Safe haven currencies outperform on rising trade risks, commodity currencies lag
Franc and yen outperform while commodity currencies plummet, Fed rate cut likelihoods rise again.
EURUSD: Finishing slightly off the lows as trade meltdown takes yields lower
Friday’s NFP result might have been the item investors were awaiting for late last week, but Trump’s tariffs on Chinese imports the day before was the dominating theme, with yields plummeting globally, the German 10-year at -0.488 and its 30-year briefly touching negative territory. That is unlikely to aid the current economic outlook, which following Thursday’s PMI contractions out of the eurozone remains worrying. USD weakness on Thursday and Friday is what prevented this pair from suffering fresh lows as its daily outlook remains bearish, while on the weekly outlook negative bias persists but within a consolidatory theme. Last week’s levels held and offered a decent reversal play, but if the trade war spirals further out of control, breakout strategies might be more enticing. On the political front, Italy is in focus this week to see whether the current government can avoid collapsing. The latest CoT report shows short positioning rising 16.6K lots as opposed to a 1.6K lot increase in euro longs.
GBPUSD: Unresolved Brexit woes, a BoE on hold, and preliminary GDP figures released at the end of the week
It was a rough week for the pound, registering fresh declines and shifting its weekly technical outlook to that of an initializing bear trend but where its ADX still isn’t showing a propensity to trend, and hence result in sell breakout strategies that offer little follow through. The BoE last week kept rates on hold, lowered the UK’s growth forecasts (with preliminary GDP released this Friday), and its Governor Carney saying that the chance of a no-deal Brexit has risen. On the flip side, inflationary pressures are rising, putting the BoE in a tough spot in terms of how to react in the future, as a rate cut would send the pound lower. And while likelihoods of a rate cut out of the BoE have risen, a majority aren’t pricing it in for this November. Retail bias remains at extreme long levels, while institutional bias has dropped a couple percent from extreme short territories thanks to a larger increase in pound shorts of 21K lots as opposed to a 9.4K lot increase in pound longs.
USDJPY: Safe haven yen surges on rising trade (and geopolitical) risks, institutional sentiment shifts closer to the middle
Safe haven currencies outperformed late last week, with both Swiss franc and Japanese yen topping the FX performance charts as investors fled to safety and sent yields dropping. That, combined with a retreating greenback as US yields took a hit, sent this pair’s price plummeting past a short-term support level, and infusing the pair’s price with more negative technical bias. However, keep in mind that the factors thus far have been fundamental, and although it’s unlikely that US-China trade talks (assuming they resume) moving forward will yield an outcome (if anything, China’s expected response could provoke the opposite), any positive trade talk could put recent losses at risk. There’s little needed at this stage to shift the weekly technical overview to that of an initializing bear trend, as most of its technical indicators are flashing red but with a non-trending ADX. In terms of institutional bias, it has dropped closer to the middle on an increase in yen longs by 2.4K lots and a simultaneous reduction in yen shorts by 2.8K lots.
USDCAD: Commodity currencies take a hit on trade war fears, Canadian employment data released this Friday
It was a shaky week for this pair that has kept its current consolidatory outlook intact whereby (weekly) technical indicators are mostly neutral, but with a trending ADX. The lack of other major technical indicators to aid the ADX’s propensity to trend makes it a tougher one to predict, especially as commodity currencies (and the greenback) are under pressure following the end of the trade truce between the US and China. The drop in energy prices never helps the energy underlying of commodity currency CAD, but the drop in the greenback as well has managed to keep this pair’s price from rising significantly higher. Retail bias remains majority short at 59%, while institutional bias has dropped from last week’s majority short 64% to a more modest 60% on a reduction in CAD longs by 3.4K lots and an increase in CAD shorts by 5.6K lots.
AUDUSD: A week of red for the commodity currency ahead of tomorrow’s RBA announcement
This pair’s price suffered its eleventh consecutive day of losses, with the recent fundamental announcement regarding trade tariffs ending the US-China trade truce and hurting the commodity and proxy currency in the process. While last week’s Weekly Market Report offered a reversal strategy of the lows, it’s the daily strategies that are in a clearer state of a bear trend. On the more long-term weekly outlook, there’s heavy negative bias with a negative DMI cross occurring but moving within a bear trend channel that could be open to retracement on either USD weakness, or if commodity prices manage to rise off the loss (as unlikely as that may seem in this case). There’s an Australian bank holiday today ahead of the RBA’s announcement tomorrow, and the RBNZ the morning after.
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