Originally published by AxiTrader
QUICK SUMMARY
The latest FOMC minutes showed the Fed is confident the economy - though slowing in H2 2018 - is still above potential and thus rates will need to increase again soon. That suggests September is locked in and December is still a high probability for a rate hike.
But, that didn’t help the US dollar which is still under pressure though. In US Dollar Index terms it’s down 0.2% at 95.06 while the euro is up at 1.1595 for a 0.2% gain after an overnight high of 1.1623. GBP/USD is up 0.12% to 1.2916 and USD/JPY has actually risen 0.2% to 110.49.
On the commodity bloc the machinations in Australian politics have been a handbrake on the Aussie dollar's full participation in the US dollar reversal. Stuck in the 0.7250 region it’s up 0.2% at 0.7255 but if the previously solid correlation with the euro was holding it would be north of 74 cents. The kiwi is up 0.13% at 0. 6699 while the Canadian dollar gained 0.3% with USD/CAD back below 1.30 at 1.2992.
EM currencies have been interesting. The Mexican peso is a per cent better bid as a NAFTA deal looms, the South African rand has gained another 1.6%, while the Turkish lira is fairly stable around 6.02. Yesterday’s latest target, the Brazilian real, lost another 0.3% with USD/BRL at ~4.06. But today’s winner of EM currency wack a country is the Russian ruble which has lost 1.3% to 68.05 on fear of more sanctions.
BIGGER PICTURE
The US dollar remains under pressure and the FOMC minutes did not provide any comfort for the bulls right now. To that end then we are still in a position adjustment phase for the Greenback. We also have a volatile President raging around the hustings at the moment too which I’m pretty sure has many traders wary of US dollar longs lest they get caught with some off the cuff – or planned – comments about the US dollar. Those comments about the Fed, and Chinese and European currencies are too fresh in folks minds right now.
As you can see in this DXY chart the US dollar has made a swift reversal over the past 5 days and is now nearing important support which comes in around 94.60/70 today. That's the level I'm watching and respecting - unless or until it breaks.
Such a move would suggest a run to 94, perhaps even 93. Worth noting one of my favourite Twitter chartists reckons the reversal will run to 92. He uses a different process to me but we'll see. That trendline is the key, short term.
I would state though that the Euro is benefitting from changed perceptions of ECB hikes – or at least the EU Gov 2 year rate forward 2 years. It's far from a perfect correlation. But I do use it as a guide to the Euro's moves - think of it as an input into valuation. And this relationship, might become important again as the fed hikes but talks about a pause and traders focus on what the ECB is going to do.
That also makes tonight’s ECB minutes very important for the near-term direction of the euro. Momentum is stalling for the euro at the moment and the 4 hours suggest a pullback may be in the offing. I’m targeting 1.1499.
Sterling is in a bit of a similar position right now.
I'll discuss all the majors I follow in my video which will be out a little later this morning.
DATA:
Looking at the day ahead the big event is the release of the raft of “flash” PMI’s across the globe. That will give us a quick sniff test on the health of the global economy. Singapore inflation is out in our timezone today along with the Japanese leading index of economic growth. Tonight it’s the ECB minutes that will capture the attention. If the Fed was keeping an eye on the trade tensions surely the ECB will be worried. We’ll see. Later in the US it’s jobless claims, and new home sales.
Have a great day's trading.