Two Exceptions


STAR OF THE DAY - With the exception of Wednesday, the economic calendar for this week is rather light. Tomorrow, we get some GDP figures out of the Eurozone and US retail sales. Other than that, there really isn't much to talk about. Overall, nothing happened on Monday. Most markets were content to trade sideways with nothing exciting happening. But I did say "overall." There were of course a couple of isolated movers on Monday. The big star of the day was the Pound. Though the Bank of England made no changes to policy, the UK currency managed to rally quite sharply, breaking to a fresh 2015 high beyond 1.5600. However, the price action was probably less a function of the central bank decision and more in reaction to last week's election, which produced a surprising result, with the Conservatives not only winning, but taking a majority government.

STRUCTURAL SHIFT? - After weeks and weeks of the market pricing in a hung parliament and possible Labour victory, a rally in the currency was to be expected post election. Clearly, the Pound had taken a nice hit in the lead up to the election, and the past couple of days have been used as an opportunity to correctly reprice the currency. Now I'm not entirely sure how many more sessions we get of this repricing, but it is definitely something to be aware of. Technically, the break above 1.5600 is significant, and could open the door for a more medium-term structural shift in this market. There is no reason to suspect such a shift just yet, and it will probably be best to wait for confirmation and see where the market closes on Friday.

FALLING STAR - Moving on, the other isolated mover on Monday was the New Zealand Dollar. Unfortunately for Kiwi, it was a lonely isolation, with the currency broadly underperforming. So yes, if you happened to have bought GBPNZD on the Monday open, you would have done very well for yourself. With Kiwi, there wasn't anything specific that opened the standout weakness. I believe it was more a follow through from the price action we have seen over the past week or so, with many traders exiting long Kiwi exposure following a plethora of bearish developments. First it was a downbeat RBNZ, and then this was followed by a week of soft economic data and dovish official comments.

What will happen to Kiwi if stocks come off hard? Via @joelkruger

COULD GET UGLIER - Some more bad data even Monday, along with concern over China post the weekend PBOC rate cut, and the New Zealand Dollar has quickly gone from being the Belle of the Ball to a skunk at the party. Of course, the RBNZ and New Zealand government aren't saddened by this at all, as both have made it clear they are not happy with the elevated Kiwi rate. But from a markets point of view, those who have been looking for yield via Kiwi, have been let down big time over the past week and a half. Perhaps the only thing going for the New Zealand Dollar right now is the elevated equity market. The fact that stocks are still tracking at record highs has definitely helped the higher yielding Kiwi, which benefits from these flows. As such, it could also get very ugly for this currency, if the equity market ever decides to capitulate...something that looks more likely with each passing day.

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