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 market doesn't like the US dollar at the moment as we saw again last night with selling against the euro and across the board.
It's left the US Dollar Index at 91.66, driven euro back above 1.20 and pushed USD/JPY back to the bottom of the 2017 range just 20 points above this year's low. These are big levels and represent the stepping off points to a further large depreciation of the US dollar, which could see a further big unwind of the gains it made in 2014.
Where the catalyst, the circuit breaker, for a turn in the dollar will come from at present is hard to know. It's showing all the characteristics of a falling knife.
And who wants to catch one of those?
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
There is no denying that the ECB must end its QE bond buying program. The conservatives on the ECB governing council want it ended and everyone - including my 12-year-old daughter - knows that the time for this emergency measure has passed.
EU Q2 GDP printed 0.6% taking the yearly rate to 2.3% for heaven's sake.
All of which puts ECB president Mario Draghi in the uncomfortable position of having presided over an EU recovery which is now entrenched and broad based, but which comes without the inflation that he hoped for and the ECB mandate requires he focus on.
The wrinkle for Draghi is that the markets, Euro traders, are focussed on growth and the end to QE not on his repeated entreaties that rates - like they were in the US after the end of QE - would be at ultra low levels for an extended period.
Indeed Draghi said so last night "we expect them to remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases."
But the market is focussed on the end to QE and the strength of the economy as a bull point for euro. So even though Draghi said the recent euro surge requires close monitoring traders took that as featherweight jawboning and bought EUR/USD regardless.
So the single currency is at 1.2020 up around 0.9% from 7am AEST yesterday.
In my overnight wrap I share the long term chart of the euro which shows how important a break of 1.21 could be for the outlook for it - and the US dollar.
Closer to hand the EUR/USD remains in a strong uptrend with resistance at the recent high around 1.2069. A break would suggest a Fibonacci extension target of 1.2220. Trendline support is 1.19 and the outside parameters of the uptrend are1.2195 and 1.1810/20.
USD/JPY is perilously close to a break after the US dollar weakness. Last night's low of 108.04 was a new low for the year but I'm not calling it a break unless it trades down and through 108.
In this environment it hardly matters what Q2 GDP prints like today. Unless of course its stronger than expected. In which case it might provide the push to knock USD/JPY out and down through the bottom of the 2017 range.
If that happens then 105.17 becomes my target.
GBP/USD is up through the 1.3080 resistance I talked about earlier this week. It's next target is a full retracement of the down move which suggests 1.3260/80.
And of course the Canadian dollar is in many respects out in front as traders continue to push USD/CAD to multiyear lows. In many respects, it's remarkable that the BoC's two interest rate hikes have had such an outsized impact on the value of the Canadian dollar.
But then again while the economic surprise index for the US has been languishing in negative territory Canada's is at 90.3 this morning off a recent high above 100. In those circumstances, traders - like the Bank of Canada - have no real option except react to the stronger than expected data.
So this moroning we have USD/CAD at 1.2110. That's down and through the 50% Fibo level of the 2012-2016 rally in USD/CAD. The 1.1870/1920 region looks like the next level of support. The former is a Fibo extension on the break of the August consolidation while the latter is a level the USD/CAD pullback to during the rally.
I've done my usual AUD/USD piece which you can read here. The synopsis is a break above 0.8065 suggests a move into the 83 cent region. But we have short rem overhead resistance and some important data today.
The kiwi is back testing the putative neckline this morning at 0.7243. It needs to break 0.7265 to really kick on.
Have a great day's trading.