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 jury is still out on the future of the US dollar.
Although if this were a football, cricket, baseball, or netball match you'd swear the bears were back in the ascendancy after another night where the euro rallied, the Aussie held above 79 cents, and safe havens like the yen and Swiss franc caught a bid.
Realistically though - to extend the sporting metaphor a little - the game is not over unless or until the ranges we've established as the parameters for this battle break. So in that sense it's a bit more like the games of marbles I used to play when I was a kid - knock the others players marbles out of the circle and you get to keep them.
Oh, how I loved my "steelies".
But I digress. The key is there remains much uncertainty. We need more data from the US, we need to hear what Mario Draghi and the ECB want to do, and we have to see how the Trump presidency proceeds.
Until then the ranges are likely to persist.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Okay, so the wash up was that US dollar came under pressure again overnight losing 0.34% in US Dollar Index terms. I must confess to seeing this as simply a reaction to the US dollar strength we have seen recently and a continuation of the debate as to whether the US dollar has turned sustainably or whether the recent base forming – or attempt to forma a base as it may be - is just a pause in the continuing trend of US dollar weakness.
As I have intimated above I see this as simply a reaction to the US dollar strength we have seen recently and a continuation of the debate as to whether the US dollar has turned sustainably or whether the recent base forming – or attempt to form a base as it may be - is just a pause in the continuing trend of US dollar weakness.
My sense is that right now the outlook for the US, and thus the economy and the Fed, is clouded for many traders and investors because of the uncertainty around the Trump presidency and its agenda.
So for the moment, the path of least resistance for the US dollar is lower. Especially given that this little uptrend from the lows in the US dollar index has broken.
Individually though quite a few pairs have a good reason to have rallied in the past 24 hours, some less so. But overall it’s been a relatively benign start to the week.
Euro is the strongest of the majors with a 0.43% gain to 1.1810. Last night's report from the Bundesbank on the strength of the German economy – and what that implies about ECB monetary policy - has again shone a light on the battle at the ECB.
The Bundesbank said "the exceptionally positive corporate and consumer sentiment indicators, and the solid stock of industrial orders suggest that the German economy is likely to continue to gain momentum in the current quarter…the German economy could grow even faster this year than expected in the June projection".
That's the key argument it seems at the ECB right now. Mario Draghi, his deputy, and also chief economist seem to be in the dovish camp which acknowledges growth but says because of inflation's low rate patience is needed. The hawks - Weidmann, Lautenschlager, et al, take the view that policy needs to recognise growth has lifted.
I agree, the time for emergency measures - QE - has probably passed. But as the ECB minutes showed last week the rising euro complicates things.
Anyway, the charts show that euro broke up through resistance and 1.18 which seems to suggest the 1.1660ish low was a sustainable one. 1.1790 is support short term. realistically though we are 1.1660-1.1910/20 unless or until the range breaks.
The yen is benefiting from a little safe haven flow and has gained 0.3% with USD/JPY down at 108.87 – towards the very bottom of the 2017 range. That the Swiss franc has gained a similar amount with USD/CHF at 0.9620 suggests there is a little safe haven bid in these pairs.
If USD/JPY breaks lower through 108, gold trades above $1,301, the US dollar is likely to be toast. As always thought - and particularly with USD/JPY's range - I respect these levels unless or until they break.
GBP is up 0.23% despite lingering questions about the outlook for the economy and as the government continues to issues papers on its bargaining position – wish list – for negotiations with the EU over Brexit. GBP/USD is at 1.2900.
GBP/USD needs to get above 1.2930 to break back inside the previous uptrend. It also needs to hold above 1.2830 to avoid another couple of hundred points fall based on my read of the charts.
Oh, and could we be seeing a head and shoulders pattern building???
But that move toward forex safe havens hasn’t hurt the commodity bloc which usually suffers when risk goes off and aversion rises. For the Australian dollar at least that’s easily explained by the surge in iron ore, copper and other base metals in Shanghai – and then global – futures trade over the past 24 hours. It was clear watching copper yesterday that the price moves in Chinese metals more than validated the Aussie dollar’s move.
The kiwi and Canadian dollar are a little stronger this morning. That’s despite the fall in Canadian wholesale trade with USD/CAD at 1.2564 after trading down below important support at one point. The kiwi is at 0.7318.
USD/CAD made a marginal new low for this reversal last night around 1.2553. The 4-hour charts suggest more downside pressure unless 1.2600/10 breaks.
USD/SGD needs to hold above 1.3580 or it will be back at its lows it seems.
Have a great day's trading.