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When it rains, it pours – we waited the entire week for some volatility to move the markets and finally yesterday it came. The initial catalyst came from the ECB which was slightly more dovish than what the market was expecting and as a result, the EUR come under some severe pressure. News started filtering through that the Republican Party has passed through a budget approval, although it doesn’t mean that anything is guaranteed, it does mean that the eventual tax reform bill will be easier to pass.
For those traders that have been waiting for the head-and-shoulders to materialize on the EURUSD it finally played itself out yesterday. The market had expected some news on tapering of QE yesterday but what we got was the ECB keeping the QE open ended for the foreseeable future and this was the catalyst for the EURUSD to spin into freefall. Major resistance at 1.1700 was broken yesterday and from there the sellers built momentum to 1.1650 which is where the market closed. There is some consolidation at these levels and I would look at 1.1625 as the first level to watch this morning.
Just as the “perfect storm” allowed the CAD to strengthen during the summer months, so we are starting to see the opposite start to happen. The USDCAD continues to trade higher, albeit with momentum starting to slow down somewhat. The dovish comments from Wednesday have not completely filtered through yet and so there could be further buying, most of the action however is on the back of US tax cuts and NAFTA agreements. I suspect that NAFTA will remain and I also think this most recent move will fizzle out, I am looking at 1.2875 – 1.2900 as decent areas to look for divergence and possibly to build some offers.
The AUDUSD dropped below the 200 day MA for the first time in 4 months yesterday, there was also some political scandal out of Australia early this morning as the Deputy PM was ousted because of citizenship issues. The significance is that the Australian parliament did not enjoy majority rule and this move leaves the government at as loggerheads. I suspect that this may filter in further today and so this is one I will walk away from today.
Market Insight Commentary – Forex
In the Zone
- GBPUSD
- EURUSD
- NZDUSD
- USDCAD
Market Insight Commentary – Indices
Important Economic Data out today
- 14:30 USD GDP Consensus: 2.6%Effect: Actual higher than expected is good for the USD
Noteworthy News
It has all been confirmed that we will have a new Fed Chair in the coming days, the favourites seem to be either Taylor or Powell at this point. You would think that a move from Yellen will be dollar positive.
