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Market Brief
The forex markets have opened mixed with regards to risk-on or risk-off. On the hand there is a move out of the Japanese yen and Swiss franc, with a move into the Aussie and Canadian dollar. The once uber strong Kiwi is the weakest of the currencies today, so that is an oddity in the recent market moves.
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Fundamentally there has been nothing that I can see that would put the New Zealand dollar on the back foot but technically the price action and momentum are turning more bearish. Yesterdays close was below the daily 20 exponential moving average and for a few days now the NZDUSD has been below the 200 ema. With the strengthening US dollar most USD crosses have been pushed around except for the NZD as we’re waiting for the RBNZ to come out more Hawkish at their next meeting. Yesterday we had a big pump in the USD as Bostic was super Hawkish and this may have tipped the balance in favour of the US dollar again in terms of interest rate differentials combined with the size of the US economy versus that of the relatively small New Zealand economy.
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Worryingly for retail traders the price action is going against them as shown by the ActivTrader sentiment indicator. With 94% of the traders long the EURGBP there should be an acceleration to the downside and then a change in sentiment would signal the end of the shorting move. Today the economic calendar is light in terms of Tier-1 market moving data releases, but we soon receive the ZEW economic sentiment readings. The last 3 readings have been showing diminishing positive sentiment in the euro area and Germany. The clearest reasoning for this is the uncertainty around the Delta variant which is causing havoc for business and citizens alike. Thankfully for Europe they are similar to the UK with regards to vaccinating their population though it may be said that France have been more draconian in their policies which could lead to further civil unrest. United States Senate Majority Leader Chuck Schumer announced that Senate negotiators have reached an agreement on the final passage of the bipartisan infrastructure plan.
The upper chamber is scheduled to hold a key vote on the legislation at 11:00 am EDT.
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The US dollar index weekly chart shows that the moving averages have acted as support and that we’re trading towards the July swing high and that opens the targets towards the previous significant pivot level around $94.50-$94.70. The Fed speakers over the last day or so following the NFP jobs report are saying the FOMC could taper this Autumn and the forex markets seeing this as a higher probability event. We also had Treasury Secretary Yellen calling for the Debt Ceiling to be raised or extended again to ensure the Treasury can pay for everything that has been mandated by the two recent administrations. If we do get more stimulus, with no contraction of spending and a normalising of Fed monetary policy, the market could see this as a very big positive for the USA, the dollar, and equities. So, the risk event is that the Fed, Senate, Treasury, and expectations are not able to materialise this perfect situation and the markets are disappointed in some way. That could be due to the infrastructure bill not passing, or not being deemed big enough. Or the Fed could not Taper or raise interest rates, or the Treasury may shut down the Government if it fails to get the debt ceiling raised. For now, sentiment is Bullish the US dollar and until we get a material break of that trend we may as well ride this greenback higher.
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A stronger US dollar would leave the EURUSD shorts targeting the weekly 200 ema.
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A stronger US dollar would mean that the weekly support levels on the gold chart should get tested and broken.
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The USDJPY on the weekly chart has clearly broken higher out of a corrective channel and the momentum could now increase to the upside. Looking at the price action which has been sideways since March 2021 and the moving averages, it is not hard to imagine that when the 50-week ema crossed the 200-week ema, there will be calls for much higher USDJPY prices.
