By Michael McKenna
Was this not supposed to be the year of a policy normalisation-driven dollar rally, with EURUSD hitting parity and markets quaking before the spectacle of a major economy getting determinedly back on its feet?
Some among us
certainly thought so, and with what looked like good reason, too. But like T.S. Eliot once said, "history has many cunning passages
, contrived corridors
and issues," and it is those very contrivances that are knocking USD traders for a loop.
On Wednesday, the Wall Street Journal claimed that "people are getting emotional about [the] Fed’s ‘schizophrenic’ debate," with writer Paul Vigna reporting that the latest round of yes-we-will-no-we-won't has left traders "fed up with the Fed" as confusion and probably not a little disgust sink the dollar.
"We continue to see USD liquidation," reports Saxo Bank's Edmund Liu from Singapore, noting that he expects the weak greenback trade to continue to lend direction to both USDJPY and GBPUSD.
"We expect further selling pressure in USDJPY once 99.93 is broken, and 1.2878 is the key support level bears need to see broken in cable," concludes Liu.
Meanwhile, FX Options trader Jeppe Norup reports that the market is biased towards upside strikes in EURUSD as the endless stimulus coming out of the European Central Bank is not enough to bring the euro down versus its grievously hesitant rival.
"The next [major directional factor] here is the August 26-27 Fed summit in Jackson Hole," says Norup.
Reporting from Saxo HQ in Copenhagen, head of commodity strategy Ole Hansen tells us that while the weak dollar trend is certainly supporting gold prices at the moment, it is little more than a "talking point" when it comes to the sustained rally seen in WTI crude of late.
"This is the longest streak of gains since 2012 for WTI," says Hansen, adding that prices are up 24% over 13 sessions. In Hansen's view, however, the upside potential is limited from here.
Good run, though:
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Source: Saxo Bank
"Forget about freeze talks and US stockpile declines – this was a short-covering rally. And now we are seeing open interest in WTI futures falling as hedge funds abandon their September short positions."
The sustained oil gains are driving the outperformance seen in the wider commodities complex, but in Hansen's view there simply are not sufficient bullish directional factors out there to drive crude prices much higher.
Today sees the release of the latest Baker Hughes rig counts, adds Liu, with the current count sitting at 396.
Casting one eye back to gold prices, Hansen points out that XAUEUR, or gold priced in euros, is struggling just above support at €1,188 as the strength seen in XAUUSD comes down to greenback weakness and not much more.
Which brings us back to the Fed and perhaps even to Eliot, who followed his line about history's deceptions by noting that:
"She gives when our attention is distracted
And what she gives, gives with such supple confusions
That the giving famishes the craving"
Paging Ms. Yellen...
"Sure, I've inspired a poem or two in my time". Photo: iStock
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