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
Only 6 of 26 forecasters polled by Reuters thought the Bank of Canada would raise rates last night. Judging by the reaction of forex markets and the move in USD/CAD none of the millions of forex traders out there thought the bank would move.
It seems that might also be true of Republicans on Capitol Hill who seem to have been blindsided by President Trump's hands across the aisle deal with Democrats on a temporary increase in the debt ceiling. It has engaged many on his side of politics but it has also taken a big risk factor for markets and the US dollar off the table for September.
Maybe the ECB tonight will be dovish and give the US dollar the chance it's been lacking to start to gain traction and firm once more.
We'll see in the morning.
But for now the US dollar has recovered from last night's lows against the euro, sterling, and Canadian dollar while at the same time making gains against the yen and Swissie as safe haven trades fade a little as the world readies to negotiate with North Korea. The Aussie is hanging tough at 80 cents and the kiwi is back below the neck line of the Head and Shoulders some see in NZD/USD.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
As highlighted above the US dollar is largely unchanged day on day with the US Dollar Index sitting at 92.28, not far above the important 91.55 support I highlighted yesterday and long term chart from that note I offer again for context.
That the US is unchanged in US dollar index terms and also largely against the euro belies the early weakness which saw EUR/USD hit a high of 1.1949 – a zone which looks important on the short term charts. It’s back at 1.1924 now off a low of 1.1902 as traders await the ECB meeting and just what Mario Draghi and his colleagues might say about the impact of the euro’s strength on the economy, on inflation, and on ECB policy.
It will be an interesting announcement tonight at 11.45pm AEST. Support is 1.1900 and then 1.1865/70. Resistance 1.1980. Only a break of 1.1660/80 or trade above 1.2070 would change the outlook form one of consolidation right now however.
In other currencies, the reduction in risk aversion has seen the yen and Swissie a little weaker. USD/JPY is up around 0.4% to 109.20 as traders again respect the bottom of this years trading range.
Readers know the McKenna Mantra – I respect levels and trendlines unless, or until, they break – and it’s clear so do many. Clearly a break would be horrific for the US dollar bulls. But it has to break first.
For the moment I'm focussed on a move to 109.60/80 and then 110.70/90.
The Swissie is doing a little better with USD/CHF just 0.2% higher at 0.9567. In the UK Sterling reversed off a high at 1.3080/85 and is back at 1.3043 this morning for a small 0.1% gain.
Last night's high was rejected at the 61.8% retracement of the recent down move and this remains significant overhead resistance. But a break would be a signal for a run toward 1.3250/60.
Short term charts suggest a move back toward 1.2990/1.3000 to test the break.
Of the commodity bloc the Canadian dollar swept all before it after the BoC caught most traders by surprise. You can see the impact clearly in the move on the USD/CAD 5 minute chart. The low around 1.2135 was close to important 50% Fibonacci support so we might see some consolidation above that level for a few days, or a while. USD/CAD sits at 1.2228 as I write down 1.1%.
The Aussie is back above 80 cents as risk aversion recedes and after dip buyers re-entered the fray last night. I've done my usual daily AUD/USD column you can read here.
Synopsis, growth is solid - both in Australia and across the globe - so a topside test is possible. But today's trade and retail sales will be important very short term.
The kiwi is down half a percent and back at 72 cents. Traders didn’t like that run to the mid 72 cent region yesterday and the kiwi is back below the neckline of this putative head and shoulders pattern.
Have a great day's trading.