Daily Trader Talk – Monday 17th July.
What Happened on Friday > Top 3?
> US Dollar takes a hit after Inflation & Retail Sales data misses expectations
> AUD, CAD & NZD soar higher against the USD
> Gold jumps back to $1,230 on Soft US Inflation
+ China GDP & Industrial Production data in Asian Session
+ Japan Bank holiday may slow down today’s slide in USDJPY
+ Markets looking ahead to Kiwi & UK CPI data tomorrow, BOJ & ECB on Thursday
Data & Event Risk Today?
- (AUD) China GDP – 12noon Sydney.
- (AUD) China Industrial Production data– 12noon Sydney.
The Dollar Index was crushed lower as to be expected on the soft Inflation & retail sales data on Friday.
Markets are pricing out a rate hike and the USD sold off across the board as the probability of a Fed funds rate hike at just 40% now, down from around 55%.
Dollar-Yen took a run lower as the USD sold off in the US session on Friday.
Dollar-Yen held the 112.50 level to close off the week and has opened slightly soft this morning in a big week ahead including BOJ policy meeting this Thursday afternoon.
A run lower to 112.00 seems very likely, particularly in a pre-BOJ move tomorrow when Japan returns from their bank holiday.
The Euro traded sharply higher moving from a settled 1.1400 to 1.1470 highs when the weak inflation data hit on Friday.
The Euro is still battling very hard with strong resistance at the 1.1500 handle.
This week the ECB is out (Thursday) with their latest policy announcement. I still favour a breakout higher through 11500 to 11615.
The ability of the Trump government to roll out a tax plan that Wall Street likes plus the Fed funds rate hikes being pushed back can only mean EURUSD higher highs are in store!
The Sterling found bidders as the USD fell out of form last night in the US session.
GBPUSD moved higher and took off from the 1.3000 level to move 1 big figure higher still.
The upside may continue if the UK Inflation data is strong on Tuesday London session open, which I think it will be. Can we get back above 1.3200?
The Aussie was one of the best performing currencies last week, Bid up to 7830 highs on Friday.
All we need today is a solid China GDP & China Industrial production number to be released just on the Hong Kong open of trade and the Aussie may Bid towards 7850 / 7880 taking out the yearly highs of April 2016.
It has been a sustained ride higher for the Aussie and it’s now squarely aiming at the psychological 80c level.
Naturally, the Kiwi benefitted as the USD sold off across the board on Friday but the upside for NZDUSD seems capped at the recent highs around 7370.
Tomorrow morning, we see NZ CPI data early in the Asian session so a move back (down) to 7300 or up towards 7400 are both very possible.
USDCAD has seen a huge selloff as the twin forces of Soft Dollar, Strong CAD is in full swing.
The Oil price (small) recovery back towards $47 helped the CAD but obviously, the first rate hike in 7 years was the major catalyst for a breakdown lower from 1.3000 last week.
There is still likely a bit more downside potential as the USD was totally undermined by Fridays Tier 1 data missing expectations.
Volatility Index is maintaining its low sub 10 levels, as it has for a few weeks now.
This week will add a potential for that to change as the event risk heats up with more US data, BOJ, ECB and inflation data for UK, CAD & NZ.
Volatility is still extremely low, which can’t last.
We had a lot of happy clients LONG Gold last week as it recovered sharply to the $1230 level as I called numerous times.
Trading against US Inflation and rate hikes is a great trade in my view as the data points are increasingly pushing out rate hike probability after last week’s testimony from Janet Yellen pointed to inflation as a key metric to be watching.
More upside potential here in my view!
Oil (WTI): $46.70
Oil has had a slow grind back towards $47 after a whipsaw week last week.
I still maintain a near term target of $48 or possibly even $50.
Macro Themes in Play
- Markets reprice the USD totally after big miss for CPI & Retail Sales
• EUR Looking at big resistance at 1.1500 but GBPUSD flew straight through topside resistance to find new life above 1.3100.
The commodities currencies are well Bid and at recent highs. (AUD, CAD & NZD)
Russell Sandiford / Dealer
Australia (toll free) T 1800 176 935