What Happened Yesterday
The USD Index (DXY) hit a one-month high on Tuesday on the view the Federal Reserve may raise interest rates once more this year, while sterling tumbled after the Bank of England’s head threw cold water on the notion it was close to raising rates.
The USD had a 2-3 delayed reaction to the FED’s hawkish tones from their meeting last week but it started to make a move on Monday following comments from New York Fed President William Dudley who said further improvement in the U.S. labor market would kindle inflation, which has shown signs of flagging in recent months.
If it were to rebound, this would leave the door open for the possibility of another rate hike by year-end after two hikes so far this year.
Meanwhile across the ditch BOE Governor Carney put a cat amongst the pigeons after he said “now was not the time to raise UK interest rates”.
This is stark contrast to last week where three BOE policymakers had voted in favour of a rate hike.
Carney warned of weak wage growth and a likely hit to incomes as Britain prepares to leave the European Union, sending sterling to a two-month low of $1.2603, down 0.9 percent.
It was good to see some Members taking advantage of my suggestion in yesterday’s Market Insight that GBPUSD may fall if Carney was dovish. Good job!
What’s Happening with the Majors
The combination of USD strength and GBP weakness led the other majors down with both the AUD and EUR following suit.
The NZD continues to maintain it’s recent uptrend although that will come under pressure tomorrow with the RBNZ rate meeting.
The CAD succumbed to the USD rally and with Oil falling below $43.30 we could see further gains in the Funds over the coming session. Keep an eye on the CAD crosses as they could see a big sell off if Oil falls below $43.00.
The Beast – USDYEN – continues to shine in the USD strength and looks for all money to be headed towards 112.50 this week.
Major Currencies in Play Today – The Best Potential Opportunities
Technical Set Up: We have cloud support on the downside and just the recent high of 111.80 as resistance. There’s a big chance it could spike above 112.00.
Fundamental Drivers: BOJ Governor Kuroda Speech later today 4.30pm AEST.
Potential Strategy: Break trade above recent highs.
Technical Set Up: We have a solid support trendline coming in at 0.7230. But we have also been getting lower highs the past few days which suggests to me it is exhausted this move.
Fundamental Drivers: Residual USD strength & tomorrows RBNZ Rate Meeting
Potential Strategy: Break Trade to the downside looks the easiest option at this stage.
Important Note: The best trade may not be on a currency pair where there is economic data scheduled for release, so be sure to check out the full technical analysis of all major currencies before you trade.
The Next Best Trade
Yesterday was pretty disappointing as the remarks from FED’s Dudley took a strange hold on the market.
This compromised our AUD and NZD positions and I think I was reasonably lucky to get out of those positions unscathed.
We cancelled our CADYEN pending order as the move down towards $43.00 in Oil completely blows out that plan.
Today we’ve got 1 pending order active in the market. But there may be more to come as BOJ Governor Kuroda is expected to speak later today.
Important Note: We’ll be updating the ‘Next Best Trade’ when the opportunity arises.
Pro Members keep an eye on the Next Best Trade List and we’ll also get an email out to you with any updates.
Don’t forget the whole picture can change with a random event or crazy data release, so keep an eye on your trendlines and look out for our updates in the Live Trade Zone!
Plan the Trade, Trade the Plan!