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 US dollar's recovery continued overnight as more banks issued notes saying the euro is a stretch up here and the data flow across the two regions continues to move in favour of the dollar. Of course, the escalation in tensions between North Korea and the US hasn’t helped the situation if traders and investors are of a mind that recent moves leave many pairs stretched.
And given the pessimistic crescendo we saw in US dollar sentiment and selling last week even a mild recovery – which is all we’ve seen so far – was expected. The question remains how far the US dollar’s move goes. And that, as I have been writing for a while now, depends on the data flow. And that dear readers, is helping the US dollar right now.
Political tensions are also helping the yen, as counter-intuitive as that may seem, given its place as the forex safe haven of choice. Swissie may benefit too, should benefit more, if things escalate further. Which they might now that sources citing state media are saying the DPRK is considering striking the US territory – and base – of Guam.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
I’ll repeat what I wrote about the data flow in the Morning Market Wrap today because everything is getting published in such a small window of time due to my CMS issues this morning – I was locked out.
It's happening. The data flow is starting to turn back in favour of the US as I been suggesting it might for a little while now. Last nights JOLTS survey showed job openings hit a record in the US last month as business struggles to find the workers it needs. This is Janet Yellen’s favoured labour market indicator and it reinforces - or will to Yellen and her colleagues - that labour market tightened continues and the path they have set for policy normalisation through balance sheet tapering and interest rate hikes is the right one.
As a result, the Citibank Economic Surprise Index for the US surged 8 points last night to -31.4 after the data. A level not seen since May when the US Dollar Index was above 96, not the 93 odd it is at now.
Across the Atlantic, and after weaker Chinese trade yesterday, German trade missed by a mile with both imports and exports falling heavily. Taken on top of the surprise fall in German industrial production it's a clear sign that - like the Fed - Mario Draghi's articulated course of action - and his caution about changing policy settings - at the ECB is the right one. The Citibank Economic Surprise index for the EU dipped to 10.6. Recall humans don’t feel levels, we feel changes. That’s why the movement in these indexes matters for the US dollar right now.
The Citibank Economic Surprise index for the EU dipped to 10.6. Recall humans don’t feel levels, we feel changes. That’s why the movement in these indexes matters for the US dollar right now.
Which brings me to the EUR/USD chart.
My system was triggered short yesterday on the break below the previous days low at 1.1768 as I highlighted in my column yesterday. We’ll see how it goes. But the rounding pattern in the price action, the falling MACD forest and the collapse in the Stochastic indicator all point to further falls 1.1720 down to 1.1680 looks like a very important support zone.
Naturally, in the current environment, the yen has to be the next currency pair to look at today.
The yen has hung tough because of North Korea (I know it's counter intuitive given the risk but it is the forex safe haven of choice) and comments yesterday from former deputy governor of the BoJ that the bank should exit stimulus. Yeah right, sure thing. Anyway USD/JPY is down 0.3% at 110.40.
So, USD/JPY is down 0.6% at 110.10 and looking very much like it's headed toward the bottom of the range we've been watching. 109.80 is the key.
And the other safe have, the Swiss franc, might be due for a run higher as well after USD/CHF touched the 50% retracement level of the fall between May and July this year over night.
A break below 0.9708 would signal a move was afoot.
Elsewhere the Australian dollar is holding up at 79 cents for the moment as I've outlined in my AUD/USD column this morning.
The Canadian dollar is hanging tough at 1.2664 this morning, hardly moved from this time yesterday. It couldn't get up, and certainly not through my slow moving average (where I reduce exposure and my system turns from exhaustion to trend following) and although the outlook remains positive for USD/CAD we may see some consolidation here below 1.2710/20 before the next leg of the rally kicks off.
The kiwi is lower as traders worry about tomorrow's potentially dovish RBNZ meeting, announcement and press conference. It's at 0.7330 under pressure for the third day in a row and biased lower after the recent break of a substantial, and significant, uptrend line.
0.7276 is the 38.2% retracement of that uptrend.
GBP/USD is lower again this morning. 1.2927 is the next support and then the uptrend line and then 1.2848.
Have a great day's trading.