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
Forex traders, and markets more broadly, recovered overnight in the wake of President Trump saying all options are on the table but so far leaving it at that. As a result, the euro is down around 100 points from its high, USD/JPY 130 points from its low while the Aussie, kiwi, and Canadian dollar recovered most of their losses.
On any other day, and with almost any other backdrop I'd be writing that the pessimistic crescendo we needed to see for the US dollar to bottom has now occurred.
But the situation remains fluid as this morning's series of pronouncements from North Korea highlights.
Reuters reports that the state run KNCA media service says that yesterday's missile launch was the "first step of its military operation in the Pacific and prelude to containing Guam". It also noted the launch was a "drill" to counter the US-South Korean war games.
The face off is not yet over. So it might be too early to say the worst is over for the US just yet.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
For a full discussion of the North Korean situation, what President Trump, and interestingly what the Russians said please see the international section of my overnight Market Wrap.
So as we open trade in Sydney and look to Asia and European trade its a very different feeling than this time yesterday. As I highlighted above, the situation on the peninsula is still a grave risk for markets – not to mention folks in the line of fire should this escalate. Naturally there is still a chance given the North’s risky strategy of belligerence and missile firing.
So even though we've seen more comments from the DPRK, this morning forex markets are very much “as you were”.
The euro surged to 1.2070 but is back at 1.1958 begging the question of whether that was the top for this run. It might be in the short term. Based on the daily chart and where it sits within that resistance/support zone which is the coloured box on the charts.
So while what I said about the impact of the Trump administration on investors attitudes toward the US and the US dollar yesterday still holds as a medium to long term influence. If Hurricane Harvey’s aftermath leads to a swift resolution of the debt ceiling so as to get the aid package through that will be US dollar positive in the short term.
Likewise the yen's respect for the bottom of the 2017 trading range is a sign that the US dollar is not yet ready for a capitulation. Certainly, traders tested the bottom end with a low just 14 points above the range bottom. But at 109.54 this morning USD/JPY is actually up 0.3% from where it was before the missile launch yesterday.
Sterling is hanging tough at 1.2919 but under pressure as the Brexit talks seem to be going nowhere - at least from the European side of the negotiating table.
Last night Jean Claude Juncker had a pop at Britain and their Brexit position papers overnight. That makes him the second senior EU official in two days to chid the government of Theresa May for its approach to the Brexit negotiations. “I would like to be clear that I did read with the requisite attention all the papers produced by Her Majesty's government; I find none of them truly satisfactory,” Juncker said.
The UK economy looks like it is stalling and this Brexit uncertainty won't help. The risks of a substantially weaker pound are growing after GBP/USD failed in the 1.2970/1.3000 zone I identified overnight. The high was 1.2978.
On the commodity bloc we have seen recoveries in all three members. The Aussie is up at 0.7952 and as usual I have done my AUD/USD specific piece (I've nicked some stuff for this report as you'll see) - you can read that here.
The kiwi is sitting at 0.7256 back roughly where it was before the DPRK set the cat among the pigeons. Yesterday's range of 0.7217 to 0.7298 are the levels to watch for the next leg.
The Canadian dollar is a tiny bit weaker against the US dollar this morning at 1.2511. There was some interesting news on the inflation front which might get the BoC's attention overnight.
Data showed that PPI prices fell 1.5% in July with 18 of the 21 sectors showing price falls as the Canadian dollar's strength lowers the cost of inputs.
the low the last 2 days for USD/CAD has been 1.2440 - that's the level I'm watching as a potential - and sustainable base.
On any other day I'd say we have seen the low in the US dollar. The charts - many of them and on many pairs - suggest that is the case. So I'll make the call. But it is a tentative one because in North Korean we have a regime hell bend on either being recognised and accepted as a nuclear power which can harm its neighbours and the US or a regime that is about to get obliterated.
The first option is hardly any more preferable than the second from a long term geopolitical point of view. Something Trump, Abe, Moon, and their generals are no doubt grappling with.
Have a great day's trading.