Trader Talk

USDX: 91.65

USDX was a pretty predictable beast late last week, as I said trading sideways around 92.50 before the US data hit.

Friday’s US Session saw the Retail Sales data come out under analysts’ estimates which dragged the Dollar back down, taking USDX back under 92 convincingly, reaching lows around 91.30.

Dollar-Index is drifting back towards 91.70 to kick off this week but will possibly trade in a much tighter range leading into the headline FOMC US Rate announcement on Thursday.

USD JPY: 111.15

USDJPY saw bullish momentum on the upside to close off last week as the radio silence from US military reply to the latest North Korean aggression played out to help lift risk assets.

Surprisingly the USDJPY made it to 111.30, above my target ideas around the 110.70/111 range despite the latest missile across the top of Japan.

The US CPI really did help lift the dollar but at the same time the Yen was actually sold off across the board as markets were comfortable with risk on trading themes playing out in a number of major FX pairs.

I must note that the US yields were whippy on Friday lifting USDJPY but also pulling it back down around the 111 handle for most of the US session and that we have the BOJ monetary policy this Thursday in the Asian session.

This week is crucial for USD sentiment with FOMC rates & press conference on Thursday (US Session Wednesday) and we are also awaiting a serious reply to North Korea from the US after UN sanctions were tightened early last week.

EUR USD: 1.1940

Euro was crunched lower early last week as the markets opened with a firm US Bid tone, dragging EUR from 1.1980 back to lows around 1.1830 against the greenback.

The EURUSD was hit lower after another strong US data point (US CPI) creates a reason for the rate hike possibility to remain for December for the Fed. This is now priced as a 56% probability, up from 51% midweek last week.

The 1.2000 price level may form as a ceiling this week leading into FOMC super Thursday, as the Fed may announce their balance sheet unwinding details. The question is, will that be taken as USD positive or negative?

USD bulls love anything positive to rush in and get Long USD, but with the markets anticipating this next move from the FOMC we may likely see less movement than some are expecting unless of course we get another round of surprise from Janet Yellen’s press conference early Thursday.

EURUSD will take the lead totally from USD sentiment this week in my view.

GBP USD: 1.3590

The Sterling took off like a shot last Thursday after very solid CPI data hit the newswires, fuelling speculation that the BOE’s next move is to raise rates.

Initially, we had targets around 1.3400 for Sterling against the USD until Friday’s comments from MPC (Monetary Policy Committee) voting member talked up the notion of a GBP rate hike soon, and GBP slammed higher and continued all the way until resistance at 1.3600.

This pair has stalled just under 1.3600 to start this week, but the lack of a large pullback or profit taking price action can be taken as strength in the GBPUSD.

Let’s not forget that the Fed have been delaying their hawkish bias to move rates so if we continue to see UK data strong, then GBPUSD can reach higher towards 1.3750. Be mindful that profit taking back to 1.3500 is also very likely firstly before another leg higher.

AUD USD: 0.8025

AUDUSD has traded in a narrow range around the 80c handle to finish off last week after a stellar jobs report for Australia.

Also, we had a miss on data for China industrial production on Thursday, dragging Aussie a little, but still 80c is holding firm.

The challenge here is that the US FOMC may be hawkish or may include dollar positive commentary surrounding the Fed balance sheet unwind, which could drag the AUD back down, so I can see a potential move back below 80c, potentially towards 7950 or even 7900 if the USD bulls rush in this week.

NZD USD: 0.7310

The Kiwi took a run at 7350 to start this week, after NZ election polls helped to lift the Kiwi on Friday & today.

This week we have the dairy trader’s numbers as well as NZ Elections to set the tone for NZD but the USD sentiment is creating volatility too, which will make this pair attractive also.

The 7350 level seems tough to crack for the Kiwi so it may form a recent top for a corrective jolt back towards 7250.

I hate to say that the USD sentiment is driving this pair, but the lack of N Korean negative headlines is helping the commodities currencies find Bids to start this week.

USD CAD: 1.2180

Dollar-CAD has held under the 1.2200 handle for most of last week after poking its head up above 1.2230 very briefly midweek when the risk sentiment shrugged off the recent N Korean aggression.

Market speculation & the data points to another potential hike later this quarter, which can see USDCAD make a run lower to 1.2000 possibly.

Please remember that this Friday we have CAD inflation data, along with Retail sales numbers, so that will create some end of week volatility in this pair, as will the midweek Oil inventories numbers, as always.

If the FOMC disappoints for the USD, we may very well see a run down towards 1.2000 but Traders should be careful because the USD bulls will drive us back to 1.2300 if the FOMC want to propel another round of dollar buying. I would lean on the upside, looking for 1.2300.

VIX: 10.17

The volatility index is very low (10.17) as the SP500 hit a new record just above $2500 on Friday!

The bull run keeps on keeping on for US Equities, but can the FIOMC turn this around and create some reversals this week?

Janet Yellen and her press conference is the chance to spur some higher Volatility, but also the Trump tax reform chatter helps the VIX drop and stocks rally as the Trump trade is still carrying weight.

GOLD: $1,317.80

Gold drifted lower all week last week, slowing down when it drifted to 1315.

The general run up in USD sentiment hurt Gold last week and also the lack of strong US reply regarding the North Korean conflict pulled the risk sentiment higher and naturally Gold lower.

I am not completely buying into this, and feel that it is possible that the Gold may trend higher again, fuelled by North Korean escalation, as that issue really doesn’t look going away.

Gold may lift back towards that 1330 level this week and the possible catalyst is the FOMC mid-week, if the market feels an underwhelming no rate hike is played out in the tone of commentary from the US Fed.

OIL (WTI): $50.50

Oil has continued higher last week, back above $50 to close off the week and a narrow range is in play now above 50.

The $52 price area is always a key one (at least in recent times) so let’s see how this week plays out if/when we approach that level.

Oil seems to want to recover and wants to rise, but we have seen this all year, leading to $52 then reversing lower once again. Possible that pattern will repeat.

Macro Themes in Play

• GBP Slams higher after strong CPI and BOE commentary
• Gold consolidating and Oil recovery seeing a continuation above $50.
• USD Mixed leading in the critical BOJ & FOMC this week