USD set for lower levels after weak CPI data

Forex Daily Market Insight

What Happened Yesterday

Traders have been a little baffled of late as the NKC clouds the general market fundamentals. But Friday’s US CPI data left no one guessing as the ‘slightly’ weaker release should keep the FED on hold for the rest of the year. Inflation has been the major focus of many FED members and this data, although only marginally weaker, backs up their view that interest rates should not be raised again this year.

The price action following the release was even more confusing as the USD initially fell, as it should, before rallying aggressively. If you were patient and waited for the retracement you would have done well as once the market settled down traders started selling USD again. If anything the NKC hanging over the market has many traders feeling the jitters and less confident of holding positions, especially as the weekend approached.

The USD has once again bounced off it’s lows on the Monday open as traders weigh up the NKC against the latest bearish USD sentiment. We may have to wait until Tuesday’s US retail sales data before they jump into the ‘sell USD’ trade more confidently.

Today’s Fundamental Drivers

We’ve already had the NZ retail sales data released which came out much better than expected. This highlights one of the major issues we have at the moment where weak currency sentiment is colliding with weak USD sentiment. The Kiwi spiked on the much stronger data before falling back to trade mid range again.

Japanese GDP data came in much better than expected but the market doesn’t seem at all interested.

We’ve got some loose Chinese data scheduled for later in the day for the desperate and dateless.

Technical Set Up – What’s Happening with the Majors

Despite the NKC the majors are behaving pretty good. They are basically where they should be trading with the weak USD sentiment, except for the Beast which appears to be doing it’s own thing.

The slightly weaker USD sentiment has been factored in and most majors are now trading sideways waiting for more ‘info’ on the next leg of direction either from the USD or NKC.

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.

EURUSD

Technical Set Up: Trendline resistance at 1.1843 the key.

Fundamental Driver: EZ Industrial production & NKC

Potential Strategy: Momentum is up so the best trade is a break trade through resistance.

AUDUSD

Technical Set Up: Trendline resistance at 0.7904 the key

Fundamental Driver: RBA Meeting Minutes

Potential Strategy: Short term momentum is up so a break trade through resistance is the best option.

USDJPY

Technical Set Up: Multiple Resistance levels topside

Fundamental Driver: NKC & stronger Japanese GDP data

Potential Strategy: I’m still a seller on rallies but focusing on resistance at 110.15

Next Best Trade Update

We ended up taking 40 points out of USDYEN on Friday just before it rallied higher. This was a lucky bit of timing than anything else but we did give it as long as possible to fall before taking profit ahead of the European session and release of the US CPI data.

The safe haven trade is losing a bit of momentum as there hasn’t been any further escalation of tensions between the US & NK over the weekend. I have cancelled the Swiss order at this stage and waiting for the markets to open up fully before placing the order back on.

Our two long term orders are still in play. Elite members see full Next Best Trade list for full details of executions and pending orders.

Summary

I think it’s a good idea to give the markets a bit of room today as the major currencies try to find their feet after Friday’s weak US CPI data. We have clear ‘weak’ USD sentiment but with the NKC hanging over the market many traders will be sitting on the sidelines.

One of the biggest issues we have to deal with is the collision of weak currency sentiment (AUD, NZD, GBP) with weak USD sentiment. These currency pairs will probably be trading sideways in choppy ranges.

Then we also have the safe haven pairs getting whipped about: USDCHF & USDYEN.

The CAD still has solid long term downward bias but it’s caught up in a short term battle between falling Oil prices and weak USD sentiment. That should be enough to keep the Loonie trading sideways for now.

The EUR looks to be the best pair to trade at the moment and that’s where we’ll be focusing our attention.

We’ve got a really good trading week ahead, so tune up your charts and get ready to trade.

Good Luck.

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