Article / 07 August 2017 at 14:32 GMT

FX Board: Commodity FX weakness the only consistent theme

Head of FX Strategy / Saxo Bank
Denmark
  • Weakness in GBP and commodity dollars, especially NZD, the main theme today
  • NZD could slip back into old range if NZDUSD 0.7300-50 area falls
  • RBNZ meets on Thursday
  • GBPUSD rally has been dealt a significant blow
  • 1.1600 is possible area of interest in EURUSD if consolidation continues
  • Structurally important level for EURUSD is down around 1.1450-1.1500
RBNZ governor Graeme Wheeler
 The RBNZ governor will be in the spotlight again on 
Thursday. Image: RBNZ webcast May 2017

By John J Hardy

Key developments in FX today

  • The standout theme today was persistent weakness in sterling and the commodity dollars, which seemed to have overshot on their recent rally. Important levels are coming into view ahead of Thursday's Reserve Bank of New Zealand meeting in NZDUSD, in particular, as we discuss below. Furthermore, the GBPUSD rally has been dealt a significant blow, although the nominal pivot zone is still hanging in there at the time of writing.

  • The lack of follow-through higher in bond yields after Friday's relatively strong US jobs report has seen a reversal of some of Friday's gains for the greenback against the yen and euro, keeping us guessing on whether this USD rally is selective or will broaden again.

EURUSD

We eye first Fibonacci levels for EURUSD, with the 38.2% retracement of the latest rally wave near 1.1600 as a possible area of interest if this consolidation can bite lower, and with the structurally important level down around 1.1450-1.1500. If not, and the pair reverses back above 1.1850, the next upside focus will quickly shift to the pivotal 1.2000 area, which was critical for the pair back in 2012.
eurusd
Source: Saxo Bank
 
GBPUSD

GBPUSD has poked into the pivotal 1.3050 (previous high) to 1.30000 (psychological levels) area. A punch down through 1.3000 looks like it could be a mortal blow to the attempt to get the pair back on track for a challenge of the structurally important 1.3500 area.
gbpusd Source: Saxo Bank

NZDUSD

The kiwi faces a key test with this week's RBNZ meeting on Thursday and looks at risk for a move back lower into the old range if the NZDUSD 0.7300-50 area falls, as this would suggest a rejection of the attempt to break out of the long-standing range below 0.7450.
nzdusd Source: Saxo Bank


— Edited by John Acher

John J Hardy is head of FX strategy at Saxo Bank

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