Originally published by AxiTrader
QUICK SUMMARY
On forex markets the big mover was the US dollar, which knocked the euro back below 1.16 (Italy was put on negative outlook by ratings agency Fitch) and pole-axed the Aussie back below 72 cents for its lowest weekly close since mid-December 2016. They sits this morning at 1.1593 and 0.7189 respectively. GBP/USD is a little lower this morning after more revelations that Theresa May can’t give any more but the EU won’t accommodate it’s claims as they stand. GBP/USD is at 1.2920 while EUR/GBP is at 0.8960. The yen continues its fairly quiet trade and sits at 111.09.
The Canadian dollar is likely to come under some pressure given President Trump’s aggressive tweet and stance over the weekend – though it also has the Labor Day holiday today. It’s at 1.3062 in USD/CAD terms. The kiwi is at 0.6615 back toward the recent lows.
Emerging market currencies had a mild reprieve in trade Friday with the pressure released a little. But weekend comments from the IMF that money loaned and released is not to be used to prop up the peso is likely to re-intensify that pressure on the ARS and other markets this week.
BIGGER PICTURE
The US dollar isn’t that strong really. The US Dollar Index is only back at 95.14 this morning. But it has broken the downtrend from the recent high and momentum does appear to be with it once again as the cumulative idiosyncratic troubles with many individual currencies add up to US dollar strength even though the CESI score for the US is still in negative territory.
Throw in the pound's woes this morning as Brexit looks like it is becoming intractable. Throw in the Aussie dollar's woes as the environment turns against it, throw in the Canadian dollar’s troubles till NAFTA is settled – or not as may be the case – and throw in the troubles in Emerging markets still and we have a recipe for further US dollar strength.
And of course positioning is still a big driver of forex markets at the moment. What’s interesting amid what is a very long US dollar market is that the euro is still not very short at all. And as you can see in the chart below there is still at least 200,000 net contracts of positions available if traders turn really bearish on the euro based on the biggest euro short we’ve seen in recent years. Perhaps not yet, but eventually that could see EUR/USD substantially lower in time.
So it’s worth noting that Italy continues to simmer. On Friday ratings agency Fitch changed the outlook for Italian debt from stable to negative because of government policies and the Economy Minister said Italy will stick to EU guidelines after that. But the big question is whether or not Italy can stick to EU rules given the recent bridge collapse and associated infrastructure issues. Will the government be willing to stock to those rules and lose its credentials with the voters or will it thumb its nose at Brussels and just do what it thinks best for the people of Italy. Unlike emerging markets one thing it does not have to worry about is a currency crisis. That’s the ECB and Brussels problem if EUR/USD heads toward 1.05.
Just quickly check out the weekly euro chart. A rejection of a little trendline, the MT trend, and a long-tailed candle point lower. 1.1520 at least.
I'll discuss all the majors I follow in my video which will be out a little later this morning.
DATA:
On the day today there will be some disruption as the US and Canada are out. But we still have plenty of data to get through. Here in Australia we get retail sales for July as well as more partials for Wednesday’s Q2 GDP release with business inventories and company profits out. It’s also Markit Manufacturing PMI day across the globe and that means we’ll also get the Caixin manufacturing PMI in China.
Have a great day's trading.