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's recovery continued overnight as the announcement of the Trump tax plan built on the momentum that last week's FOMC decision and announcement, and then Fed chair Janet Yellen's hawkishness had helped start the previous day.
Of course, the dollar has been slowly trying to build a base since the euro hit 1.2090/92 and the US Dollar Index traded just below 91 in early September. At 1.1740 and 93.36 the US dollar is 2.9% and 2.6% stronger respectively. And as I've highlighted recently the outlook is for the US dollar to continue to strengthen as the narrative around US interest rates, and the US economy, shifts from the recent negative tone to something more upbeat.
Foreign central bankers might exacerbate or accelerate that trend by subtly talking their own currencies down as Bank of Canada governor Poloz did last night and the RBNZ did this morning.
There is still another 2.6% gain in train for the US dollar in index terms just to get back to the garden variety 38.2% retracement of the big fall from this year's highs and around 2% for the euro. That move remains my base case and then we can reassess.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
It wasn't just Trump and the Fed that drove the US dollar higher overnight. As ever the data is going to be important and last night's release of durable goods orders for August showed. The print was stronger than expected with core capital goods up a solid 0.9% while the overall number printed a 1.7% increase for the month.
Overall the Citibank Economic Surprise index for the US is still in negative territory at -9.3. It hasn't been in positive territory since April when the US dollar's fall really began in earnest. A move back into positive territory would help the dollar.
Weak data - weaker than forecast not necessarily weaker per se - could, of course, derail the dollar's rally and resurgence. October's data dump, which begins next week, especially non-farm payrolls will be critical.
Now to the charts.
The head and shoulders pattern I highlighted over the past couple of days remains in play with a target around 1.16. But I'm back to my usual charts and set ups for today's piece.
My system went short at 1.1860 as the trendline broke after I received a signal back on the 21st. It's still pointing lower and my pencilled in target remains a test of recent lows around 1.1660/80. But as the chart shows the garden variety 38.2% move is 1.1525. So that's a strong chance.
USD/CAD was a big mover last night after BoC governor Poloz caught a few traders by surprise delivering a somewhat dovish take on the outlook for rates.
He echoed recent comments from the bank that it will be watching the moves in the Canadian dollar closely and highlighted that “monetary policy will be particularly data-dependent in these circumstances and, as always, we could still be surprised in either direction…We will continue to feel our way cautiously as we get closer to home, fostering economic growth and keeping our inflation target front and center”.
That’s code for we don’t want a strong Canadian dollar and we’ll delay hikes till 2018 I reckon.
That's seen USD/CAD take out the resistance in the 1.2410/20 region with the move to 1.2482 currently. A break of 1.2504 opens up the chance of a full retracement of the most recent fall which put 1.2770ish in the frame.
USD/JPY has taken out the recent high which negates the watch and wait and puts a run to the range highs in the 114.00/50 region back into the frame.
Sterling is moving as anticipated as the US dollar's move more than counterbalanced the strong retail sales the CBI reported overnight. Retail sales balance jumped to +42 from -10 in August, the highest in two years. Seriously, BOOM. Sterling rallied initially but was overrun by a stronger US dollar.
My target remains 1.3290/1.3310.
I've written my usual AUD/USD piece this morning. The synopsis is that the easy move to support is made, there is a chance of a bounce back toward 79 cents but overall the focus is lower.
And last but not least today - the NZD/USD after the RBNZ. Newly minted governor Grant Spencer didn't do anything to shock markets with his first meeting and statement this morning. He pretty much kept to script. But he did downgrade the growth outlook and made it clear that he'd like a lower NZD/USD.
The RBNZ kept rates at 1.75% saying it will keep monetary policy “accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly”.
On the NZ dollar it said “The trade-weighted exchange rate has eased slightly since the August Statement. A lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth”.
Another central bank which is clearly sick of the weak US dollar.
The kiwi didn't do too much given the big move from last week's high above 74 cents. 7120/40 where the 200 day moving average lies is the zone of attraction for the Kiwi. And the big test for the bulls when it comes.
Have a great day's trading.