Thursday Trader Talk

October 26, 2017

What Happened on Wednesday > Top 3?

• Bank of Canada holds rates, USDCAD soars to 1.2800
• Sterling recovers sharply after strong GDP Data
• Euro lifts back above 1.1800 ahead of ECB tonight

Outlook

• (USD) US Tax Reform & new Fed Chair speculation continues
• (EUR) ECB in focus re their QE outlook
• (NZD) Kiwi still under pressure with political & trade balance data pressure

Data & Event Risk Today?

• (EUR) ECB Rates– 10.45 pm Sydney
• (EUR) ECB Press Conference– 11.30 pm Sydney
• (USD) US Unemployment – 11.30 pm Sydney

USDX: 93.40

USDX traded back off recent highs yesterday, turning sharply lower from 9385.

The US Tax Reform story facing some headwinds was the catalyst for softer USD to open the Asian session this morning.

A bounce tonight on the US unemployment data is very possible, so I am anticipating ranges back around the 94 level.

USD JPY: 113.50

Dollar-Yen was soft on Wednesday as the US 10-years stalled around 2.4% marker.

USDJPY has drifted lower into the 113 handle but Buyers may step in again shortly to close off this week as news flows through regarding the new Fed chair and US tax reform progress.

The Dollar bulls will jump back into the LONG USDJPY trade with any positive headlines around the US tax reform or the tier 1 US data tonight & Friday.

I still favour a play towards 114.50 and then perhaps on towards 115.

EUR USD: 1.1825

Euro traded back above 1.1800 very quickly on Wednesday mainly in the London session with better than expected Eurozone data being reason enough for Bids ahead of the ECB tonight.

The LONG EURUSD trade seems quite crowded, holding EURUSD around 1.1825 leading into the key ECB meeting, and has a high potential for a sharp unwind, depending on what the tone is from ECB’s Draghi.

Expect extreme volatility during tonight’s press conference and a breakout of this range potentially making lower lows towards 1.1700.

The risk is certainly skewed to the downside from my experience.

GBP USD: 1.3275

Sterling was a big mover jumping from 1.3120 to 1.3275 on the back of positive GDP growth data for the UK yesterday.

The GBP found sharp and continued Bids higher across the London & US dealing session yesterday but may run out of steam.

Look for GBPUSD to settle around 1.3250, a key level.

AUD USD: 0.7710

The Aussie slammed under 7750 price support in early Asian session dealing yesterday on the back of the softer than expected Australian CPI data.

The support came in quickly around 7690, lifting Aussie back into the 77c handle to open trade today in Asia.

The Aussie is under pressure with this CPI number but support should step up shortly as it approaches key Option barrier levels.

A small bounce back to 7730 very likely today with no AUD data until next week.

NZD USD: 0.6895

The NZDUSD is under pressure trading down 3% recently.

Yesterday saw continued moves lower as the new Labour NZ team announced proposals that will hurt the RBNZs ability to raise interest rates unless the NZ labour market is robust.

We also had a softer Trade Balance data release today, but that has been largely shrugged off.

These hurdles should keep the NZD Offered today and for the coming trading days as we see the cabinet announced for NZ Labour Government this week.

The NZDUSD is likely to run back up to 6900 and then see a narrow trading range.

USD CAD: 1.2790

Dollar-CAD provides a big opportunity this week in my view, as the USD find more and more Bidders with the US Tax Reform gathering pace.

That played out beautifully in US session dealing overnight as the Bank Of Canada held their interest rates at 1%, as we called.
The target level of 1.2800 was reached so expect some consolidation before another leg higher after dissecting the BOC commentary.

Buyers may step in again around 1.2750 for a run up above 1.28 in my view.

VIX: 11.23

US Stocks traded quite wildly last night, but in the end, the VIX is pretty much unchanged.

Still holding around 11 for now, but certainly showing signs of a breakout higher soon, before this year-end.

Maybe Trump’s visit to Japan next month will stir up the North Korean issue and we may have the catalyst for a jump in VIX above 13 and Stock market correction (lower)!?

GOLD: $1,280

Gold is trading back up from lows this week to be back at the $1280 level.

Gold was Bid back above $1282 but then turned back as the US 10-Years lifting sharply in US sessions trade yesterday.

If the hawkish incoming Fed chairperson is appointed, namely Taylor, we may see Gold back at 1250, but with Powell the favourite, Gold should hold around 1280 levels.

OIL (WTI): $52.10

Oil was quite restrained yesterday, still hovering around the $52 level.

Price action suggests that a new support base at $52 will help Oil prices lift again, in bullish signs.

The range for Oil may reset to $52-$55 depending on tonight’s data release & month-end positioning in the Futures markets.

BITCOIN (BTC): $5,730

Bitcoin trading aggressively lower yesterday and then swiftly reversing back off lows after the Bitcoin Gold fork occurred.

A run up to $6000 to finish this week is what I can see based on price action in BTC.
The momentum has switched to be strongly bullish again after the midweek lows.

Macro Themes in Play

• EURO cautious ahead of the ECB tomorrow, USD Still quite strong across the board
• Commodity currencies all under pressure as Aussie & NZD data missed expectations, BoC holds rates for Canada.
• USD Sentiment is mixed, driven by Tax Reform & New Fed chair speculation driving Bond markets

Russell Sandiford / Dealer

Russell@easyMarkets.com

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