The Bullet Report
Title: USD at a key inflection point, will multi month bull trend continue?
The FX market has been range bound past 24 hours with most majors seeing two way action. Exceptions are the GBP, gaining over 100pips following strong retail sales printing 1.2% m/m, and NZD driven by NZDUSD short covering and AUDNZD sellers.
The USD is at a key inflection point here. EURUSD bouncing from 1.105-1.11 level, previously the high on March and April and well supported in early May (previous resistance becoming support). AUDUSD is resting around 0.7900, previous highs on Feb and March and supported earlier in May as the basing ground before AUDUSD launched to 0.8160.
There are two contrasting views amongst FX traders:
- multi month bullish USD trend will continue, the USD was in extended pullback April and early May but medium term trend is intact and clear; US data will be strong and given the divergence of central bank policy (e.g. ECB front loading QE while US Fed hiking rate), Dollar index target above 100, EURUSD below 1.05, USDJPY breaking 2015 consolidation higher above 125, AUDUSD seek 0.75, Gold below 1140
- multi month USD rally is over and now predicting a weaker USD; this week’s correction was healthy; US data will continue to be weak, US Fed doesn’t want to jeopardise the economy so will hike rate much later; US Fed also doesn’t want strong USD to inhibit exports; EURUSD above 1.15, AUDUSD above 0.8150, Gold 1300.
The debate is ongoing and the flows of data and news will drive traders’ commitment to either side. Analysing price action around key levels may also assist in understanding the market’s conviction.
Tonight, we have four central bankers speaking: ECB Draghi, BOE Carney, BOJ Kuroda and US Fed Yellen (probably the highlight). US CPI is also a key indicator that US Fed looks at.
Trading Quote of the Day: “Risk means more things can happen than will happen.” - Elroy Dimson