What Happened Yesterday
The USD fell to its lowest level in nearly two years against the Euro after European Central Bank President Mario Draghi said policymakers would discuss possible changes to its bond-buying scheme in the autumn.
Though Draghi said no date had been set for discussing any changes to the program and that ECB rate-setters had been unanimous in their decision not to change their guidance on monetary policy, investors suspected discussions in the autumn would lead to monetary tightening next year.
The EURUSD climbed as high as $1.1655 after Draghi spoke, putting it up as much as 1.2% on the day and marking its highest level since August 2015. The Euro was last on course for its biggest daily percentage gain in more than three weeks.
The DXY hit a session low of 94.09, marking its lowest level in nearly a year. The index pared some losses in afternoon U.S. trading and was last down 0.5% at 94.30.
The extended move in the EURUSD was a culmiination of a short Euro market, weak USD from earlier in the week and stops triggered in the pair above 1.1580 & 1.1600.
The USD was last flat against the Yen at 111.96 after touching a more than three-week high of 111.49 earlier.
The Bank of Japan kept monetary policy steady on Thursday but once again pushed back the timing for achieving its ambitious inflation target. The view that the BoJ was maintaining its easy money policies allowed the USD to remain somewhat steady against the Yen.
Today’s Fundamental Drivers
It’s going to be a relatively subdued day and most traders will be reverting to their technical’s for trading opportunities as there isn’t too much on the economic calendar today.
Obviously the Canadian CPI data is the major focus and with the bearish outlook for USDCAD it is really a cracking number to finish the week off.
Technical Set Up – What’s Happening with the Majors
Most of the majors benefited from the stronger Euro as the USD fell away against most pairs. But the major rally was really restricted to EUR and the EURO crosses.
Enough said already. Draghi’s comments about possible changes in the Autumn were enough to get the market factoring in monetary policy changes in Europe. I don’t necessarily agree with that move but at the same time it’s great because it gives the markets a life line and there will be loads more cracking trading opportunities arising from this move.
Got hammered on two fronts. First there was a sell off on the prospect that UK ministers may walk out on Brexit talks….so that’s not really going to plan. Secondly the chance of a change in European policy led to a big rally in EURGBP. So Sterling really got it between the eyes!
Followed it’s big brother the EUR. We’ve now broken some big levels so I expect USDCHF to continue to the downside.
There was a residual rally after the BOJ meeting but it wasn’t convincing and that’s no surprise as the BOJ didn’t really do anything except lower their inflation forecasts. Big deal…not! It should drift lower from here with the weaker USD outlook.
A tricky day for some as the Aussie popped after the Employment data was released. There wasn’t any major variance in the ‘big picture’ data but the smaller details ‘full time’ employment was a huge number. That saw the Aussie pop higher before dribbling off 90 pips from it’s high of 0.7988. I think it’s still going higher.
This is trading very oddly at the moment. Followed the Aussie after the ECB announcement with a few short stops triggered above 0.7380.
Slowly dribbling to the downside with the weaker USD but since Oil has been pretty steady it hasn’t gone far. Today’s CPI data will be key to the next leg.
Today’s Focus – Major Currencies in Play
There’s not a huge amount on the cards as we run into the weekend. The major theme is ‘strong Euro’ more so than just weak USD. The one standout today has to be USDCAD.
Technical Set Up: Loads of resistance trendlines on the topside. First one comes in around 1.2630
Fundamental Driver: Canadian CPI data
Potential Strategy: The best trade direction is down so I’m hoping for strong CPI numbers. If the data is weak I’ll still be assessing the topside for a selling opportunity. I will not be buying USDCAD regardless of the result!
Next Best Trade Update
The short term trading opportunity yesterday was on USDYEN. The BOJ failed to deliver the knock out surprise punch so I basically let it go.
The Longer term opportunity which I still like is on the AUDUSD. Unfortunately I missed the entry by 0.5 of a pip. That’s officially a Bee’s dick in anyone’s language.
I’ll be reassessing the levels throughout the day so keep an eye on the Next Best Trade list for updates.