A Subtle Data Shift Helps The US Dollar
Axi | Jul 25, 2017 12:52
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.
h2 RECAP/h2It was a fairly quiet first day's trade in forex markets to start the week. But that relative calm did in fact underlie a couple of themes I think are important for forex markets and forex traders.
The first is that the US dollar weakness has now more than fully priced the run of poor economic data we have seen over the past couple of months from the US - at least against the euro. So the slight over performance of US PMI's versus underperformance of European PMI's saw the dollar find a bid.
The second theme is the persistence of the bid tone for the commodity bloc of the Canadian dollar, kiwi, and Australian dollar.
The FOMC is still the key for the dollar on the weak. But don't dismiss the German Ifo or Andrew Haldane's speech tonight as important points along the road.
h2 HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS/h2The data in the US last night was important in that it was – on balance – stronger than expected and because it materially moved the needle of the Citibank Economic Surprise Index for the US (CESIUSD) which improved more than 5 points to -47.4.
Yes it is still weak. Yes it is still much weaker than the CESIEU with a 13.3 print. But as I pointed out yesterday, my sense is the US dollar’s weakness has now more than fully priced disappointment with the economic data, outlook, and impact on the Fed’s tightening and balance sheet adjustment process.
Which suggests there is a reasonable chance we might see a reversal as the euro, and many other currencies, near important levels. The data and the Fed are both going to be very important for this outlook and whether I’m on the right track. Or perhaps took a few too many Bali waves on my head while I was away.
Looking at the euro as the dollar bellwether it will be important that it holds above 1.1615/18 if the bull trend is to remain intact. You know my thoughts there's a chance of a decent pullback looming. But this level would need to give way suggest we are on that path.
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A break could see a move back toward 1.15 in the first instance. Here's the chart.
The euro's little bit of weakness was a boon for the pound with EUR/GBP selling helping to lift sterling back above 1.30. I'll be watching the CBI industrial data this evening to see where the fundamentals point but it's likely more important what BoE MPC member Andrew Haldane says when he speaks this evening which could be a key incremental driver of the pound.
Worth noting that yesterday the IMF downgraded UK growth for this year by 0.3% from where they thought it would be just as recently as April. At 1.7% for 2017 and 1.5% for 2018 the IMF is hardly bullish on the outlook. But BoE, Haldane, and governor Carney have all suggested rates need to rise.
On the charts GBP/USD is getting messy as you can see by all the lines on this chart. But what you also see is that price has been trading reasonably well when it comes to this simple technical approach. So I'm watching 1.2970 and then 1.2930 as indicators of whether GBP/USD can continue to push higher.
Here's the chart:
With regard the commodity bloc majors the Aussie, kiwi, and Canadian dollar were all higher against the US dollar and gained 0.15%, 0.3%, and 0.23% respectively over the past 24 hours. They are not big moves by any stretch of the imagination. But all three currencies are still knocking on the door of recent highs.
The Canadian dollar in particular is still falling. It’s a lesson in not pre-empting signals and even though the Canadian dollar is likely to be close to a turn down here with USD/CAD at 1.25 there is no signal yet. The FOMC meeting is going to be important.
USD/JPY is back above 111 and the pound found a bid against both the US dollar and euro as EUR/GBP sellers appeared.
Have a great day's trading.
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