Compared to the wide swings in global equity markets, crude oil and Spot Gold, G-7 currency prices have been relatively tame during the thin, holiday trading.
With the exception of the USD/JPY, which posted a four-month low just above 110.00 on Monday, the major crosses have been contained within the ranges we have seen during December.
We don’t expect these currency rates to remain docile much past the first week of January. Looking ahead, the next US Non-Farm Payroll (NFP) report is due to be released on Friday, January 4th.
Why is that important? … That’s simple.
The most significant take away from the last FOMC meeting was that the trajectory of FED’s interest rate policy will be “data dependant” and guided by the monthly high frequency economic reports throughout 2019. And as far as high frequency data is concerned, they don’t come any more important than the NFP.
Yesterday’s US weekly jobless claims printed at 214,000. This is just below the six-month moving average of 220,000 and consistent with a headline NFP number over 200,000, which would be USD bullish.
With this in mind, we will likely see Forex traders looking for opportunities around recent technical levels and with a bullish USD bias.
Since Monday’s FX UPDATE, the EUR/USD has traded within a 120 point range between 1.1340 and 1.1460. The fundamental correlation between the Euro and Eurozone equity prices has been diminished as the single currency has held above 1.1350 while the German DAX index dropped to a two-year low yesterday.
We consider the current market positioning as a contributing factor to the Euro’s resilience. According to last week’s CBoE positioning data, speculative short positions in the EUR/USD were at the highest level since September. It’s likely that next week’s report will show a lower imbalance since many traders would have cut shorts into the holiday.
The daily technical picture still reflects a potential “double top” pattern in the 1.1485 area. Our trade suggestion to add to short EUR/USD positions at 1.1410 was filled, which lowers our average to 1.1430. We suggest holding short from 1.1430, or better, with an initial target of 1.1210 and a 1.1565 stop.
The sharp drop in US equities on Christmas Eve pushed the USD/JPY down to just above 110.00. The recent gyrations in equity markets make it tough to call this a solid fundamental support level. The technical picture is mixed after the subsequent rebound was capped at 111.40 on Boxing day.
Our trade suggestion to buy at 110.10 was filled but we don’t have an enormous amount of confidence that a technical low has been reached. As such, we suggest closing out the long position at 110.60 for a profit and looking to buy below 110.00 next week.
The AUD/USD posted a fresh two-year low at .7015 in NY trade but has recovered to .7050 during today’s Asian frame. The momentum of the downtrend appears to be increasing as the negative carry on the pair discourages traders from trying to pick a bottom. The pair has failed to trade above .7080 this week, which suggests another leg lower on the daily charts.
Our trade suggestion to sell at .7090 was not filled leaving us short from .7310. We suggest holding short from .7310 with an initial target of .6940 and a .7165 stop.
The Sterling continues to trade in a narrow range between 1.2730 and 1.2620. With the Brexit deadline now less than three months away, the odds of a “hard” Brexit and a second referendum are about even.
This is not a positive development for the UK or the Sterling. We are currently short GBP/USD from 1.2680. Our trade suggestion to sell at 1.2720 was not filled. We suggest adding to short positions at 1.2740 with an initial target of 1.2530 and a 1.2815 stop.
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