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
So far markets are taking the news that North Korea has undertaken another provocative missile test over Japan with relative calm. The yen has only gained 0.26% since 7am with USD/JPY resting at 109.92 and off the low around 109.50. Likewise, USD/CHF is only down 0.17%.
That's not no reaction. But it is certainly more muted than we have seen recently and likely reflects trader’s expectations that the only response from Japan, the US, or the global community will be more rhetoric - not military.
That North Korean leader Kim Jong-un is trying to goad the US into what the DPRK sees as a humiliating backdown, or a direct confrontation with the Chinese, seems clear. What the end result is and how the globe ultimately deals with the prospect of this rogue nation acquiring technology that can then be on-sold and increase nuclear proliferation is less certain.
For the moment though traders in early Asia are taking a fairly sanguine outlook.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Sterling was the big mover last night after the BoE meeting, decision and signal that rates are going higher.
The MPC left rates on hold with a 7-2 split but signaled that the economy was not as weak as they had feared a month ago. It also said that there were signs that after a lull – induced by inflation – consumer spending was making a comeback. As a result the bank said “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”. Sterling roared, gilt rates rose sharply, and the FTSE 100 slumped as a result.
Mark Carney’s comments then further drove these moves.
The BoE governor said, “What you heard today is that the majority of members of the committee, myself included, see that that balancing act is beginning to shift, and that in order to return inflation to that 2% target in a sustainable manner there may need to some adjustment of interest rates in coming months. We'll take that decision based on the data, but yes that possibility is definitely increased”.
GBP/USD is up 1.45% at 1.3401. It’s now broken the down trend from the pre-Brexit high around 1.50 and while it's running into resistance that is an important break if the pound closes the week above 1.3280 which seems likely.
US CPI was higher than expected with a rise of 0.4% in August which took the year on year rate back to 1.9%. Core inflation is rose at 0.2% and 1.7% for the respective periods. It’s data which suggests that Janet Yellen may not has misused the word “transitory” earlier this year to describe the slowdown in the economy. It’s also increased the market pricing of the chances of a December rate hike back above 50% according to the CME’s Fedwatch tool.
Despite the CPI data increasing the chances of a December rate hike the US dollar lost ground overnight. In US dollar index terms the US Dollar Index is down 0.41% to 92.12. Euro has only gained about 0.25% now after the DPRK's missile test to sit at 1.1916.
Last night we heard from three ECB speakers all of who reinforced the time for emergency measures has passed. Most notable were comments from Bundesbank president Jens Weidmann who said it’s time for the ECB to ease “up on the accelerator” of stimulus. “We're not talking about a complete stop in monetary policy, but rather of easing up on the accelerator… the ECB Governing Council must be careful not to miss the right time for normalising policy,”
It's just a matter of time now for the ECB.
And that helped EUR/USD find some support above the bottom of this uptrend channel with a low of 1.1837 just 10 or so points off that level. Below here 1.1800/20 is support before 1.1660/80. resistance is 1.1931, 61, and 91 being the Fibo levels from the last week's retracement.
The Japanese yen was largely unchanged at 110.42 before the missile launch. But it's pulled back a little now to 110.05. Nothing to see here traders are betting at the moment.
Short term 109.50 is key support with 111.03 resistance. That's essentially the out parameters of the last two candlesticks on the chart below.
Of the commodity bloc, the AUD/USD caught a bid after the super strong employment data yesterday and ran above 80 cents to a high around 0.8015 before coming under heavy selling pressure overnight and trading all the way down to 0.7955.
The kiwi is off 0.23% at 0.7221 while the Canadian dollar is largely unchanged with USD/CAD at 1.2174.
Have a great day's trading.