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 circuit breaker for US dollar weakness remains absent right now and the path of least resistance still appears to be lower for the buck.
But a subtle divergence in the size of moves across the forex universe against the US dollar suggests that traders are possibly becoming a little more discerning as many pairs get to elevated levels - and multiyear highs.
For now though, we have euro above 1.18, sterling knocking on the door of 1.32, USD/JPY back in the low 110's and Australian dollar knocking on the door of 80 cents again.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
The US dollar was under pressure again last night losing further ground against the euro after what appeared s to be month end flows and after more European data suggested to traders the ECB is on track to change policy in the months ahead.
Of note was the EU CPI print of 1.3%, yes I know ludicrously low, but on expectations, and the much stronger than expected German retail sales for June - +1.1% v 0.2% expected - which were the source of the dollar’s woes.
That's driven the euro above 1.18 for the first time since January 2015. EUR/USD is currently trading at 1.1823 – that’s off the high of 1.1844 soon after the news of Anthony Scaramucci’s ouster broke.
That the euro's rally has gone vertical in recent days is one warning sign. That the market got hot on 1.3% headline and 1.2% core inflation has to be another. But while I note this I've still not received a sell signal for EUR/USD. So I wait.
Sterling is also higher this morning at 1.3193 and at its highest levels since last September. That’s a gain of around half a percent despite the mixed picture from UK data in the run up to this week’s BoE meeting. Overnight BoE data showed a continued fall in mortgage approvals and a slowdown in consumer credit growth. But as I wrote yesterday in my Forex today column the pound has room to outperform the euro. Perhaps not overnight – but we’ll see.
The move in the pound is a gain of around half a percent against the US dollar despite the mixed picture from UK data in the run up to this week’s BoE meeting. Overnight BoE data showed a continued fall in mortgage approvals and a slowdown in consumer credit growth. But as I wrote yesterday in my Forex today column the pound has room to outperform the euro. Perhaps not overnight – but we’ll see.
Looking at the price action in GBP/USD you can see the break higher in line with what I wrote yesterday about prices looking ready to take another step higher. It might be time for a reversal though if this saw-tooth pattern of GBP/USD's climb continues.
Support is 1.3150/55 then 1.3095/1.3100.
The yen benefitted from yesterday's industrial output data in Japan (+1.6% in June) as well as the US dollar weakness with USD/JPY trading down to a low of 110.21 and potentially on track for a test of the bottom of this range below 1.09.
110.15 is the last line of Fibo support representing the 76.4% level of the last rally within this range.
Turning to the dollar/commodity bloc and we see these three currencies lagging a little right now. Aussie traders are clearly waiting for the RBA decision and governor's statement this after noon. I've written my usual AUD/USD column, as usual, today - you can read it here.
Likewise, the Canadian dollar and kiwi which are also dragging their feet a little relative to moves in the euro. At 1.2506 USD/CAD is looking more like it is forming a bottom. My system is still long but a break of 1.2575/80 is needed to really kick USD/CAD higher.
The kiwi is largely unchanged at 0.7508.
Have a great day's trading.