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Daily Outlook - Trader Talk
Currency Trading Summary Tuesday 19-Sep-2017
Written by Russell Sandiford / Dealer
What Happened on Wednesday > Top 3?
• Fed holds rates and announces Balance Sheet reductions
• USD Spikes higher, USDJPY to a 30-Day high 112.50
• Gold back to 1300 and Stocks up -Dow hits 22,375
• (JPY) Bank Of Japan Monetary Policy
• (EUR) EUR back to 1.1900 with ECB commentary to follow
• (USD) December Fed rate hike now up at 70% probability
Data & Event Risk Today?
• (JPY) Bank Of Japan Monetary Policy – Tentative
• (USD) US Unemployment data – 10.30pm Sydney
• (EUR) ECB President Draghi Speech– 11.30am Sydney
USDX saw extreme volatility overnight, whipsawing between 91.20 lows and 92.5 highs.
Janet Yellen delivered for the USD bulls by announcing no change to US rates, but that a sustained balance sheet runoff will commence soon.
The Dot Plot outlook gave hawkish forward guidance for the US Fed rate hike probability in December and into 2018 which lifted the USD and thus USDX now trades at 92.40.
After the solid CPI data last week, December will still be a likely opportune meeting for them to raise rates and traders now see 70% probability of this, so USDX may grind higher still.
USD JPY: 112.50
USDJPY saw bullish momentum lift the USD sharply through the 112 handle as the FOMC held rates for the US, but upgraded commentary surrounding impacts of recent hurricanes were taken as Dollar positive, as I called on Mondays Weekly Outlook video (to levels around 112.50.)
USDJPY made it to 112.64 highs yesterday in the US dealing on the back of Hawkish Dot Plot rate outlooks from the Fed. We are yet to see any significant pullback in early Asian dealing today.
I expect the 112 / 114 range this week as I target the upside move, on the back on Dollar bulls racing into the long USD trade post FOMC, to continue into the London session today.
Bank of Japan is set to come through with their latest Monetary Policy setting shortly (this afternoon Tokyo time), and are widely expected to stand pat.
EUR USD: 1.1875
Euro had a wild trading day yesterday as the drift higher towards 1.2030 was undermined by the stronger USD moves.
The Reuters News source verified stories about ECB members being concerned about the recent higher EURUSD levels which saw EURUSD Offered back to 1.1865 in overnight dealing, with the twin forces of USD strength hurting this pair also.
The 1.1900 price level sees strong resistance post FOMC trade this morning, so the EURUSD is still under 1.1880 as we speak driven lower by the Feds hawkish forward guidance in overnight markets.
USD bulls love anything positive to rush in and get Long USD, but with the markets anticipating this next move from the FOMC we may likely a grind back to 1.1850 in the coming days as USD strength may shine through.
Please also note that ECB Draghi speaks twice in the coming 24 hours so be aware that there is a potential for a snap back above 1.1900 also.
GBP USD: 1.3485
The Sterling saw whipsawing volatility this morning after Janet Yellen fired up the USD bulls, leaving no uncertainty about their sentiment for rate hike possibility in December.
Traded sold off the GBP against USD as money rushed into the USD long trade, across the board.
Be mindful that the Sterling (BOE) are still talking about possible UK rate hikes too, so expect 1.3500 to be a familiar level even with this strong outlook in the USD.
Also, EURGBP is an interesting pair to trade for the longer term if you play on the short side of EURGBP to capture the Pound strength resumption against the ECB stalling on their QE unwind.
The EURGBP trade went very well yesterday seeing a return down to 0.8800 levels.
AUD USD: 0.8000
AUDUSD has traded in a narrow range around the 80c handle to start this week, until yesterday!
The Aussie ran right up to 8100 again with risk on themes moving into full steam on Wednesday during the London session. Then came the fierce USD buying, dragging AUDUSD back to 8000 very sharply, as expected.
The RBA Gov Lowe speech was well anticipated by the markets, so the Aussie ran up on that commentary but was just as fast to shrug it off.
The challenge here is that the US FOMC were quite hawkish and were taken as strongly dollar positive including the Fed balance sheet unwind, which dragged the AUD back down.
As I have been writing all week, I can see moves back towards 7950 or even 7900.
NZD USD: 0.7335
The NZ elections this coming weekend are looking very close however news yesterday of Labour slipping in the Polls caused a sharp NZD rally led by short covering trades.
That caused a run up for NZD towards 7400 and above, seeing highs near 7430.
The Dairy numbers came in ‘on par’ this morning which helped to lift the Kiwi also yesterday, but the FOMC derailed that rally very quickly seeing Kiwi Offered back to 7330.
The 7350 level seems like a magnet for the Kiwi, so look for smaller trading ranges until more Election polls hit the newswires.
USD CAD: 1.2340
Dollar-CAD whipsawed wildly as expected over the FOMC rate announcement & Fed Press Conference.
The FOMC delivered for the USD bulls so USDCAD lifted to 1.2390 before coming back.
I prefer to play on the long side of USD this week, so look for 1.2350 or even higher once we hear the Janet Yellen sentiment in the Press Conference.
That was yesterday’s comments and still valid today, as the 1.2340 level is not far above the key 1.2350.
That is just a thought, as always be nimble because volatility is very likely to be wild, particularly after the USDCAD has been so aggressively sold down since May this year, and we have CPI for Canada to end off this week.
The volatility index is very low ticking lower, sub 10 overnight, as the SP500 hit a new record just above $2500 on Friday and held onto those gains again overnight.
The bull run keeps on keeping on for US Equities, with the Dow nudging higher again in overnight trade. No fear in this market post FOMC it seems.
Janet Yellen and her press conference is the chance to spur some higher Volatility, but also the Trump tax reform chatter helps the VIX drop and stocks rally as the Trump trade is still carrying weight. Again.
VIX at this level usually signals that a sharp change is imminent so be careful, we may get a corrective more on N Korean headlines very, very soon. This may be a great level to sell SP500.
Gold collapsed as the USD shone bright after the Fed press conference.
Their pathways towards likely December rate hike is lifting the Dollar, which savagely pulls Gold down.
The general positioning in the USD leading into the unknown of the FOMC helped lift Gold yesterday, but now that the markets have a clearer path on Fed forward guidance into 2018, Gold was sold down from 1316 to see sub-1300 levels hold.
The Gold buyers need negative headlines out of North Korea to rally XAU once again.
OIL (WTI): $50.75
Oil did trade in a whippy range yesterday, but it was also a restrained trading band between $51 and $50.30 on the low side.
The $52 price area is always a key one (at least in recent times) so let’s see how this week plays out if/when we approach that level, not looking too likely to breakthrough just yet.
Oil seems to want to recover but it is a slow grind back above $50.
I still favour long positions with a move above $52 in coming weeks.
Macro Themes in Play
• FOMC lifting the USD sharply, after Hawkish forward guidance
• Fed Balance sheet reduction and Yellen’s Press Conference sees strong bids in USD.
• Euro & GOLD back off highs and awaiting commentary & Data from the Eurozone
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