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
A quiet night for the US dollar, yen, and euro but comments from Andrew Haldane at the Bank of England contrasting and contradicting Mark Carney's dovish outlook the previous day caught the pound shorts on the hop.
Likewise the lack of overt action or words from the RBNZ in holding rates at 1.75% this morning ignited a mini-rally in the kiwi but it again ran into resistance. The Canadian dollar was the other big mover losing ground as oil collapsed.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Central banks are where it’s at this month and Andrew Haldane’s hawkish tone overnight certainly helped the pound which ran up to a high of 1.2709. It’s back at 1.2670 as I write. The low was just 10 points above the 50% retracement level of the recent up move. Many traders would have been wiped by this move.
But GBP/USD could stabilise a little around these levels while we all wait and see how UK data flows in the next few weeks.
Key to the move higher in GBP/USD, and on the crosses, was the rather hawkish tone struck by Haldane, BoE chief economist and MPC member. Coming just a day after BoE governor Mark Carney's dovish tone traders were caught on the hop.
“Provided the data is still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year…The first 25 basis-point rise in UK interest rates for 10 years seems like a momentous step. But it would still leave monetary policy highly accommodative by any historical metric,” Haldane said.
Central banks have been key this month for bond and forex markets. And Haldane’s comments suggest the BoE MPC remains divided.
That bounce in sterling seemed to usher in a period of mild US dollar weakness with the US Dollar Index down about 0.2% at 97.56 this morning. That’s still inside that resistance zone I’ve highlighted.
It was an inside day and there was virtually no real other material catalyst to trade other than Haldane’s comments. So I won’t over egg it. But the DXY does need to take out yesterday’s high at 97.87 to kick higher.
The RBNZ announced its decision at 7am this morning.The bank left rates at 1.75%. There was a risk of a dovish hold, if I can call it that, given the NZ dollar is so strong and governor Wheeler did say he's like the Kiwi lower. But there was nothing explicit in the statement - so NZ dollar rallied up toward 0.7270/80 resistance. It's at 0.7254 now.
Governor Wheeler made it fairly clear he'd like the kiwi lower saying in his statement that "A lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector".
I also thought that his last two sentence of the statement was aimed at forex markets as well. I've been talking about policy divergence often in June and he tried to make it clear that RBNZ policy is and will remain fairly loose.
"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly" he said.
Also on the central bank front BoJ governor Kuroda yesterday reinforced the message that he and the bank see continued need for monetary accommodation. “Our economy is on firmer footing, but we are still distant from our 2 percent inflation target," He said adding “"It is appropriate to keep monetary conditions easy with our current market operations framework.”
USD/JPY is down a little on the US dollar’s dip and is at 111.29 but Kuroda's comments reinforce the policy divergence between the two central banks. In a broader sense it also means more money is going to continue to be pumped into the global economy under the BoJ’s QE program.
111.00/80 - 111.80 is the current mini range on the 4-hour charts. A break will inform the next directional move.
A lower US dollar helped the euro lift 0.26% back to 1.1164. It's back above the old trend line. But I see this as less interesting than the fact prices held above the 1.1100/10 region is more important. And encoraging for the bulls.
My system is still short though.
The Aussie is down 0.4% to 0.7545 this morning. That’s almost right on the overnight low of 0.7543. It's under pressure at the moment as I've outlined in my Australian Dollar column this morning. What I'm wondering is, are international investors abandoning Australia like they did in the late 1990's?
And speaking of pressure, the oil price collapse is hurting the Canadian dollar. USD/CAD is up 0.50% to 1.3328 after briefly breaking the 200-day moving average overnight. That level – 1.3338/48 – is now going to be an important level traders watch.
Have a great day's trading.
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