US Dollar Not Benefiting From Safe Haven Flows

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

Forex traders reacted aggressively to the uptick in rhetoric from both President Trump and North Korea yesterday by buying the Swiss franc and Japanese yen, while selling the won, Aussie, kiwi, Canadian dollar, euro and other currencies.

But save for the franc and won most currencies recovered a big part of that move yesterday as US Secretary of State Rex Tillerson walked back the rhetoric and the red line while explaining President Trump's "fire and fury" comment.

So far this morning traders have kept this morn sanguine outlook even though North Korea has doubled down on its belligerence with state media saying North Korea will fire rockets across Japan which will "fly 3,356.7 km (2,085.8 miles) for 1,065 seconds and hit the waters 30 to 40 km away from Guam". This by mid-August.

So the situation remains fluid even if we have no big moves in the wake of this news in early Asian trade.

Euro is around 1.1760, the pound is clinging to 1.30, the yen is around 110, the Aussie is back at 0.7890, the Canadian dollar is around 1.27, the kiwi is a little higher after a sell the rumour, buy fact RBNZ meeting. And of course the Swissie is at 0.9636 and the won is at 1138

HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS

As noted above it was all about the safe havens and risk currencies over the past 24 hours.

The Swiss franc is 1.11% stronger with USD/CHF at 0.9636. We saw the big move lower I noted yesterday with the break of that little uptrend/wedge formation USD/CHF had been mapping out.

The Swiss franc remains - with gold and maybe German bonds - the best safe havens for traders and investors to find a harbour in any potential storm that North Korean misstep may cause.

So while this environment persists the Swissie is likely to remain bid. But that doesn't mean technicals are not still useful. Last night's low was just above the 50% retracement of the rally in USD/CHF which comes in at 0.9605. If that level breaks 0.9565 comes into play. And if that breaks we know something is going wrong so all bets are probably off.

Chart

The other forex safe haven - the Japanese yen- did well initially. But as I have written often about this particular potential conflagration it is the proximity of Japan to North Korea which saw USD/JPY recover a little from its low and materially underperform the Swissie with only a 0.3% gain. USD/JPY sits at 109.94.

The daily chart suggests a move back toward the range bottom remains a reasonable probability however.

Chart

The euro came under pressure before recovering after it found support at an important Fibonacci level. The low was right on the 38.2% of the latest up move - at 1.1680/82 - for EUR/USD which in many ways means the easy fall is now complete.

But a move toward 1.1600/10 seems to still be a chance based on the current setup.

Chart

Looking at the commodity bloc we saw some initial selling for the three pairs with the Aussie getting hammered almost from the moment US stock futures opened yesterday. It's stabilised now and I've outlined my view of the current outlook and set up in my usual AUD/USD column earlier this morning\.

The kiwi is higher after the RBNZ meeting was dovish but not more so than traders had expected. Before the announcement at 7am Sydney time this morning the kiwi was largely unchanged, having fought back from a low yesterday of 0.7307.

It is up about 0.2% at 0.7352 and off the post-7 am high of 0.7367. While below 0.7400/05 - the old trend line - NZD/USD retains a downside bias.

Chart

The Canadian dollar has lost a little more ground even as oil markets rallied a touch and housing data gave a positive surprise. USD/CAD is now sitting at 1.2694. It hit my slow moving average last night so the position has been scaled down to 25% of the original and we'll see if USD/CAD wants to rally any further from here - or how far based on the current setup.

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What’s clear from the price action of the past 24 hours in forex is that with president Trump at the helm the US dollar doesn’t necessarily benefit from safe haven flows in the manner it might in the past. The Swiss franc and gold are likely the best representations of trader and investors fears. What's also clear is the US needs fresh data points or comments pointing in the direction of the Fed's interest rate path to help it out as well.

Have a great day's trading.