Currency Market Trend Analysis: September 20, 2017

Headlines

• Markets continued to mark time yesterday ahead of the big FOMC announcement at 2pm today.  Press conference to follow.

• Traders are finally expecting details on how the Fed will reduce its $4.5 trillion balance sheet, and while Fed fund futures are pricing in a roughly 50% chance of a rate hike at December’s meeting, the consensus is that the Fed is going to give us a dovish tone and look for an excuse to lower the median “dot plots” for the rate outlook going to 2020 (because of still lower than expected year over year inflation figures, possibly even because of the Hurricanes).

• Recent price and positioning trends in the USD confirm this consensus as the USD remains in downtrends against most of the major currencies and is still held net short in aggregate.

• GBPUSD gets a little lift overnight on stronger than expected UK Retail Sales, but the rally fails miserably at 1.3600.  NZDUSD breaks 0.7350 on polls showing the ruling National Party out front.  AUDUSD higher on talk of short covering, rate-hike calls from ANZ bank and a higher NZD.

• Crude oil inventories at 10:30amET today.  Energy markets continue to consolidate recent gains.

Currency Calendar

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By The Numbers: Daily FX Snapshot

USD/CAD - Canadian Dollar

Key support levels for USDCAD ahead of the Fed are 1.2250 (the NY lows from yesterday) and the 1.2125-75 area.  While the technicals are still bearish, Monday’s high around 1.2340 is important to watch as well.  A rally above would open the door to the 1.24s fairly easily.  Market is still positioned net long CAD (short USD).  CAD futures traders added 3846 contracts during yesterday’s range bound session.  Out-of-the-money call buying (bets the CAD will go higher) were the feature in futures options action yesterday.  CAD currently getting a bid as NZD breaks to above 0.7350.

EUR/USD - European Central Bank Euro

The Euro is now up for the fifth day in a row since last Thursday’s low but it’s inching up so slowly that it feels like short-term short positions simply giving up more than anything else.  Daily and weekly technicals are still bullish.  Key levels to watch are 1.2092 (the swing high), 1.1900-25, and Thursday’s low in the 1.1830s.  Market is still positioned net long EUR.  EUR futures traders added 7100 contracts yesterday.

GBP/CAD - British Pound

Sterling continued to hug its post Mark Carney speech lows yesterday around the 1.35 handle.  There’s not much in the way of support under 1.3460 given the huge 400 point range from Thursday and Friday.  Contrastingly, the swing high is 1.3620 and a rally above there opens a potential “no-mans” land of liquidity (Brexit levels) where prices could explode higher simply because there are no key resentence levels to rest offers against.  Futures traders added 2039 contracts yesterday and, as a reminder, this market is still positioned net short.  Out-of-the-money put buying (bets the GBP will go lower) was noted in December futures options yesterday.  Market popped above 1.3600 on the higher than expected UK Retails Sales print earlier this morning, but the move has failed miserably and we’re right back to where we were in Asia.  See GBPUSD chart.

AUD/USD - Australian Dollar

The ability for the Aussie to regain the 80 handle during yesterday’s trade has been technically significant.  Overnight in Europe, we saw the market break back above the 0.8030s.  There was talk of short covering;  ANZ bank is now calling for two rate hikes from the RBA in 2018.  It’s also hard for Aussie traders to watch the NZD (their cousin) rally and not get excited.  Key levels to watch post Fed today are 0.8000-0.8030 (where we’re breaking out from right now) and the 0.8120s, the most recent swing high that created the bearish inverted hammer candle.

NZD/USD - New Zealand Dollar

After a week of range bound action, the Kiwi has broken out to the upside on election polls overnight showing the ruling National Party with a solid lead ahead of Saturday’s election.  See NZDUSD chart. The market has just tripped stops above resistance in the 0.7370s.  The NZD bid is giving a lift to its fellow commodity-bloc currencies, AUD and CAD.

USD/JPY - Japanese Yen

The Yen is finally taking a break here as precious metals and US treasuries get a bounce during London trading.  Key support levels to watch ahead of the Fed are 111.20, 110.90 (Sunday’s gap open), and the 110.60s (a level that was tested many times to the upside in August and September).   USDJPY remains technically strong on the charts after the violent post-Irma reversal.  It would take a strong weekly close back below the 108.50s to reverse that.  A reminder that the market remains net short JPY in terms of positioning.  The BOJ meets tomorrow to announce monetary policy.

Market Analysis Charts

USD/CAD Chart

NZD/USD Chart

GBP/USD Chart

Charts: TWS Workstation

About the Author

Erik Bregar - Trader

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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