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 US dollar was a little stronger this morning as much on the back of a hawkish Bill Dudley, and weaker data out of Europe and China as it is on the back of a subtle deescalation of tensions with North Korea. I say subtle because it is only on the US side so far where we've heard conciliation in the form of pronouncements that the US is not looking for regime change.
But the fact that the DPRK was at it again this morning saying that Kim Jong-um has been briefed on plans to fire a missile near Guam suggests the hermit kingdom has its head in the sand and missed Defence Secretary Marttis assertion such a move would escalate quickly.
So despite the rally in stocks last night North Korea remains a present danger to markets.
But for the moment traders are focused on the data flow and the Fed. Both of which supported the US dollar. EUR/USD is at 1.1780, GBP/USD is at 1.2958, Aussie is down around 0.7850, the kiwi is back below 73 cents and the Canadian dollar is under pressure as USD/CAD trades 1.2722. USD/CHF also climbed and is back at 0.9720 or thereabouts. USD/SGD is also higher.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
The US dollar's overnight performance is likely to reinforce that maybe the rally is not done yet. For that to happen though the highs of US dollar crosses, lows in currencies against the US dollar, need to give way. And we haven’t seen that yet.
So the answer to yesterday's question of whether or not that was it for the US dollar is no. But for the rally to kick to another level last week's US dollar highs need to break.
As noted above the euro an is lower this morning after more evidence the data flow from the EU continues to slip. That undermines the market's expectations that the economy is strong enough for the ECB to change policy soon.
Last night EU industrial output data missed. The month-on-month print for June undershot with a -0.6% outturn. That dropped the year on year growth rate to 2.6%. Not terrible. But the EU data flow has been weakening for some time now. Even as the euro hit new highs.
But the euro's performance in spite of the weakening trend in data was both because US data was printing awfully and, of course, because of expectations about what Mario Draghi and the ECB might do at the September meeting. And on that topic German finance minister Schaeuble said very early this morning that he expects some sort of change in ECB policy at the September meeting noting interest rates will remain low but there will be an end to ultra-loose monetary policy in foreseeable future. Interestingly he added the ECB needs to be careful when ending ultra-loose policy saying "I hope it goes well".
Yeah, thanks Wolfgang. Not hard to see why Mario Draghi might demur at this point. As I have written recently I'm less convinced than many the ECB will make a big shift next month given the ECB is a single mandate - inflation - central bank.
Anyway, euro is around 1.1780 which is still 100 points off last week’s low at the 38.2% retracement of the most recent EUR/USD surge. So let’s not get too excited. That level has to give way for the US dollar to kick on - likely across the entire forex universe - except maybe the dollar bloc.
Watch the AUD/USD today. It's looking vulnerable not too far above last week's lows. As usual, I've written my AUD/USD specific column earlier. You can find it here.
Elsewhere the US dollar bounced off the bottom of a well-established range in USD/JPY. That was despite the remarkably solid, impressive, and strong Q2 GDP data that was released yesterday.
The economy grew at its fastest pace in more than two years with a 1% quarterly growth rates fueled by a 0.9% growth in consumption – not a typo. Capital expenditure surged as well. It was an all around shooting the lights out kind of print. It’s a result you have to wonder if it will be sustained. But it will be very interesting for the BoJ, for Japanese bonds, and forex markets.
For the moment though the price action of USD/JPY has reinforced this range prices have been trading through in 2017. The Fed or the Bank of Japan? Geopolitics maybe? Time will tell but I'll respect this range unless or until it breaks.
Sterling is a little lower too with GBP/USD trading at 1.2960. A lot like WTI crude last week there is a nice little range we need to keep an eye on for the pound at the moment. A break higher up and through 1.3060 or down below 1.2935 would be needed to get things moving.
EUR/GBP is still climbing. It's at 0.90866 and I'm reading about parity in many places. No signal to sell yet. But parity party celebrations and talk are often a sign of bubbliciousness in forex pairs - just look at AUD/NZD over the years.
The Canadian dollar is weaker this morning. But USD/CAD had an inside day yesterday and is yet to take out the 1.2750/55 high from last week. If it can do that then a further rally can ensue. But unless or until it does USD/CAD looks to be consolidating. My stop is coming up to market on the 25% left of my original position.
Kiwi is back under 73 cents and in quite a steep downtrend on the dailies. A break of 0.7340 is needed to turn the outlook more positive. That's perhaps not unreasonable.
Have a great day's trading