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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 29 January 2018 at 22:07 GMT

US Wrap: Firmer Treasury yields support US dollar

FX Trade Strategist / www.Loonieviews.net
Canada
  • The Nafta talks have ended with a promise to meet again
  • Mixed US data failed to impact forex markets
  • The Canadian dollar was the only major to post a gain versus the greenback
  • Crude prices lost ground on the rising dollar, supply concerns
By Michael O'Neill

NY Focus: FX traders were mildly skittish on Monday; enough so that they decided to further trim US dollar short positions. The move wasn’t aggressive, but just enough to extend overnight losses by the end of the day.

EURUSD was offered at the open undermined by earlier comments from European Central Bank executive board member Peter Praet. Praet said that the ECB monitors three criteria as it gauges when it can start removing its stimulus.

The three ECB criteria are:
  1. inflation must be converging toward the goal of just under 2%;
  2. policymakers must have strong confidence in the accuracy of their outlook and
  3. convergence must be able to withstand a withdrawal of monetary support. He added; “We are still some distance away from meeting all three criteria at the same time".

EURUSD dropped from 1.2403 at the open to 1.2338. The absence of top-tier economic reports, rising Treasury yields and the belief that Wednesday’s FOMC statement could have a hawkish bias added to the selling pressure. Prices recovered to 1.2385 n the afternoon on profit-taking.
USDJPY rallied in concert with EURUSD supported by higher Treasury yields and hawkish FOMC speculation.


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GBPUSD is under pressure from political uncertainty and negative Brexit headlines. Photo: Shutterstock

GBPUSD continues to be under pressure from UK political uncertainty around the longevity of Prime Minister May’s tenure as well as negative Brexit headlines and the broad US dollar strength.
USDJPY was offered to start the session and traded with a negative bias all day. It found a bottom in the ¥109.00 area.

WTI oil prices faded as the US dollar gained.  Prices dropped from $65.97/barrel to just $65.00/b with renewed concern about rising US production overshadowing Opec cuts. Prices bounced to $65.45/b at the close.

The Canadian dollar was the only major to post a gain vs the greenback. It was marginal at best while AUDUSD finished unchanged for the session. Round 6 of the Nafta negotiations ended. There was no official statement but the promise to meet again for Round 7, and maybe even 8. Canadian officials seem to be putting a more positive spin on the results than their American counterparts.

Tuesday Focus: Eurozone Q4 GDP (forecast 0.6%, q/q ) may remind traders of the EURUSD reaction during Mario Draghi's press conference last week. Draghi was waxing dovishly about the need for low rates for an extended period as traders scoffed at his view and bought euros.

A higher than expected Q4 GDP print combined with better than expected Eurozone Services Sentiment, Consumer Confidence and Industrial Confidence could put 1.2500 back in play. The short-term EURUSD technicals suggest the current down move is just a correction while prices remain above 1.2290.

EURUSD 4 hour chart
saxo
Source: Saxo Bank. Create your own charts with SaxoTrader; click here to learn more

– Edited by Robert Ryan

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Michael O'Neill is an FX consultant, currency strategist and author of the Trade of the Day at Loonieviews.net. Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.

1y
Market Predator Market Predator
Hello Michael. Let me add that all major stock benchmarks are in red and significant VIX spike occured.
1y
Michael O'Neill Michael O'Neill
True. But I think today's data is just noise ahead of Month end flows, Trump speech and Nfp
1y
WheresWally WheresWally
Whats the thoughts on USDJPY and EURUSD? Worth buying in now with the view of them going up, or unlikely??
1y
Michael O'Neill Michael O'Neill
Sorry for late reply. USDJPY downtrend is still intact which leaves support in the 108..00-50 area vulnerable. EURUSD looks like a buy closer to the 1.2340-50 area.

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