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
Traders still want to be bearish on the US dollar, it seems.
That's the takeaway from US dollar moves following the big miss in the July ISM non-manufacturing PMI overnight. And it's the takeaway when you consider that the Markit version of the data, services PMI, actually lifted. And it's also the takeaway when you consider that the German services PMI was lower.
We get runs like this in sentiment - where traders only really focus on one side of the forex pair. And right here and now it feels like the US data would have to materially improve to change that tone, that sentiment.
That makes tonight's release of July non-farm payrolls as critical for foreign exchange markets, and perceptions about the Fed, as it ever is. Perhaps more so in the current environment.
As it stands this morning the euro had an inside day and is sitting at 1.1876 - still very strong at the moment. The pound was belted by a dovish BoE and is sitting at 1.3139. The yen benefitted from uncertainty around Robert Mueller's empanelment of a Grand Jury as his Russia investigations continue. And the commodity bloc is mixed, off its lows, but still pressured.
On non-farms tonight, the market is expecting 183,000 according to the latest Reuters poll. Private payrolls are expected to print 178,000 and the unemployment rate is forecast to print 4.3%. Average earnings are expected to rise 0.3%
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
The US dollar fought back again after traders tried to focus on the weak ISM data and ignored everything else that was going on in the macro landscape. That the euro's high was inside the previous day is the first sign the worm might finally be about to turn for the single currency. It is still too early to call it – we’d need to see a day of two where euro actually dipped. For the moment the most I can say is the rally is looking stretched and the fundamental underpinnings – or at least the apparent ones – are starting to deteriorate. So I’m expecting a turn in the euro, and thus the US dollar overall, soon.
But as readers know I never pre-empt my system. These words, my videos, are rhetorical preparation as I ready myself for that signal - should it come. In the meantime, I wait patiently and place trades in other markets.
Anyway as you can see on the chart euro is nicely inside the resistance/support zone that appears to have existed since the GFC and Euro Crisis really hit the continent and the EUR/USD made a low around 1.1875 in 2010 - that's the coloured zone.
Perhaps the sign of a pullback is a protracted period inside, below, the high of the week around 1.1909. But I'd have to see a break of 1.1780/85 to get excited about further downside.
Looking at the pound now the chart shows the reaction to what has been read as a dovish BoE overnight. GBP/USD ran up to a high around 1.3267 before the BoE before it fell heavily hitting a low of 1.3112. It’s at 1.3139 presently with further room to fall back toward the trendline as this saw tooth rally continues.
To recap, at 6-2 in favour of the status quo, the MPC vote went as expected but the BoE’s obvious concerns about the outlook for the economy as the Brexit negotiations continue, and its downgrading of the inflation outlook caught many by surprise. At least that has to be the take away from the big fall in GBP/USD and rally in EUR/GBP we saw in the aftermath of the result.
On growth the BoE lower 2017’s outlook from 1.9% in May to 1.7% - that’s in line with the IMF forecast for the UK economy. The bank also sees inflationary pressures moderating back toward 2.6% next year after peaking at 3% in October this year. Worth noting is that BoE governor Carney really honed in on the negative impact on business investment of the Brexit uncertainty.
The yen is stronger once more with USD/JPY back down under 110 for a 0.68% fall which makes the yen the best performer of the big currency pairs. In no small way this yen strength is related to news that broke overnight that Robert Mueller has empannelled a Grand Jury as he continues to look into the Russia issue - as the president called it.
The reversal off the rally over the past couple of days is quite bearish for USD/JPY and a move below 109.80 would open the way back toward range lows.
For the commodity bloc the Canadian dollar and Australian dollar remain pressured but both currencies are off their lows. The kiwi is marking time a little. All three currencies look like they have further downside – on the charts at least that is.
I've done my usual daily Australian dollar column which you can read here. One thing to note however is that I hadn't seen comments from RBA board member Ian Harper asserting the Aussie's rally is all about the US dollar.
Looking at a USD/CAD chart the stall in the rally overnight is clear on the dailies. The Canadian dollar has moved to the mid Bollinger band on the dailies while the 4-hour charts suggest the USD/CAD could accelerate if 1.2545/50 gives way.
Here's the chart.
Have a great day's trading.