Dollar Strength Disrupts Forex Market
Date | 10-07-2019 - 09:35 AM
Article Type | Forex
Region | World
Strong U.S job growth Friday was the latest catalyst pressuring global currency markets, notes Bill Baruch.
Session close: Settled at 1.1276, down 9.5 ticks
Fundamentals: Strong U.S job growth Friday was the latest catalyst pressuring the euro in a slide now going on two weeks. Last week, U.S ISM Manufacturing was not as bad as feared and Manufacturing Payrolls crushed expectations in the first sign that U.S growth could be turning a corner. The euro extended losses early this morning after German Industrial Production underwhelmed, although trade balance data was a bit better and worked to buoy the tape in what has otherwise unfolded to be a quiet session.
The biggest headwind for the euro is now a potential divergence in central bank policy. Yes, the Federal Reserve is still fully expected to cut rates later this month, but they have not yet. Furthermore, markets are pricing in a 50% probability that they cut 75 basis points this year. If U.S data begins to surprise to the upside those odds would quickly dissipate while right now, nothing points to such a light at the end of the tunnel for the Eurozone.
Tomorrow brings a deluge of Fed speak with Fed Chair Powell kicking things off at 7:45 am CT (may not get much tomorrow since he testifies to Congress Wednesday and Thursday). St. Louis Fed President Bullard speaks at 9:10 am CT and Fed Governor Quarles speaks at 1:00 pm CT, both are voting members this year. JOLTs Job Openings are due at 9:00 am CT.
Technicals: The chart is not pretty, last week was just the euro’s latest failure to hold higher prices. However, at a glance the front-month chart does not look as ugly as September-only. Friday’s selloff cut through a trend line on the September-only that now comes in just above 1.13; this will be our pivot and above here the tape will exude signs of stabilizing. However, the front-month chart is testing the .618 retracement at 1.1264, a level that aligns with the June 18 low; a move below here will encourage additional selling. While we are negative on the euro, this is not the place to be a seller.
Resistance: 1.13475-1.13585**, 1.1394**, 1.1440-1.1446**, 1.1486***, 1.15345-1.1562***
Support: 1.12615-1.1264**, 1.1207-1.1212***, 1.11265-1.11565***
Japanese Yen (JYU)
Session close: Settled at .92445, down 14 ticks
Fundamentals: The Japanese yen puked out Friday in the face of a strengthening U.S. dollar and higher rates following better U.S job growth. Further pressure ensued today after a dismal read on Machinery Orders last night. Bank of Japan Governor Haruhiko Kuroda added that the bank will act as necessary to keep inflation trending to its 2% target. Despite weaker equity markets today, the yen traded lower throughout the session.
Technicals: Price action in the yen is trading into two close pockets of strong support. The first comes in at .9258, this most importantly aligns with the gap from the June/September roll. Below there is previous June highs aligning with the September 200-day moving average. This as our line in the sand for the uptrend; a close below here will signal a failure. As we have said with the euro, while the tape is bearish, this is not where you want to sell.
Resistance: .9350**, .9422-.94585***, .9524**, .9614***
Support: .9233-.9258***, .9175-.9198***
Australian Dollar (ADU)
Session close: Settled at .6987, down 9 ticks
Fundamentals: The Aussie dollar has been tethered to the .7000 mark over the last week battling a roller coaster of trade news, risk-sentiment, underwhelming economic data from Australia and better data from the United States. Tomorrow’s Fed speak will be pivotal in helping define direction. Before then, we have NAB Business Confidence tonight at 8:30 pm CT.
Technicals: The near-term range is defined. Major three-star resistance aligns last week’s swing and closing high, downside support aligns the .382 Fibonacci retracement with the closing and swing low. Right now, the tape looks weaker, but we must see a close outside of this range in order to encourage a directional move.
Support: .6973-.6982***, .6931**, .6809-.6861***, .6300***
Canadian Dollar (CDU)
Session close: Settled at .76465, down 6.5 ticks
Fundamentals: The Canadian dollar has defied odds and expectations by grinding higher and holding ground in the face of headlines; a stronger U.S dollar and a weak Canadian employment report, topped off with a dismal Ivey PMI Friday. However, Canadian wages are quietly the catalyst gaining the most in more than a year. Furthermore, the Bank of Canada is expected to keep rates unchanged for the intermediate future and this policy divergence has fueled price action. The problem here is that any waver from the Bank of Canada Wednesday would be bearish.
Technicals: The trend is higher, but inversely to the euro and yen, this is not where you want to buy the Canadian dollar. Price action ran into a crucial level of resistance Friday that aligned several technical indicators as well as the September contract swing high from Feb. 1. Pullbacks that hold first key support at .7617-.7618 will be extremely constructive. We see a strong buy opportunity lower into the 200-day moving average at .7562-.7566 about 1% away.
Resistance: .76595-.7685***, .78355***
Support: .7617-.7618**, .7562-.7566***