Originally published by AxiTrader
Welcome to the Forex Today column.
In it, I'll be trying to add a bit more colour and a lot more charts than I do in my broader overnight Market Wrap I do first thing every morning to set myself and my trading up for each day and each week.
RECAP
The pound was the big mover Friday as it rally continued in the wake of comments from erstwhile BoE dove Gertjan Vlieghe that he had moved from thinking rates should stay on hold to a view that the time to raise them was at hand.
That, and weak data from the US hammered the dollar and USD/GBP ran to a high around 1.3616 - the highest level since Brexit day back in June 2016. That helped euro run up to 1.1985. The Aussie did well around the same time running to around 0.8035, USD/CAD dipped to 1.2119/20 while the kiwi peaked around 0.7310.
Those gains have all reversed a little since the highs with the euro at 1.1945, the pound at 1.3584, Aussie at 0.7998, Canadian dollar at 1.2185 and the the kiwi at 0.7294.
And of course, it seems forex traders are betting the chances of military action on the Korean peninsula are low. Or at least that's the conclusion I draw by looking at the price action of USD/JPY up here above 111 and USD/CHF at 96 - even though it ran above 97 on Thursday.
Comments from UN ambassador Nikki Haley and NSA Gen. HR McMaster suggest the US is tiring of the rhetorical approach. Which is something to watch given it could precipitate another North Korean Missile launch.
Something to watch on a week where we have the FOMC meeting in the US, BoJ in Japan, Mark Carney speaking tonight, and three RBA events - among other things.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Central bank hawks were in the ascendancy Friday with comments from influential BoE and ECB voices.
In the UK MPC member Gertjan Vlieghe said “Until recently, I thought the appropriate response of monetary policy was to be patient, given modest growth and subdued underlying inflationary pressure. But the evolution of the data is increasingly suggesting that we are approaching the moment when Bank Rate may need to rise.”
And he added a timing element saying that (my bolding), “If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in bank rate might be as early as in the coming months”.
Sterling was already in the ascendancy against the US, euro and yen in the days leading up to Friday's revelation. So the news drove GBP/USD to the highest level since Brexit.
In chart terms, it is looking very overbought on thee dailies against the US dollar and some crosses. But it has become a question of time frames now as Friday's close wasn't just the highest since the Brexit day it also broke decisively through the downtrend line from that Brexit high around 1.50.
That combination of timeframes suggests GBP/USD could have a hiatus to the run but be well supported. Here's the weekly chart.
The euro also benefitted from hawkish talk. Although it underperformed the pound because the protagonist at the ECB -Sabine Lautenschläger - is a noted hawk whereas the BoE's Gertjan Vlieghe has formerly been very dovish.
That's not to say Lautenschläger didn't miss in her calls for the end to QE.
“The buoyant growth coupled with the monetary accommodation will take us back to an inflation rate which is in line with our goal. There's little doubt about that. Hence, it is time to take a decision now on scaling back our bond purchases at the beginning of next year” she said.
Who can disagree really?
Well, perhaps Mario Draghi and his chief economist Peter Praet. The latter said in a newspaper interview over the weekend that "substantial stimulus is still needed" and that any reduction to same "needs to take place in an orderly manner, without any excessive shocks". read higher euro.
But EU wages data released Friday showed 2% yoy gains - the highest in 2 years. So the argument is running in the Hawks favour.
Looking at the price action the euro remains in its overall uptrend since the first quarter this year. Short term support and resistance levels are 1.1835 and 1.1985/90.
USD/JPY has broken and heading toward resistance at the 200 day moving average. markets don't think there is anything to worry about with the North Korean issue right now so the US dollar is free to kick the yen's butt.
That's especially the case on a week when the fed is expected to announce the tapering of its balance sheet, the BoJ that it's still targeting 10 year JGB's at or around 0%, and when US rates are rising as traders refocus on the chances that President Trump might actually get some stimulus happening in the US.
Of course it's respect for the aged day today so Tokyo is out. But USD/JPY looks biased higher.
112.25 is the 200 day moving average and the level to watch on top with 110.30/35 support on the downside.
Of the commodity bloc I've written my daily AUD/USD piece which you can read here. 80 is the new black, but there are signs the Aussie might fall out of favour.
The kiwi is still stuck below this increasingly important resistance zone around 0.7335. A break - or another failure - is really important for the NZD/USD medium-term outlook and as such is the level to watch topside.
Support is 0.7165/70 and then the 200 day moving average at 0.7135.
USD/CAD is going nowhere right now. Traders have baked a lot into the Canadian dollar's strength cake argument but with the Fed taper on the horizon there is every chance we see USD/CAD break last week's high around 1.2240 and run toward 1.2400/20.