Daily FX Wrap: A major turnaround as UK’s PM May calls for snap election (08 June). GBP shorts turned sharply as Cable eyes 1.2800. EUR/GBP through 0.8400. USD fading away across the board however; even the risk-heavy EUR higher on the day. CAD and AUD the exception.

Tuesday’s session was ignited by the surprise announcement from UK’s PM Theresa May that she will seek an early election, set for 8 June this year. Early speculation (of this) was accompanied by some suggesting she may have opted to step down (on health concerns), but the former was confirmed as the government looks to take advantage of opposition disarray to solidify her mandate in parliament going into the Brexit negotiations. Given the likelihood of attaining a stronger majority, GBP eventually ripped higher, with the Cable rate tearing through key trend line resistance at 1.2640 or so. Heading into the London close, the move into the mid 1.2700’s puts the key 1.2800 level (initial Brexit low breached in the aftermath of
the PM interview in October last year) in focus.

EUR/GBP has been pushed down through 0.8400 accordingly, with traders taking advantage of the pressure on the EUR due to (French) election risk ahead. This does not seem to be impacting too significantly on EUR/USD or EUR/JPY, with the former benefiting from the USD fade in recent sessions. EUR/JPY has held above 116.00 for most of the session, but GBP/JPY has been the big mover as we eye a move on 139.00 higher up, a day after we dipped below 136.00.

From a USD perspective, last Friday’s soft inflation and retail sales numbers have been instrumental in the near-term demise, with president Trump’s comments that the greenback is ‘getting too strong’ also adding weight. To this end, USD/JPY is struggling to find its footing, with USD/CHF also now under parity has been break the recent lows above 1.0000. More recently, the Empire State manufacturing index fell sharply on Monday, while today’s housing starts have fallen more than expected with manufacturing production also soft. USD bulls are heading for the exit door as US yields eye fresh lows for the year.

In the commodity currencies, the AUD has been knocked off its perch on the back of the dovish RBA minutes released overnight, but largely through the crosses. That said, momentum on the downside slowed later in the day as focus has been on the GBP turnaround gathering pace.

NZD/USD has benefited from the pullback in AUD/NZD, which is now eyeing a move on 1.0700. Today’s Global Dairy Auctions saw a 3.5% rise in WMP with the index up 3.1%. Not too much reaction in NZD despite this falling short of the expectations reflected in the futures market (showing up 5-6% this morning).

The CAD is suffering again on what is a very modest dip in Oil prices, and going against the grain of near term USD weakness, sellers ahead of 1.3400 will likely assert their authority.

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Dollar Index Daily

Market is sideways. Price is bearish. Bearish target for the month is MM1 with support eyed at MM2 and the trend line drawn off of Sep '16, Nov '16 and March '17 lows/ 200 EMA. Stochastic is moving down to oversold indicating further Dollar weakness in the near term.

Dollar Index H4

Market is sideways. Price is bearish. Price has broken through support at WS1 which means we are on our way to WM1/ WS2. There is confluence between WM1 and MM2 which indicates a strong level of support. Note that Bears are likely to take profit in the target zone between WM1 and WS2.

US10Y Daily

Market is sideways and price is bullish. Note the stochastic moving towards overbought levels. Also note that while we have seen some profit taking the majority of Bulls are still in this trade. The 200 EMA/ WR2 is currently holding as resistance with further resistance just below MR3. Support is eyed at MR1. Bears are keeping an eye on price action looking for indications of a reversal and a move back to MPP. It is evident from price not moving higher that fewer Bears are entering due to price being so high and in a profit taking zone. Should price break MR2/ 200 EMA Bulls are likely to buy the pull back when WR2 is tested as support. While observing the 10Y keep an eye on safe havens. When price moves down on the 10Y we are going to see weakness in Gold and Yen.

US10Y H4

Market is bullish. Price is bullish. Price has come off of the 21 and is slowly moving up higher after having broken through WM3. Our previous high is at WR2. The 21 predicts a higher high and so price could reach WR1 and WM4/ WR2 before the end of the week. Keep an eye on MR2 as this is a reversal pivot point and Bulls could decide to take profit here. The easiest way to trade this is to firstly decide that price is too high to buy and that one can only sell when a reversal pattern has been confirmed by a lower low. Therefore traders buying Gold and Yen should be careful because once the current trend on the 10Y reverses, we are going to see traders getting out of safe havens.

One thought on “Daily FX Wrap 18 April”

  1. Dalmas Ngetich - FOREX.TODAY says:

    Theresa May announcement came as a surprise for sure. Technicals were indicative of a bullish run and though who jumped in earlier benefited

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