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
The US dollar's base building and recovery continued overnight in the aftermath of the German election surprise and as Mario Draghi again urged caution on the path of less monetary accommodation.
Only the yen and Swiss franc were able to withstand a stronger dollar which was higher across most of the forex board even as tensions escalated to a new level with North Korea saying the US had effectively declared war on it.
So this morning we have the US Dollar Index at 92.66 and on the cusp of the break I've been looking for.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
Let's look at the DXY first. Last Friday morning I wrote, "I'd want to see the trendline break and then the recent high at 92.65/70 give way to be sure a turn was at hand".
I've moved that up a smidge this morning. But you can see the importance of this level. I've also read some analysis that suggests the US Dollar Index is in the grip of a reverse head and shoulder.
I can't see it personally. But I highlight it because it speaks to the changed narrative about the US dollar. Folks are looking for reason it might rally. And thoughts like those have been rare as hen's teeth recently.
Looking at euro weakness specifically it's worth noting that political uncertainty is often poison for currencies. That's because traders hate it especially when that uncertainty comes with attendant policy uncertainty as it appears to in Germany at the moment.
Throw in hawkish comments from NY Fed president Bill Dudley - who has a little more clout than Charles Evans who was more sanguine on a December hike - and comments from Mario Draghi about the euro's strength and the complications that poses for growth and you can see how the worm has turned a little.
Specifically, Draghi said "the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring…We therefore need to be patient and persistent".
So the single currency is down 0.80% at 1.1852 this morning. That’s not yet below the 1.1820 level I’m using as confirmation of a EUR/USD top. But given the euro is sliding out of its 6-month uptrend it’s an important move.
I have a test toward 1.1660/80 penciled in.
Elsewhere sterling looks like a top is in place now as well even though it’s down just 0.1% at 1.3464. It is however, well off the recent highs and showing signs of rolling over on the dailies.
My system will sell if 1.3429 breaks.
The yen and Swissie are 0.2*% and 0.24% stronger against the US dollar on the back of risk aversion with USD/JPY at 111.71 and USD/CHF at 0.9660.
USD/JPY might be rolling over as well - something to keep an eye on for the overall US dollar move and risk aversion for other markets.
Of the commodity bloc the kiwi has fared worst with a loss of 1.08% and a fall to 0.7262. I have a test of the uptrend line at 0.7190/7200 penciled in for the kiwi to see where real support lies. Fundamentally - for the moment at least - how the negotiaitions with New Zealand First leader Winston Peters go on forming a coalition - either with the Nationals or Labor - are going to be critical to the outlook.
I've done my usual AUD/USD piece for the day - you can read it here. The synopsis is that its biased toward support at 0.7850 but 79 cents has proved very strong recently so we’ll see how it fares there first.
The Canadian dollar is also lower off 0.29% with USD/CAD up at 1.2373 even though oil is sharply higher. It still needs to break 1.2410/20 to kick higher and get me excited.
Have a great day's trading.