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
You have to love the buy the dip crowd.
Whether it's stocks elevating at what looks like expensive levels yet never having a decent pullback or its USD/JPY bouncing back in Asian trade this morning regardless of the fact tensions are seriously ratcheting up on Korean peninsula it seems the lesson learned over the past few years is "she'll be right mate".
But, as Australian Prime Minister Malcolm Turnbull said this morning, the risk of war on the Korean Peninsula is the highest it has been in 60 years. We all hope there is no further escalation. Many assume that Kim Jong-un wouldn't be stupid enough to promote the annihilation of himself. And his nation and most think the US - even under Donald Trump - will continue to talk, not act.
But I know just enough about game theory, and a lot about human behaviours, to know nothing is certain.
So I hope the BTD crowd are right...but I'm still taking a little yen and gold optionality into my portfolio.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Looking back at Friday though and the message is one of confusion in forex markets, which gave a mild level of support to the US dollar.
I say that despite the weaker than expected US non-farm payrolls and the lower than expected print of 156,000. Unemployment rose one-tenth of a point to 4.4% and wages only grew 0.1% during August.
Overall it was a weak month but one that many traders discounted because August is often weak when initially announced only to be revised higher in subsequent months.
That said the euro, among others, initially surged against the US dollar hitting a high around 1.1979 before reversing to close at 1.1860 after a Bloomberg story suggesting the euro really is worrying the ECB and that a decision on the bond buying program won't be made until the December meeting hit the airwaves.
That said comments by Governing Council member Nowotny Friday summarise what everyone knows. That is “the question is not whether we should hit the brakes (on the programme) abruptly…But it's how to initiate normalisation carefully. This is the sensible discussion." We all know the time for emergency stimulus has passed if the relative strength of the EU economy is taken into account. But the ECB is a single mandate inflation central bank and the Euro’s strength, and the recent undershoot of inflation, is complicating things.
That’s something ECB chief economist Constancio admitted Friday. He said “the strong worldwide reflationary phase that seemed likely at the beginning of the year has not materialised. Therefore, the tasks of normalising inflation and unemployment to acceptable levels continue to be difficult."
So the bank is in a bit of a bind and a euro at or near 1.20 complicates things for it. And traders know that. So we saw some selling, a more than 100 point fall in euro, which is now at risk of a test/break of the current uptrend - 1.1800/20 is the level to watch.
USD/JPY is more straight forward. We have a range, a clear bottom, a recovering US dollar, and worries about North Korea driving safe haven flows. Doesn't sound straight forward I know but at least we aren't caught in a battle between the ECB and Fed and the ranging perceptions of traders about what it all means.
More straight forward is the fact that 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.
USD/CHF, the other safe haven is a mess at the moment. It's down 0.36% at 0.9610 as the Swissie catches a little bid. A break of either 0.9549 or 0.9679 is needed to kick this one to the next level.
Sterling has caught a bid over the past few weeks but it's still yet to trade up or through the 1/30 level I've been watching for some time. That's the level that I see necessary for the next leg higher. It got close Friday with a high of 1.2994 and it's doing okay this morning at 1.1963.
But GBP/USD is yet to retake the old uptrend channel on a closing basis which tells us traders are still a little wary right now.
Of the commodity bloc the Canadian dollar has been doing well as traders bet maybe the BoC might do something on rates this week. It's probably more 40:60 in favour in my estimation than 60:40. But there is certainly a chance that the bank raises rates again in Canada this week after such solid data recently.
And that helped the Citibank Eco surprise index for Canada - recall last week's light shooting GDP of 4.5% annualised - hit an eye-watering 101.1 at the end of last week. The directional correlation between the USD/CAD (inverted) and the CESICAD isn't perfect because there are other issues - like oil - that traders factor in.
But USD/CAD is down at 1.2378 this morning, off 0.12%, but above Friday's low of 1.2339. Long term Fibonacci's suggest a move into the 1.18/1.20 region.
Elsewhere I've written my AUD/USD piece. The BTD crowd is back in for the Aussie which just means for the moment the clear positives that accrue to the AUD/USD are outweighing any thoughts that North Korean tensions will actually escalate. But for all the prognostications we'll all read unless someone has a deep understanding of game theory and how this might play out we are all just making it up and feeding off our hopes.
Anyway, you can read my piece here.
Last week the NZD/USD found support at the 200 day moving average which comes in at 0.7129 today. That's the downside level to watch. It's at 0.7169 as I write.
Have a great day's trading.