What Happened Yesterday
Trading Friday was not exactly a walk in the park with loads of ‘geopolitical event risk’ across a number of the G7 currencies.
Let me just start with the Canadian CPI data which I highlighted as possibly the best trading opportunity of the day. The CPI numbers came in slightly lower than forecasts whilst the Retail sales data was slightly better. A little bit confusing for some but the market went with the CPI data and USDCAD rallied from 1.2260 up to 1.2340 over the course of the day as traders reduced the odds of more aggressive rate hikes by the Bank of Canada.
For the rest of the market geopolitics took over and hindered any sensible trading.
North Korea were at it again with another bomb test in the Pacific and then the North Korean foreign minister stated a strike on the USA mainland was inevitable!
There was little reaction on the Swissie whilst the YEN had another kneejerk reaction dropping from 112.30 to 111.65 before slowly climbing back to regain 112.00.
The Donald responded with a massive fly by on North Korea with a squadron of bombers over the weekend. This is clearly not going to end well for anyone and you can expect further wild trading from here.
Sterling: The British pound took a bit of a battering after UK PM Theresa May May failed to give any concrete details for how Britain might retain preferential access to Europe’s single market in her speech. In my opinion this doesn’t change anything but it just wasn’t what the market was looking for. The next part of the GBP sell off came after Moody’s downgraded Britains sovereign debt rating, saying government plans to bring down debt had been knocked off course and Brexit would weigh on the economy.
Europe: The Euro slipped in early Asian trading on Monday after Germany’s election showed surging support for a far-right party that left Chancellor Angela Merkel scrambling to form a governing coalition. The Euro was trading down 0.4% at $1.1906 and looked set to test support around $1.1860 as liquidity picked up through the session.
Merkel did win a fourth term in office on Sunday but will have to build an uneasy coalition to form a government after her conservatives haemorrhaged support in the face of a surge by the far-right.
New Zealand: Political uncertainty also took a toll on the New Zealand dollar after no single party won a majority in an election over the weekend. The Kiwi eased 0.44% to $0.7308, but should find chart support at $0.7280.
The ruling National Party won the largest number votes in the election, but neither of the major parties won enough seats to gain a majority in parliament, forcing a round of coalition building that could last days or weeks.
Today’s Fundamental Drivers
Today’s highlight will be the German Ifo data but I doub’t that will factor as the market awaits more details from the weekend German elections.
North Korea is also another major ‘risk’ situation and I think we can expect more activity out of them this week and that should keep traders on the sidelines for now.
Technical Set Up – What’s Happening with the Majors
With so many geopolitical events impacting the market it’s no surprise the majority of the major pairs are chopping about in big ranges. The USD does look more structured against the YEN and the CAD but I think we have to expect similar volatile range trading whilst the North Korea conflict continues.
Continues to bang away within recent ranges. No clear direction at this stage!
NZ election result still unfolding. But with no majority Government it should weigh on the Kiwi.
Back to where it started Friday’s trading. But uncertainty around North Korea will slow traders down. Beware buying YEN from here.
Political uncertainty should weigh on Euro whilst Brexit issues for the UK may see it remain steady as EURGBP buying holds it up.
Moody’s downgrade has GBP on back foot whilst the market waits for more concrete details on Brexit.
Sideways as EUR fall is offset by USD selling on the NKC. Steady from here but it could kick off at any stage if missiles start flying!
We could see a short term topside correction if Oil starts to fall. At the moment higher Oil prices are offsetting weaker domestic data.
Today’s Focus – Major Currencies in Play
You need to follow the economic data releases & best technical set ups to work out where the majority of action and interest will be.
Technical Set Up: Support at 112.02
Fundamental Driver: North Korea Conflict
Potential Strategy: Sell USDYEN if missiles head to the USA. Buy USDYEN if missiles head to Japan!
Technical Set Up: Support @1.1885 & Resistance @1.2015
Fundamental Driver: German Ifo data
Potential Strategy: Range trade looks the way ahead until the German Government is finalised.
Next Best Trade Update
USDYEN slipped right down to the support trendline on Friday. But with the weekend upon on us the trade was closed for a 20 pip profit.
You can expect more action this week on the YEN and the CAD, so stay tuned for further updates.
Check our Next Best Trades list for full order details.
I’m expecting a slow start to Monday as political uncertainty and North Korea situation drag on. The best thing to do is wait for the market to fully engage again before jumping into any positions.
Thursday looks to be the best trading day this week so take your time and wait for momentum to build on the USD.
Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!