Month: August 2016

The USD has started the new week with a bid tone after last week’s steady hammering. Looking back to last week, the Greenback reached multi-week lows against the Euro, British Pound, Swiss Franc, Canadian Dollar and the Japanese Yen. On balance the losses averaged around 1.5% but what made the weakness so significant was its relentlessness.

For example, the USD/CAD and USD/JPY did not post one session of gains while the EUR/USD traded higher everyday except Friday.

However, the technical reversal pattern in the USD Index on Thursday and Friday suggests this week could be much better for the USD. The dominate technical pattern in the USD Index has been the retracement from the 91.80 low in early May to the .9760 level posted on July 25th. In this analysis, the 61.8% Fibonacci retracement at 94.10 held to the tick last Thursday and then rallied on Friday. As a result, the RSI and stochastics have turned higher suggesting a potential to reach the 95.60/80 range in the near-term.

Since the EUR/USD makes up close to 58% of the USD Index weighting, the technicals suggest the single currency should trade lower. Fundamentally, there’s quite a bit of market moving data from the Eurozone this week including the second quarter GDP revision on Wednesday and the German IFO report on Thursday. In addition, considering the UK PMIs all printed lower recently, FX investors will be watching Tuesday’s Eurozone  PMIs for Brexit related weakness.

On balance, the EUR/USD picture is turning negative.

It hasn’t been an easy week for USD Bulls. Based on the close of NY Trade, the USD Index has fallen five consecutive days testing the 94.05 level last seen on June 24th……the day of the UK referendum.

Even though the US data flow has been on the firm side, the somewhat dovish comments out of the FOMC minutes has kept the downside pressure on the Greenback. Yesterday’s lower jobless claims, the uptick in the Philadelphia FED index and increase in the leading economic indicators were just not enough to convince FX investors that the US FED is serious about further normalization of interest rates this year.

With no first-tier data on the US schedule today, the best USD Bulls can look for will be a consolidation session which will allow investors with a longer-term time horizon to look for levels to establish better positions for the Central Bank divergence trade to re-gain market momentum. Besides, the FOMC holding on  rates is much different than the other G-7 Central banks which are still lowering rates.

Over the last three trading sessions, the best performing currency pair has been the GBP/USD. Since posting its lowest close in almost to 15 years near 1.2880 on Monday, the pair has rallied 300 points to its highest level in two weeks near 1.3175. Yesterday’s leg higher was triggered by a much stronger than expected retail sales report which posted a 1.4% gain versus a median forecast of around .1%. Clearly, the weaker Sterling has attracted tourists and boosted demand across the UK. In addition, the historically large short position in the pair reflects and unbalanced market due for a short-covering correction higher.

Looking ahead to next week, we expect the broader-based UK GDP data will reflect more negative aspects of the Brexit result and print lower than the .6% pace from two months ago.