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
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
I've written a lot about currency markets this morning with my usual Australian dollar piece and a deep dive into why the US dollar hasn't followed up on the Fed-induced rally as it backed off from its highs Friday.
But there is still much to talk about in forex markets this morning given that many pairs appear to have gravitated back toward a midpoint of the recent moves.
To recap on what sapped the US dollar's strength it is worth noting the University of Michigan consumer sentiment survey printed a preliminary 94.5 for June compared with consensus of 97.1 with a drop in current conditions as well. Housing starts in the US were also out and fell to an 8-month low after starts dropped 5.5% in May. Building permits also dropped 4.9%. The stall in housing activity reflects a slowdown in growth and it threatens the Fed’s expectations that this recent weakness – now stretching for months btw – is only transitory.
Throw in the fact that not only did Minneapolis Fed president tell Reuters there are others around the FOMC who shares his concerns about the Fed's rate tightening cycle but Dallas Fed president Robert Kaplan outed himself as potentially one of those recalcitrant hikers.
Kaplan said the rate rise was a close run thing for him.
“In this job you make trade-off decisions; I think the fact that inflation of late has been more muted, for me, made me weigh those trade-offs much more carefully,” he said
So this morning the US Dollar Index is back at 97.14 after failing at overhead resistance on Friday.
So we have the euro back at 1.1202 this morning. That's after running down to a low of 1.1130/35 late last week. That level is roughly the top of the old uptrend channel. It’s still the case that this and the 1.1100/10 region appear to be solid support for now with 1.13 topside resistance.
The big win for Emmanuel Macron, and the change he is bringing to Europe - including Germany - is a positive for the economic outlook, share market returns and thus the euro.But, when you look at that chart you can really see the importance of this range for euro right now.
Sterling is really having an indecisive period right now. It's stuck near the top of the past week’s range after the Bank of England surprise everyone with a 5:3 split vot to leave rates on hold. But while GBP/USD tested up to 1.28 Friday the reality of the challenges the economy faces as Brexit negotiations begin has kept the bulls at bay for now.
The key levels to watch for GBP/USD at present are 1.2815/20 on the topside and 1.2630/35 on the bottom side.
USD/JPY had been higher Friday after the BoJ signalled even though the economy looks like it is picking up and it thinks inflation will pick up it is keeping its foot on the monetary accommodation pedal. I was taken by the bank's comment that amid these assertions “inflation expectations have remained in a weakening phase”.
That's the really interesting, and difficult task, central banks face ini the current environment. They need to be positive an upbeat about the outlook for the economy and inflation but the risks of a misstep by the market pre-empting policy tightening are real meaning they have to send signals they are not moving anytime soon.
The BoJ did that again Friday. But USD/JPY is at 110.86 this morning off the high around 111.40 Friday as the US data weighed.
Looking at the chart the high Friday was on my slow moving average which is often a signal for me to reduce my exposure to a trade. But the overall upside bias for USD/JPY remains intact for the moment.
Support short term is at 110.40/45 and then 110.10 while resistance is at 111.40/45 and 111.60 then 112.20/25.
The Canadian dollar did better on Friday night as oil found it footing and the US dollar foundered. Of the central bank messages in June, the one that seems to have garnered the most traction is the hint by BoC governor Poloz and his deputy that rates will soon be rising in Canada.
USD/CAD is a little exposed and extended to the downside. But if 1.3160/65 was to give way it would open up a move back under 1.30 given it is the 61.8% retracement level of the January- MAy rally in USD/CAD.
Have a great day's trading.