Daily FX Wrap: USD weakness all round as healthcare vote failure prompts Treasury buying/ USD/JPY tests 110.00, while EUR/USD pips 1.0900. Cable tips 1.2600 despite A50 activation ahead. CAD softens on Oil price hit, while AUD underperforms. The ZAR hit after Fin MIn Gordhan ordered back to SA. US Treasuries have been the primary driver of FX markets, as the post health-care sell off in yield saw the USD hit lower across the board, but notable gainers being the JPY, EUR and CHF, and despite the looming activation of Article 50, GBP. Along the run, the 2yr has been trimmed to 1.24%, while in the belly of the curve, losses have seen the 5yr move just below 1.90% and the key 10yr rate eyeing 2.30% again – 2.35% providing some near term support. USD/JPY has put in an initial attempt on 110.00, but stops through here look vulnerable, but rate differentials point to limited losses through here. Even though president Trump’s fiscal stimulus plans have been dealt a clear blow, with concessions within tax reform already being discussed (we are led to believe), it is worth a reminder that the Fed’s rate path has been largely evaluated on US economic performance precluding the impact of policy measures planned by the new administration.

Clearly this is data dependent, but in light of this, we doubt Tuesday’s numbers will add any major insight into whether we will get the 3 (2 more) rate hikes for 2017. Regional services and manufacturing indices (Dallas, Richmond) offer some colour on business activity, but less so wholesale inventories. US trade is of limited relevance at the present time. Fed speakers aplenty though, with chair Yellen accompanied by Kaplan, Powell and George. We are still watching the 10yr closely however, with the 2.30% mark noted above a key support reference for the greenback.

The data series in the EU zone continued with strong results from the German IFO report. The impact was somewhat diluted by the USD impact today, but we saw a clear prompt on EUR/USD to push for (and eventually breach) 1.0900 when the ECB’s Lautenschlager stated that the governing council should prepare for policy change. 1.0950 is the next level up top, with a 1.1000 test imminent on a break higher.

In recent episodes, this has coincided with moves in EUR/GBP, but with Cable equally
aggressive on the upside, the cross rate was confined to a tight range in the mid 0.8600’s today. Despite Wednesday’s scheduled activation of Article 50, GBP has been on a relentless push higher, but given the heavy short positioning in the Pound, we would expect a large chunk of this to have been covering interest. Whether the market believes GBP has been readjusted to fair value levels is perhaps a little too early to tell, but closer to 1.2700-1.2800, we would expect nervousness to re-emerge. Add to this sporadic EUR/GBP demand experienced into month end, and GBP buyers at these levels should be wary.

In the commodity linked currencies, we got a taste of how the Oil price correlation with the CAD is starting to filter back in. The spot rate has been naturally cautious ahead of 1.3300, and we expect this relatively tight price action to continue between 1.2950 and 1.3550 in the near term unless we get some stronger price action in WTI, and or Canadian data backs up some of the recent growth and payrolls data. The BoC stance overrides for now, and to that end, gov Poloz is due to speak tomorrow. Markets will focus on any change in the cautious tone maintained of late.

AUD continues to lose ground against its NZD counterpart, dropping below 1.0800. Part of this is down to the losses seen in Copper and base metals generally, but NZD/USD has developed some resilience after Moody’s endorsement of the domestic economy last week. AUD/USD support ahead of 0.7600 looks tentative at best, to the point where an eventual USD turn looks set to take out stops through 0.7590 at the very least. RBA assistant gov Debelle speaks early on in the overnight session ahead. A big move in USD/ZAR today after South Africa’s Fin Min Gordhan was ordered back from an ‘unauthorised’ international roadshow by president Zuma. The details are still unclear, but local speculation of a cabinet reshuffle has perpetuated, with the spot rate having rallied from 12.35 to 12.50+, hitting highs through 12.80 later on.

News source:
Talking-Forex.com
e-mail: [email protected]

Dollar Index H4

Dxy has found support at MM1 which coincides with this week's WS2. As we know from pivot theory, if price reaches the bullish or bearish goal early in the week traders are likely to take profit and price is likely to move back to the central pivot by the end of the week. With the market being bearish and the recent move being a lower low off the 21 I am paying attention to price action for an indication of a reversal before going long.

US10Y H4

The US10Y moved up higher off the 21 and has found resistance at the MM3/ WR1 pivot cluster with the top of the range eyed at this week's bullish target WR2. At the time of writing this the market is still bullish and price is still above the 21 EMA.

EURUSD H4

Price has broken through the conservative monthly target of MM4 and has found resistance at 1.09. This is a key level of resistance as it marks the top of the range for EURUSD. Further resistance is eyed at 1.0950/ WR3/ MR2. If price does break higher Bulls would definitely be paying attention to 1.09 as role reversal support as a break higher would indicate a breakout from the range. Should price break lower support is eyed at 1.0850 and then a little further down at WM3. The 21 is clearly above the 55 which means that a Bear would be keeping an eye on price action for an indication of a reversal before going short.

GBPUSD H4

Pound moved higher off the 21 EMA from Friday and has found resistance at the weekly target of WM4 which is also MR1. Further resistance eyed at 1.2650 and further up at 1.28 (the bottom the post Brexit referendum range). Support eyed at 1.2550. While the H4 chart clearly shows a bullish market due to the 21 being above the 55 and recent higher highs and higher lows, the daily chart shows that price is range bound. With a very overbought daily stochastic Bears would be paying attention to Pound weakness observed at resistance levels.

USDJPY H4

Price fell lower during trading today and has found support just above 110. Note that price is currently in the Bear profit zone on the daily chart with confluence of WM2 and MS2 just below 110. With the 21 being below the 55 and price having made a lower low Bulls would look for an indication of reversal and Bears are going to sell at that 21.

Gold H4

Gold is coming off of WM4/ MM3 after having moved higher off the 21 from Friday. Price is currently at support and Bears will be looking for an indication of reversal. Bulls are going to buy at that 21.

2 thoughts on “Daily FX Wrap London Close”

  1. Marc Frommhold says:

    wonderful analysis Ryan! such a great work, really appreciated and happy pips for you!

    1. Ryan Gandalf van Jaarsveld says:

      Thanks Marc – please let me know if there is anyway I can improve and make these posts even better and more helpful

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