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Current Market Update – Forex Trading Tips
There is no trade call today due to the bank holidays in major countries. We will be looking for dollar longs on pullbacks throughout the week, especially against weaker currencies.
Current Market Update:
The USD remains the strongest currency in the longer term, but the medium-term direction depends on data. Friday’s CPI has reaffirmed USD strength amid speculation of a rate hike by September.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. The EURUSD can easily get a boost on any USD weakness, and given the huge short positioning in the pair, any liquidation of these positions can cause an aggressive rally. If Greece fails to make any of their imminent repayments, the euro will be pressured.
GBP: The MPC Meeting Minutes gave bullish sentiment back to the pound yesterday and it remains elevated against all its peers. Last week’s Retail Sales beat has given pound a massive push and it is now a bullish currency both fundamentally and sentiment-wise. Pullbacks on sterling pairs against weaker currencies should be viewed as potential GBP long entries.
AUD is relatively neutral now there is no speculation of rate cuts in the near term. As such it will take most of its direction from the price of iron ore and economic activity in China. Movements in AUDUSD will largely be a function of USD sentiment. AUD enjoys a positive interest differential against all majors except NZD; fundamentally this is bullish for the currency.
NZD has a chance of decreasing interest rates in coming months. The Overnight Index Swap market is pricing a 44% chance of a June 10 cut. National Australia Bank says this is too soon. Expectations in the Annual Budget showed 2-year inflation at 2%, up from the 1.85% that were released earlier, derived from a survey of businesses. This has dampened speculation of a cut in June.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will move with negative correlation to the USD. Today’s CPI release may provide useful information about BOC monetary policy intentions.
JPY remains weak due to QE but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is uncertainty in the markets. The Japanese economy has been improving lately and as this continues, expectations of further stimulus are diminished – which is bullish for yen.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.
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