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
There is a growing sense that President Trump's pivot away from the Republican leadership toward the Democrats last week to agree the debt ceiling increase is the start of a new compact that will break the Washington logjam and actually start to deliver on his agenda. Indeed for the second day running Treasury Secretary Steve Mnuchin has said that the Administration will deliver tax reform this year.
Against this emerging backdrop, and after such an extended period of US dollar selling, it's no wonder the US dollar has found its feet and is pressure currencies across the board.
Whether this is just a reversal in an overall trend toward further US dollar weakness is hard to tell right now. Where the Fed goes with the balance sheet taper and rates along with the success or otherwise of the new Washington compact will be important factors in the weeks and month ahead.
But for the moment the US dollar is stronger and overnight that pushed euro back below 1.19, the Aussie back below 0.8000 and pushed USD/JPY up into the 110.50/111.00 resistance zone. Only the Canadian dollar has really withstood the assault over the past few days.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
The key thing to note this morning about the US dollar's recovery is that it is now broad based. I didn’t report it yesterday but the latest monthly BAML survey of big global investors showed a large number felt the short dollar trade had become crowded. That’s an important indicator that the pressure may be coming off because these investors won’t be selling dollars. And it opens up the topside for the dollar.
But in many ways what's doubly important about this set of investors is that back when the US dollar was at its peak this year these investors were saying long dollar was the most crowded trade. We know what happened subsequently - the US dollar collapsed.
So this morning we have euro down and through support sitting at 1.1884 for a loss of 0.68% on the day. 1.1800/20 is the level to watch for the EUR/USD. And, by extension, other pairs more broadly.
The yen and Swissie have lost more ground at 110.46 and 0.9629 for losses of 0.3% and 0.35% respectively. These moves, and those of the euro, sterling, and other pairs, are not associated with risk appetite moves today so this is a genuine US dollar move and continues to support my hypothesis that an interim base at least is in for the US dollar.
USD/JPY is testing the recent downtrend channel and underside of this resistance zone. It's backed off a little from a few hours ago after news broke that the DPRK might have been moving a missile toward a launch site. So that's something to watch.
110.70 is short term resistance with 109.90 (9yesterday's low) support.
USD/CHF has resistance at 0.9660 which is a tentative trend line from the late April peak before the US dollar came under pressure.
The US dollar rally hurt the Aussie and kiwi overnight as well.
I've done my usual AUD/USD piece this morning and you can read it here.
The kiwi is down 0.49% at 0.7248 as it holds below that important overhead resistance I highlighted yesterday. It looks to me though that 0.7215 would need to break to kick the kiwi significantly lower.
The Canadian dollar has managed to hold firm on more solid data and a lack of concern from the Canadian finance minister yesterday who simply stated the truism that the Canadian dollar's strength reflected the economy’s strength. USD/CAD is at 1.2168 largely unchanged.
And last but not least on this most important Bank of England meeting day the pound is lower as well now down 0.50% at 1.3207. last night's data showed that unemployment fell to an incredibly low 4.3% - lowest since 1975 - but wages growth remained weak at just 2.1% year on year which was below expectations.
That gives the BoE some space to look through this Sterling crash induced spike in inflation and leave rates where they are when it announces its decision this evening. That said, I'd still expect 1 or possibly two dissenters to the decision.
Looking at the price action GBP/USD has backed off the trend line that extends back to the Brexit high. A break of 1.3155 opens up the downside, 1.3260 the topside.
Have a great day's trading.