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
No need to over-egg it today.
We largely saw the initial moves in response to the North Korean H bomb test yesterday morning and then settled into fairly quiet trade with inside days for most pairings.
USD/JPY was the primary exception to that, given it made a lower low than Friday's trade, but in general, it has been a fairly quiet 24 hours.
Traders are clearly betting that like so many other times before the tensions on the Korean Peninsula will be eased with words, not military action. But rhetoric really ramped up overnight - especially on the US side with UN Ambassador Haley pushing back against Chinese and Russian suggestions this is really the US's fault.
She added that the DPRK is virtually "begging for war". So it's remarkable that traders are so sanguine. But they are.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
I've got a full coverage of relevant comments from US, Chinese, Russian, and South Korean players in my Overnight Wrap which you can read here.
But the two key take-aways that suggest this is getting more dangerous than markets are pricing are Nikki Haley's comment about the DPRK begging for war and her rebuttal to the Chinese and Russian plan that North Korea will come back to the table if the US and South Korea stop the war games and military cooperation.
Haley said, "the idea that some have suggested of a so-called freeze-for-freeze is insulting" adding that the US will not take steps to lower its guard "when a rogue regime has a nuclear weapon and an ICBM" pointed at it.
Anyway, we all hope for a peaceful resolution. But the risks are high of a further escalation. And in the meantime, I want the optionality in my portfolio for a potential market funk.
Gold, Swiss franc, stock puts, bond calls.
Looking at the charts now not a lot has changed from yesterday's report so I'll concentrate on a few new pairs today.
EUR/GBP is an interesting one. Yesterday afternoon I tweeted that it had important support around the mid Bollinger Band that needed to hold. It did overnight and EUR/GBP is back at 0.9202.
0.9225/40 needs to break otherwise the reversal from the high is is still in train. 0.9145/55 is support.
EUR/USD itself looks biased lower still if it holds below the 1.1980ish high from Friday night. Support is 1.1820/40. And then only if 1.1660/80 gave way would the outlook turn bearish.
USD/JPY is still at the lower end of the range.
If risk aversion rises the yen will strengthen and USD/JPY can fall back toward last week's and the range lows in the 108.12/25 region. Only a break of 108 would get me bearish and suggest a big range break and push lower.
Unless that happens USD/JPY is biased back toward 111 which is the level it needs to break to kick higher once more.
As a result of the above EUR/JPY looks like it might be wedging itself into an interesting position. It has stalled around 131.50/70 in recent months, broken a trend and then the lastest test was also a failure to break back above that trendline.
It's going nowhere while below this resistance and above 129.55/65. But a break of the latter levels would open up the downside toward 127.50/70.
For the commodity bloc the Canadian dollar is a little weaker with USD/CAD back above 1.24 at 1.2410 up 0.15%. The kiwi is higher at 0.7165, up 0.15% while the Aussie is down 0.3% at 0.7944.
Here is a link to my AUD/USD column for today.
Have a great day's trading.