Originally published by AxiTrader
QUICK SUMMARY
On forex markets the US dollar is under pressure still as traders continue to bet the message Jerome Powell was sending is a dovish one. In fact what they are actually betting is the yield curve is right and the US economy is slowing because Powell effectively said he’s data dependent.
The wash up is the US Dollar Index is down 0.4% at 94.72, with the corollary being a 0.5% rise in the euro to 1.1682 and seemingly on its way to 1.1750. GBP/USD is up 0.4% to 1.2896 while the yen has missed out and is at 111.03 for a gain of just 0.13%.
Commodity bloc currencies have been led by the Canadian dollar which posted a 0.53% gain against the Aussie dollar's 0.3% gain. They sits at USD/CAD 1.2958 and AUD/USD 0.7344 respectively. The kiwi is at 0.6699 up just 0.13%. EM currencies are mostly stronger as well with the Mexican peso, Brazilian real, and South African rand between 0.4% and 0.6% stronger. But the Turkish lira has lost another 1.8% while the Russian ruble is 0.6% weaker.
My sense is also the turn in the Canadian dollar and Mexican peso helped move the Greenback last night.
BIGGER PICTURE
The US dollar was better bid for most of Asian trade and then early Europe as well.
But once US traders entered the fray the dollar came off it’s highs pretty solidly. Perhaps it was the Mexico trade deal and hopes of a renewed NAFTA and the residual impact of a strong Peso and Loonie which turned the USD’s tone. I’m not sure but it certainly looks like the timing is right on the hourly charts.
Equally though the residual effects of the market reading Fed chair Powell as dovish clearly hadn’t washed through North Amercian traders minds more fully on Friday.
The offered tone of the Greenback suits the technical set up is so many currencies well though so it’s as likely that this is a technical and positioning move as I suggested in yesterday’s note. Either way it does look like the greenback – in many guises – has further weakness ahead of it.
As I highlighted in Forex Today yesterday, my sense is that on a simple 38.2% retracement the USD/CNH rate could head back toward 6.70. The corollary of that for the euro – as a bellwether – is of a run into the mid-1.17’s perhaps mid 1.18’s. That in turn would continue to point Sterling, the Aussie, and many other pairs higher.
But as I’ve mentioned a lot in my videos lately it is almost like its USD/CAD which has been a better lead on the inability of the US dollar to kick on. It’s respected the downtrend, failing recently when the US dollar was strong against other currencies, and it’s back at 1.2950/60 now. Watch out is USD/CAD breaks 1.2950 that could be a big event for forex markets.
Here’s the chart.
Medium term I remain a US dollar bull. But it seems to me that either data elsewhere has to weaken or US data, where the data flow is -20.9 as measured by the CESI score has to improve to but some oomph back int the buck and support Jerome Powell's tightening cycle.
That or another markets funk that is.
Larry Kudlow calling China a currency manipulator when it's just stopped it's currency from falling through 7 in USD/CNH and USD/CNY terms tells us that the China trade spat is far from settled. I've got more on this in Markets Morning for those interested.
I'll discuss all the majors I follow in my video which will be out a little later this morning.
DATA:
Data wise today, there is close to nothing of note. South Korean consumer confidence is out in our time zone then its Euro Area loan and M3 growth this afternoon before we get the goods trade balance for the US along with wholesale inventories, the Case Shiller house price data, Conference Board consumer confidence and the Richmond Fed manufacturing index.
Have a great day's trading.