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Daily Outlook - Trader Talk
Currency Trading Summary Tuesday 21-Nov-2017
Written by Russell Sandiford / Dealer
What Happened on Monday > Top 3?
• US Equities mildly higher as US Tax Reform moves to Senate
• Gold crunched back to $1,275 & GBP Rallies before reversing
• USDJPY lifts to 112.60 but uncertainty still rife with USD
• (USD) Tax Reform story still looming large over USD outlook
• (BTC) Bitcoin surges through to $8,300
• (EUR) Euro starts very softly Monday as German election fails to make a clear path
Data & Event Risk Today?
• (AUD) RBA Gov. Lowe Speaks– 8 pm Sydney
• (GBP) Inflation Report– 9 pm Sydney
• (NZD) Dairy Traders Numbers – Tentative
Dollar Index traded quietly for most of the trading sessions on Monday until reaching the 94 level.
The big story creating the main sentiment for the USD is the Tax Reform progress. Donald Trump has agreed to detach the Obamacare plans from this bill, which should, in theory, make it easier to pass through.
Whilst it has passed the first stage, it is still a very big potential catalyst for more USD pain if that fails.
The dollar-index may find support around 93.50 and is likely to be capped under 94.50 unless some resounding positives roll out of the progress in the US Tax Reform package.
USD JPY: 112.60
USDJPY was very quiet sitting at 112, for the most part, yesterday until the US treasuries came alive, lifting USDJPY to 112.70.
We have an aimless trade direction because not likely to get any clear pathway for the US Tax Reform until next week, after the US Thanksgiving day bank holiday.
Likely to find support from here and hang around the 112.50-112.80 range.
EUR USD: 1.1735
Euro under pressure after the German election headlines yesterday, now dragging back price action to 1.1730.
I can see this story dragging on the EUR in the very short term, possibly as low as 1.1700 before bargain buyers might step in.
A slide lower on the European open today is quite possible, with stop orders sitting on the 1.17 handle potentially accelerating the slide before a bounce back.
GBP USD: 1.3240
Sterling got a lift to 1.3280 with the GBP seeing strong Bids, against all major counterparts because the Brexit story is starting to shift into deal-making mode.
Furthermore, the Inflation report hearings are due for release in tonight’s London trading session, so traders are positioning for potential positive news for GBP.
Can we finally break 1.33 and gain upward momentum that lasts again?
Quite possible and a great way to play may be the EURGBP as per my Weekly Outlook Video for easyMarkets yesterday.
AUD USD: 0.7530
The Aussie trading straight down after the RBA meeting minutes this morning on the Asian open.
The likelihood of the US rate hike next month is being priced at around 92% probable, so I do expect the Aussie to make its way to 7500 before the year-end.
I think that the 2018 picture for the Aussie is one of recovery off the 75c base, back towards 77c as Australia chews on the idea of lifting interest rates too.
NZD USD: 0.6800
The NZDUSD was quiet yesterday, hovering around the 68c level.
This has been a grand-scale slide off highs earlier this year, and I have been saying for some time that the 6800 handle acts like a price magnet.
The Kiwi needs a catalyst if it is to recover, but last week displayed some very dovish signs.
From these levels, the only saviour in a slide to 6750 will be the US tax story to flop totally, which is certainly not guaranteed.
Look for 6750 this year before buyer’s step in.
USD CAD: 1.2815
Dollar-CAD as Gold fell last night and the US 10-year yields jumped also.
USDCAD can easily get back towards 1.2850 assuming we get a surprise uptick in USD sentiment surrounding the US Tax plan progress through the US Senate.
I prefer to look for some more stable price action, in a grind higher to 1.2850 before real direction becomes clearer.
VIX slipped back under 11 overnight because SP got a mild uptick.
The US Tax Reform in its current form, it very unlikely to provide a result for Team-Trump, so the potential for US Stocks to give back some of this year’s gains is very high.
It will be a shock to the markets if it does get passed, and will then lift SP500 wildly, VIX could see a move back under 10, but I favour the Tax Plan to miss the mark.
Expect the VIX to trade higher looking towards 14 over the next 4 weeks on the US Tax Story falling apart, along with Equities.
Gold performed a swift reversal in the London session overnight, getting back to 1275 before settling down.
This was a good example of the USD rally causing a very quick move in GOLD.
The extended timeline on the US Tax Reform will add a lot of buyers into Gold – I certainly favour long positioning in GOLD looking for $1,300, over the next 2 to 3 weeks.
OIL (WTI): $56.45
Oil has settled back off $57, but only gently.
Price action suggests that we may consolidate around the $56.50 level for now, still looking to grind higher to end this year towards $60, as I have been saying since $52 broke through.
BITCOIN (BTC): $8,230
Bitcoin shot up through $8,300 yesterday, and it is demonstrating some very bullish signs.
The pullback was short-lived and weekend trade has jumped Bids back (above) 8000 again, a very bullish sign of what’s to come for the year-end trade.
Crypto investors have raced into the bargain levels, and we are now aiming for the psychological $10,000 level. Only a matter of time, or are we set for another correction?
I remain very bullish towards $10,000 price target after the fact that traders have shrugged off the pullback coming on the back of the cancelled Bitcoin fork last week.
Macro Themes in Play
• EUR hurt by political jitters but GBP Seems to have solid Upside potential.
• USD Traders on a knife edge surrounding Tax Reform progress.
• Gold slammed back and Oil steady. Bitcoin from strength to strength.
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