- Major currencies back on the move
- Lower for longer still welcome
- US inflation could change picture
- Power of safe haven not to be ignored
- Long AUDNZD in play but under water
- Looking to sell GBPUSD further up
PICKING UP - It's gonna get interesting in the days ahead. There's no doubt. A lot of what has been absent in the FX market these past several weeks has been activity in the major currency pairs. Up until yesterday, EURUSD and USDJPY hadn't been doing anything at all. But we are now finally seeing signs of movement that will invite some welcome volatility to markets. Clearly the driver of the price action comes on the back of a wave of disheartening US economic data. But although this data may be disheartening to the real economy, investors couldn't be happier, with the implication the Fed will now hold off on rates for the remainder of 2015. As of now, there is only about a 25% chance the Fed will raise rates in December...as of now. And so, the ongoing pummeling of discouraging US data has finally made a noticeable dent in the US Dollar, with the Buck selling off through some key support against many currencies.
CONSIDER THIS - But two things need to be seriously considered. One, the Fed could still very well hike in September. Markets are fickle and any sign of improvement in data, perhaps even a higher US inflation reading today, will get participants thinking about that 2015 hike again. This would once again be US Dollar supportive. Two, all of this price action we are seeing now is because things are not good out there. Economic data outside the US has been dreadful as well. Data in Germany and the Eurozone has disappointed over the past week, while China is not offering anything positive and Australia just produced a below forecast employment report. So we need to remember that yield differentials aren't the only driver of price action. Safe haven flow can be just as powerful, and this safe haven flow would invite another surge in Dollar demand.
STRATEGY - On the strategy front, I have recently established a long AUDNZD position which currently sits out of the money. But I am in this position for the long run and will be looking for an eventual push back towards the 2015 high just shy of 1.1500. The road could be a little rocky over the coming sessions, but all of this should fizzle out in favor of the longer-term recovery in this market. Otherwise, I have my eye on GBPUSD today. There is some solid fib resistance up in the 1.5550 area, and should we see this rally extend into that zone, I will be looking to establish a countertrend position. If we look back at the 2015 high in Cable from June, the price action since has been bearish, with the market gradually trading lower, putting in lower highs and lower lows. I will be looking for that next lower top in the 1.5550 area.