USD steady as focus shifts to ECB meeting & UK Election

Market Analysis

What Happened Yesterday

The USD Index steadied on Monday, recovering from a near a seven-month low hit on Friday, as investors turned their focus to this week’s impending European Central Bank meeting and a parliamentary election in the UK.

The USD rose against the Euro as traders doubted that any European Central Bank shift in policy stance could strengthen the euro further.

The opinion in the market is that ECB policymakers are set to take a more benign view of the economy when they meet on Thursday and will even discuss dropping some of their pledges to ramp up stimulus if needed.

Complacency that the ECB will be less dovish has left the Euro vulnerable to disappointment if the central bank does not satisfy those expectations.

Sterling rose to a 10-day high, with investors taking comfort from an opinion poll that gave Britain’s ruling Conservative Party a comfortable lead ahead of Thursday’s parliamentary elections.

This combination led to the main move of the day with a quick stop loss run in EURGBP down through support at 0.8715. It coincided with the EUR dip below 1.1255 and a spike in GBP above 1.2900.

 

You can expect trading in Europe to be somewhat fractured with these two major events coming up. In particular GBP where the UK is still reeling from the latest terrorist events.

Still the fact remains the USD has weak sentiment so that should be the side we trade from for now.

I’d say by Wednesday both Euro and GBP will be untradable …. but we’ll cross that bridge when we come to it.

What’s Happening with the Majors

The USD managed to slightly retrace some of Friday’s losses but it did stop where ti should have and i think that clears things up for a continue of the weak USD theme.

It’s just a shame we have the ECB and UK elections otherwise the market would not be so distracted from the USD.

Most majors currencies had a bit of a ‘head wobble’ where they’ve tweaked though short term trendlines only to retrace those moves at the end of the North American session.

 

The AUD was the standout over rallying above 0.7475 to test 0.7500 ahead of the RBA decision today.

The EUR, GBP and CAD all drifted in thin European holiday markets. But they haven’t gone far and if anything they were fickle moves taking out short term positions.

The beast continues to tread water around 110.40-50. It’s the sleeping giant and I expect it to kick into gear shortly.

The Flightless Bird (Kiwi) has been stoic sitting up on it’s perch above 0.7100. I’m not sure what’s going on but someone thinks it’s a buy!

The Next Best Trade

We’ve got two live positions and two pending orders still sitting in the market. It’s been a pretty quiet start to the week so i’m happy to sit with these positions and orders for the time being.

 

If anything I’m a little pissed off I didn’t spot the potential in EURGBP yesterday as that was an easy order to place especially as the expectation was that UK PM May’s opinion polls would go up with her response to the events and that’s only going to be strong for GBP.

I’ll be watching the market today and gauging momentum and levels to see if the pending orders are still valid. At this stage they are.

Important Note: We’ll be updating the ‘Next Best Trade’ when the opportunity arises. Pro Members stay tuned for email updates.

What to Expect from the Market Today – Tuesday 6 June

 

Asian Session:

The pick of the bunch.

AUD – RBA Rate Decision & Statement – It’s a pretty big day for the Aussie with the focus entirely on the Statement as no chnage in rates is expected at this stage and with so much global uncertainty at the moment there’s non chnace they would surprise the market with a cut.

We’ve had a run of weak data over the past month so there is a chnace the RBA comes out with a Dovish tone. If they do you can expect the AUD to slide to the downside.

European Session:

It’s another sleeper with very little data but you can expect more geopolitical fallout in the UK as well as further hype around the ECB meeting later this week. After all what else are the media agencies going to do all day?? They’ll think up some rubbish to print!

North American Session:

The only real potential driving data is the Canadian Ivey Purchasing Managers index but with so much going on and Oil dominating the CAD it’s a tall stretch to think this data will impact USDCAD.

Overall I’m sticking with the weak USD sentiment but i am very aware of the potential for European trading to get very messy as we go through the next few days.

The good thing is the Aussie data today and tomorrow is big and that’ll probably provide the best opportunities.

Tune up your charts and get ready to trade, See you in the Live Trade Zone.

Brad

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