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Greenback outperforms as rate cut expectations drop

Risk-on mood in equities keep safe haven at bay, including the yen.

EURUSD: Greenback tops the performance chart, but the euro comes in second

Although the US dollar was the top performer amongst the FX majors, the euro wasn’t that far behind in second, and as a result limiting the damage to this pair’s price which ended in the red for its fifth consecutive session. Talk of potential easing to aid the German economy certainly helps, as was yesterday’s final CPI figures coming in a notch lower at 1% and well below the ECB’s inflation target, aiding the case for further easing out of the bloc’s central bank. On the USD side, Fed Rosengren’s interview highlighted that he isn’t willing to cut rates further, and combined with talk of US tax cuts has reduced rate cut expectations beyond the 0.25% rate cut fully priced in for September. As was the case prior to the September 0.25% rate cut, Fed speak thus far is reducing the likelihood of further rate cuts, with Powell’s speech on Friday likely to affirm that.

GBPUSD: Greenback strength keeps its price oscillating near the lows

As with EURUSD, although the top performing USD pushed its price lower, the damage was limited here as well, as its bull trend technical overview continues to stall on oscillating and range-bound movement at the lows. Most of the main technical indicators have shifted back to neutral, but price is still well below all its main long-term moving averages and with a trending ADX. A price increase would aid extreme long retail traders looking to close out longs initiated at higher price levels but would hurt institutional traders holding an extreme short bias of 79%, having upped that bias a couple percent. In Brexit news, the UK’s PM continues to attempt to renegotiate a Brexit deal with the EU, else face a no-deal Brexit come October 31st.

USDJPY: Risk-on atmosphere in equities dents safe haven yen, underperforms against the majors

With stimulus and tax cut talk being circulated globally to counter recessionary fears built on the back of worsening global data and an inverted yield curve in the US, yesterday’s risk appetite improved considerably and took equities higher for the session. A risk-on scenario never aids the safe haven yen which was in clear retreat, underperforming against most of the FX majors and as a result putting another dent in this pair’s bear trend technical overview that is stalling heavily as more of its technical indicators shift back to neutral, and with a positive DMI cross occurring yesterday. We’ve mentioned previously that given the bear trend’s catalyst was fundamental risk-off movement, any reversal in that could force a change in its technical overview, and hence any trade initiated should note risk appetite prior.

USDCAD: Positive technical bias continues to build as USD outperforms and CAD lags

The Canadian dollar lagged the most amongst the FX majors, despite a clear rise in energy prices off the lows thanks to stimulus talk that ideally would seep into energy markets down the road. That, combined with an outperforming greenback, sent the pair’s price back above all its main moving averages to finish above the 200-day and 100-day MA’s. Most of its technical indicators are highlighting green and with a bull trend line forming below since late July, but it’ll take a combination of both a stronger dollar and weaker energy prices to keep momentum building. Both retail and institutional traders are holding majority short bias, the former at a heavier 66%. Manufacturing data will be released this evening out of Canada prior to tomorrow’s CPI figures, and there’s also API’s release to be on the look out for due to its effect on oil prices.

AUDUSD: Breaching its 1st Resistance level this morning following RBA release and Chinese lending reforms

Although it was a red finish yesterday for the commodity currency that couldn’t best the greenback, it has managed to recover past its 1st Resistance level following the release of RBA’s minutes and Chinese lending reforms that ideally will result in lower rates. RBA minutes confirmed that they would consider further policy easing if needed, and that it was reasonable to expect an “extended period” of lower interest rates. The recent drop in AUD is also a boon for exports and tourism, highlighted by the central bank as a positive. From a technical standpoint, the pair’s bear trend technical overview continues to stall heavily at these levels, failing to make fresh lows as more indicators shift back to neutral. But it’s not out of the woods yet, especially with the long-term bear channel on the weekly still holding.

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