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
Not every day in markets is a banner day with big narratives. Not even most days are like that.
But in watching the moves, the price actions, the economics, the positioning, and the technicals, it is possible to see how the narrative is changing and while that may only be one degree at a time it still informs where prices and levels might move through time.
Last night was one such time. We saw a consolidation of the US dollar's big rally on Friday against most major pairs. It's a sign the dollar's move was more than just a one off - or knee jerk - reaction to non-farms. But the lack of follow through is a sign traders and investors are still wary, of US data, of US politics, and of a potential government shutdown as the debt ceiling draws closer.
It all added up to inside days for the EUR/USD, AUD/USD, USD/CHF, USD/JPY among others. Canadian dollar and kiwi remain pressure however and the pound is on the cusp.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
So, as I noted above, there were mostly only incremental moves in the US dollar for the most part overnight. That’s natural after such a big move on Friday night in the wake of the better than expected non-farm payrolls print. So this morning we have the euro a little higher up 0.2% at 1.1790, sterling largely unchanged at 1.3033, and the yen likewise with USD/JPY sitting at 110.74.
But the continued pressure on the commodity bloc – USD/CAD up 0.21% to 1.2679, AUD/USD down 0.19% at 0.7904, and the kiwi off a stonking 0.7% at 0.7354 – points to the divergence I noted last week which suggested to me the US dollar and its outlook is turning.
Naturally I argue a big part of that has been the turn in US data at it starts to marginally beat expectations again.
So on that front it is worth noting the Citibank economic Surprise index for the United States is back above -40!
That’s the first time that the index has climbed back above this level since early June when the deterioration in US data was in full flight. Naturally at -39.1 the data flow has not been brilliant recently. But it is on the improve relative to expectations and that is important for US rates, bonds, the Fed, and the US dollar.
It's also important when we see data like German IP last night. The fall of 1.1% came out of nowhere and has been largely discounted by traders and economists. That may be the right course of action. But it is worth noting EU data has been trending weaker in terms of the Citi Econ Surprise index lately - it's aat +13.3 from April's +70 highs.
So let's look at a few charts then.
EUR/USD is showing signs of topping. I have a sell signal, but I'm not yet short. For that to happen price would need to decline below yesterday's low of 1.1768. A break of 1.1720 would be a good sign for the bears though...it has to break first though.
But while we wait for the euro to hurry up and do something - or nothing - the kiwi has been getting busy. It’s at 0.7354, more than 200 points from the high for this run, and has now broken down and through the uptrend from May’s 0.6815/20 low.
Of course, the weak employment data last week helped get the ball rolling and a potentially dovish RBNZ this week has clearly got some focus. But that’s an important point for this pair and others after recent multi-year highs. The US dollar has got to levels against many pairs which threaten the very outlook folks are buying those currencies for – hence the retracements.
Anyway here is the NZD/USD chart.
GBP/USD is interesting last night's low was pretty much bang on the 38.2% retracement of the most recent move higher from 1.2585/90. That's the trend I drew the trend line off, talked about the sawtooth pattern, and through which GBP/USD broke on Friday.
A break of 1.3000 opens the way to 1.2930 then 1.2845/50 which looks like an achievable target.
Both the Canadian and Singapore dollars continue their reversal against the US dollar. Or should I say the USDCAD and USD/SGD continue to rally. For me these are the bellwethers of the US dollar recovery. If they falter, or reverse, especially if they do it in tandem it would be a signal that the dollar is running into resistance.
For the moment the rally in USD/CAD and USD/SGD remains in tact.
Looking specifically at USD/CAD my slow moving average at 1.2711 comes into play very soon. This is a natural scale out point for me as I lower my overall exposure. (The slow moving average is where my system morphs from being an exhaustion model to a trend follower). It's worth noting where the stochastic indicator is at present.
As usual I've done my specific AUD/USD column earlier this morning - you can read it here.
And looking at USD/JPY it remains within the overall range. Short term a break of either 111.05 or 109.85 would be necessary to get things moving.
Have a great day's trading.