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.
KEY THOUGHTS ON FOREX MARKETS
The first leg of an assets price reversal - the first wave if you like - is often extremely hard, messy and fraught with a lack of confidence that the move is actually a reversal and not just a pullback in the previously dominant trend.
That's especially the case when the asset runs up to what traders can see is an important inflection point.
And it is where we find the US dollar this morning as it holds below 94.10/15 in US Dollar Index terms and above 1.1660/80 in euro terms. Traders are waiting on what looms as an extremely important three trading days for the "Buck" and by extension for global foreign exchange markets.
Between now and the end of the week we have the full spectrum of Fed speakers with 9 speeches being delivered by regional Fed presidents, Fed Governors, and Fed chair Janet Yellen herself. Throw in the raft of US data, including Friday's non-farms and earnings data, and it's fair to say this is a critical period to either confirm or deny the US dollar rally.
The proximity of all these events, and the inherent risk they pose, saw the US dollar back off a little after hitting a high for this run in early Europe yesterday. The US dollar is off its highs and that's helped most - but not all - currencies recover from their lows.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
The US dollar reversed course a little after being higher in Asian and early European trade yesterday with the Dollar Index, DXY, trading up to around 93.92. That it’s lower again this morning (93.56) - and euro is higher - speaks to the residual disquiet around this first leg of the dollar’s rally as I highlighted above.
But you can also see in this chart the obvious level traders are wary of - in DXY terms - around the 94.00/14 region. Forget the Fibo's I've been talking about that looks like an obvious area of resistance that any trader can see - and it needs to break if the US dollar is to kick on.
Only data can really fix that because only data can support the Fed's relative hawkishness in traders minds. And while I noted yesterday the Citibank economic surprise index for the US finally made it back into positive territory after Monday’s data traders clearly need the constant reinforcement that data beating expectations brings.
Naturally, in this first week of the month that means US non-farms are important. But in the wake of the Hurricanes expectations are for jobs growth of 100,000 or less.
So this morning euro is back at 1.1743, up 0.14%, which is very solid after an overnight low of 1.1695. The equivalent DXY level for euro in terms of importance is the 1.1660/80 region where the euro found support on the way to the test above 1.21.
USD/JPY is sitting at 112.87 after again failing above 113. It made a high 113.19 and is back at 112.86. 113 is becoming an area of supply with multiple bull failures. So a break of 112.40/45 would signal that the yen, and possibly the dollar, is in the midst of a short-term turnaround.
In the UK the uncertainty around Brexit and that weak construction PMI knock the pound lower against both the US and euro – and on the crosses. GBP/USD is down 0.26% at 1.3240. 1.3194 is the next Fibonacci support.
That level neatly coincides with the old Brexit downtrend line as well - so it's important.
On the commodity bloc the kiwi is the worst performer after the dairy auction saw prices drop 2.4% from the last auction. The kiwi is down half a percent at 0.7158 after making a low of 0.7149 just a little below the very important 200 day moving average which sits at 0.7151. 0.7130 was the recent low and the level to watch.
It's looking like a shot duck - sorry, kiwi - if 0.7130 breaks.
The Canadian dollar is sitting at 1.2486 about 0.15% stronger against the US dollar. A move through 1.2455/60 could signal a drop of 100 points to Fibonacci support at 1.2355.
And finally, I've done my AUD/USD piece. Synopsis? The recovery was powered by the US dollar but it might have a few more legs.
Have a great day's trading.