95.

Of the commodity bloc it's evenly matched between the Aussie and kiwi for best on ground over the past 24 hours. Both currencies are up about 0.3% from yesterday morning but both currencies are also off their highs of 0.7286 and 0.6608 respectively. AUD/USD is at 0.7262 while NZD/USD is at 0.6585. USD/CAD is at 1.3160, up 0.15%.

BIGGER PICTURE

The idiosyncratic strengths or weaknesses of the various data points that have been released over the past few days don’t seem to matter as much this week as they did last week or the week before.

That may be a nuanced observation to make but I think it is an important one because it speaks to what’s driving the US dollar and traders thinking. After some solid data saw the GBP/USD rally back above 1.28 earlier this week last night’s solid 0.7% print for retail sales in the UK couldn’t get the pound through the mid 1.2750’s before the sellers sat on it.

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It speaks to the growing sense of US dollar dominance in forex traders minds. Price action has that effect, falls beget falls not just because of momentum but because of the psychological impact of losing money every time you try to buy the dip. We are seeing that not just in sterling but in euro, Aussie and other pairs as well. And have done so for weeks.

The question I’m asking myself though is whether the turn I talked about yesterday – part of which we’ve seen in the past 24 hours – is just hope for better prices to sell or a genuine chance. It’s my experience over the years that when folks call for a reversal (me included) because they think a price has gone too far it’s often in the hope that the see that move so they can then fade it. The result is that the move never comes or is nowhere near as strong a reversal as traders, strategists, treasurers and the like hoped for. So they end up chasing the next move which then exacerbates that.

In US Dollar Index and EUR/USD terms the past two days have been indecisive. So I’m going to go with which ever side of the past 24 hour’s range for the euro breaks. That’s 1.1335 or 1.1406. Here’s the daily, you can see the setup for the bounce but it’s not confirmed yet.

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China doesn’t want capital flight. So my sense is they’ll fight this move in USD/CNY and USD/CNH toward 7. News overnight is that authorities are restricting liquidity to and the ability of banks in the special trading zones near Shanghai to sell yuan. Stability here would be important short term for the US dollar against the majors as well.

DATA:

And on the day RBA Governor Lowe spoke before the House of Representatives' Standing Committee on Economics this morning while Assistant Governor Luci Ellis speaks at the ANU tonight. Ofshore its Singapore trade, Reuters Japan Tankan, inflation in the EU and Canada, and then Michigan consumer confidence in the US.

Have a great day's trading.