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
It was unequivocally a risk on night in markets with new records for US stocks, solid US data, a big spike in 10-year yields across the globe, copper and oil surging, and gold under pressure.
So it's no surprise that the Australian and Canadian dollars materially outperformed the Swissie and yen. Nor that the US dollar fought back from new lows against the euro to post a marginal gain on the day.
Are we at an inflection point though? That's the question I'm asking myself. readers know my thoughts on US data flow, and its turn versus the euro price. That makes the FOMC statement tonight which might be key to whether we see a turn now or whether such a move requires more solid US data.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
So, as I noted, the US dollar fought back solidly from fresh weakness overnight. And before you jump all over me and say "some fight back!" given that 94.08 in US Dollar Index terms and 1.1650 in EUR/USD terms is hardly strong let me say all journeys start with the first step.
And even though German Ifo shot the lights out last night with the head of Ifo saying business is euphoric its the continued improvement in US data which to me is the key. The CESIUSD improved a little again overnight to -45.5 overnight. Still weak, but heading in the right direction.
So the recovery from the lows does suggest there is a little support for the dollar still after the consumer confidence data and as we wait to see what the Fed says tomorrow morning.
It just reinforces to me that much, most, possibly all, of the bad news about the US economy, the outlook for the Fed, and worries about the Trumponics agenda derailment is already baked into the cake.
Looking at the price action in the Euro and we see both a new high for this run (1.1711ish) and a big reversal back to the mid 1.16's. That was despite Austrian central bank chief, and ECB member, Ewald Nowotny said it’s now “wise to gently step off the gas pedal”.
Indeed it is. But the price action still looks like a topping process for the moment and 1.1615/18 still needs to hold for the bull trend to remain intact. If that breaks then trendline and Fibo support around 1.15 comes into play. A break of 1.1735/50 opens up 1.20ish.
USD/JPY broke sharply higher overnight as a combination of risk on, rising bond rates globally, and comments from two new BoJ members seemed to coalesce into yen selling.
Both Goushi Kataoka, and Hitoshi Suzuki said there is still plenty of room between current inflation and the 2% target. Suzuki added “From my own experience of dealing with markets for 20 years, starting a debate on exit now would be dangerous to markets”. And as if on cue USD/JPY is back up near 112.
Things get a little more congested now. But as you can see in the chart below we've seen a break of the recent downtrend for USD/JPY. 112.09 is the 38.2% retracement of the recent down move.
Sterling did well overnight as well after the release of the stellar CBI industrial trends survey which reported that factories in the UK increased production at the fastest rate since 1995.
That saw GBP/USD make a high around 1.3080/85 before pulling back to 1.3026 as I write. Like euro, and Canadian dollar, it's a long tailed candle which is suggestive of a potential - POTENTIAL FOLKS - turn.
But as the chart below shows there is also a pretty clear uptrend line as well. So that's the level I'm watching. It comes in at 1.2970 today.
The Aussie reversed off its highs as well but is still holding strong as we await CPI adata and the speech from RBA governor Lowe today. It is still holding below last week's high at 0.7988 having peaked around 0.7970 overnight.
I've written my usual Aussie dollar specific piece this morning which you can read here.
Looking at the Canadian dollar now and we may have finally seen a sign that prices could turn. Again this is preemptive and I haven't received a buy USD/CAD signal yet. But like the euro and GBP we do have a long tailed candle as a sign that the US dollar buyers were lurking.
As I noted yesterday the 1.2550/60 region is the key for me. A breakup and through here is necessary for me to start getting excited about a big move higher in USD/CAD.
I'm watching the kiwi as well a break of 0.7385/90 would suggest a deeper move, probably a big one, lower.
Have a great day's trading.