Subtle Shift In US Dollar Sentiment Or The Move Bulls Were Waiting For?

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.

It's about the data.

That is the primary story of forex markets in recent months where hope and expectation for the positive impacts of Trumponomics faded at the same time that US data flow started to materially undershoot market expectations and thus question both the economic and Fed outlook.

Europe was doing okay with its data flow, and expectations grew that the ECB might change tack and start to further unwind the emergency measures which have been in place to get the EU through the depths of its financial and economic crisis.

It was the almost perfect storm for the dollar driving the euro from below 1.06 in April to a high last week a little above 1.19. But much was baked into the cake with this big fall in the US dollar - Australian dollar above 80, USD/CAD at 1.24 low - that a turn was inevitable if the data played along.

Friday's non-farms did just that. The question is what's next?

The US dollar gained a lift from the stronger that expected non-farms print for July, June's mild upward revision, solid earnings, 4.3% inflation, and Gary Cohn's comments on taxation.

But it’s a little more than that isn’t it?

As I’ve been saying since I returned from holidays, the US dollar’s weakness had caught up, and then exceeded, the weakness in the dataflow from the US which has slowly started to improve.

At least it suggests a strong US dollar pulse higher, at worst that much is already factored in and US dollar shorts are vulnerable. Here’s the price of EUR/USD versus the Citi US Economic Surprise Index.

Even if the US rally proves ephemeral there is still plenty of room for it to rally, even as a garden variety move.

Looking at the chart of EUR/USD now we can see Friday was a monstrous outside day. But the low Friday - around 1.1725/30 was just a little above the low of the week at 1.1722 suggesting specifically at currency pairs this morning we have euro at 1.1773 , pound sitting at 1.3032 , and the yen is trading a little weaker with USD/JPY at 110.77.

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Of particular interest Friday, was the price action in the pound which highlights how quickly the worm can turn when much is factored into prices. Naturally pre-BoE meeting last week that was pound bullishness, BoE hawkishness, and bad juju for the US dollar. Thursday's dovish BoE meeting and forecasts plus the release of non-farms hammered sterling. So much so that comments from BoE deputy governor Broadbent in the BBC that rates could still rise were completely ignored by traders.

That makes the pound my forex chart of the day for this column today.

Looking at the commodity bloc we see all three currencies came under pressure late last week. The Canadian dollar traded from a low around 1.2414 to sit at 1.2647 this morning. The kiwi is more than 100 points off its high for the week at 0.7398 this morning while the Aussie dollar, which briefly traded above 0.8040 last week is sitting at 0.7923 this morning. That’s after trading down to a low of 0.7888 on Friday night.

Have a great day's trading.

Written By: Axi