Article / 23 August 2016 at 14:21 GMT

Fed speakers and US dollar at odds

FX Trade Strategist /
  • Soft US dollar contradicts Fed hawks
  • Oil and Loonie moving in the same direction
  • EURUSD approaching top of its range
 If the market deems her Friday speech both relevant and hawkish EURUSD will tank. Pic: iStock

By Michael O'Neill

There hasn’t been any shortage of Fed speakers over the past few weeks and those speakers have delivered fairly hawkish statements implying that a September rate hike is a real possibility. Normally, those comments would send EURUSD into full retreat.

Not this time. FX traders, at least those not enjoying a summer vacation, have turned a deaf ear to the hawkish squawks. EURUSD has rallied from 1.1045 on August 5 to 1.1354 on August 22.       Perhaps I may be getting senile but I don’t remember the last time the US dollar devalued when so many Fed speakers were championing rate increases at the next meeting.

Don’t fight the Fed

There is an old adage that says something like “Don’t fight the Fed”. There may be some truth to that statement, especially this time around. The current Federal Open Market Committee has been portrayed by the financial media and analysts as cautious and by one former Fed insider, as schizophrenic, due to contradictory statements by various Fed speakers. Others see them as clueless and inept.  

It would not be a stretch to say that the FOMC members are less than enamoured by how they are portrayed in the media. And one sure way to change the markets view of them would be with a decisive stroke.

Maybe there is something to the chatter that a September rate hike is “possible” like New York Fed President William Dudley said last week.

If so, EURUSD bulls may suffer a fate similar to Canadian buffalo at Head-Smashed-In Buffalo Jump, now a UNESCO World Heritage site. It won’t be pretty.

EURUSD has traded in a 1.0800-1.1500 range since mid-January. Numerous attempts to break through the top have failed and at the moment the single currency is within 0.0200 points of the top once again.

The Eurozone still has a myriad of issues to settle; from Greece to Turkey, the refugee crisis and the fallout from Brexit. European Central Bank interest rates are 0% to negative which is unlikely to trigger a stampede of foreign investors.

If, and it’s a big if, Janet Yellen’s Jackson Hole speech is deemed a) relevant and b) hawkish, EURUSD will revisit the bottom of the range, and in a hurry.

USDX remains bearish

The US dollar index is behaving as though Brexit was just a bad dream. After spiking to 96.71 from 94.04 on June 23, USDX consolidated and then peaked at 97.60 on July 24. Since then, it has declined, somewhat erratically, and is now within spitting distance of the 76.4% Fibonacci retracement level (94.11) of the June-July range.

The intraday USDX technicals are bearish while trading below 94.90 looking for a decisive break of 94.11 (76.4% Fibonacci retracement level) to extend losses to 93.02, the Brexit low. However, a move above 94.90 would negate the downside pressure and suggest further gains to 95.32 and then 95.97. 

Longer term, the USDX downtrend from the December 2015 peak of 100.62 remains intact while prices are below 97.50. The break below 95.22 targets 93.95

Chart: USDX 4 hour
 Source: Saxo Bank 

Loonie bulls living dangerously

USDCAD traders have decided that the general bearish US dollar sentiment has precedence over declining oil prices, at least today. Both WTI and USDCAD have declined from Monday’s end of day price in New York. That relationship is unlikely to last – it never does and the victim will most likely be the Canadian dollar.

Oil prices continue to suffer from rising production and increased demand. There is evidence that the production sided of the equation has gotten worse. Baker Hughs reported on Friday that US rig counts rose to 491 from 481 the previous week which suggests increased US crude production. Saudi Arabia is reportedly on track to announce another production record in August.

The WTI technicals are bearish as well. The intraday uptrend from August 12 ended on Friday with the break below $47.60 which sets up a test of the uptrend line from the beginning of the month, currently at $44.70.

USDCAD has shrugged off the weak Retail Sales and CPI data on Friday but that data still warns that the expected Canadian domestic Q3 rebound may not be as strong as anticipated by the Bank of Canada.

USDCAD technical outlook

The intraday USDCAD technicals are bullish while trading above the 1.2880 area looking for another break of 1.2930 to extend gains back to 1.3000. A move above 1.3000 puts 1.3200 back in play. A break below 1.2880 risks a retest of 1.2750.  Longer term, USDCAD remains in a 1.2600-1.3200 range.

Chart: USDCAD 1 hour
 Source: Saxo Bank

– Edited by Clare MacCarthy


Michael O’Neill is an FX consultant at IFXA Ltd

Market Predator Market Predator
Nice article, Mike. Today I cought roumors, that Iran can join Oil freeze deal.
Market Predator Market Predator
Sorry for wrong spelling :(


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail