Commodity currencies outperform in volatile trade session
Safe haven finish lower despite gapping higher as unconfirmed trade talk fuel increased risk appetite.
EUR/USD: Friday’s gains nearly undone as trade talk optimism takes the greenback higher
It was a volatile trading session yesterday as weekend gaps got filled in equities and safe haven, following Trump’s comments that China wanted to return to the negotiating table. A lack of confirmation however, puts that recent movement at risk, causing a risk-off movement. Retail bias changed significantly on the heavy volatility, with the bias here rising 8% alone since yesterday as shorts got enticed into taking profit and some longs initiated anticipating the drop to be unsustainable. In data, US durables were up overall but contracted at its core which excludes transportation, with CB’s consumer confidence figure up next later today alongside other US data. Out of the Eurozone, IFO’s business climate figure was at its lowest in a decade, as German recessionary fears fail to subside.
GBP/USD: Pound underperforms against the greenback, bear trend technical overview severely tested
With the US dollar outperforming on trade talk hopes, the pound couldn’t finish higher against it. And while some of the pair’s main technical indicators have been turning more bullish as of late with a positive DMI and its price back above its main short-term moving averages, the pair’s bear trend line is still (barely) holding with its price below all its main long-term moving averages, and Brexit uncertainties nowhere near being resolved as we approach the October 31st deadline, even after the G7 meeting. Stop losses on sell strategies remain ideal to limit any damage in the event of upside movement, as while volatility is relatively low for this pair, could pick up on any Brexit rumors/news.
USD/JPY: Trump’s comments help fill the gap but lack of confirmation could keep risk-off move in play
When the FX market reopened the yen was a big beneficiary gapping higher against the greenback and sending USD/JPY (大口） plummeting to fresh lows below that of January’s flash crash. However, Trump’s comments on China wanting to return to the negotiating table sent equities retracing back up, and hit safe haven products like the yen and franc significantly. Furthermore, Japan and the US agreed in principle to a trade deal at the G7 summit. If China doesn’t confirm Trump’s trade talk, the recent gains in this pair are at risk of being undone and would certainly entice the BoJ into intervening to prevent the yen from rising too high and avoid hurting its export market. In terms of bias, retail sentiment is down 9% with longs getting squeezed and others taking profit on the volatile movement.
USD/CAD: Canadian dollar outperforms as oil retraces off the lows in anticipation of US-China talks
The Canadian dollar was the second-best performer amongst the FX majors as commodity currencies outperformed, taking the pair’s price below all its main short-term moving averages and offering a clear break of the pair’s bull trend line that didn’t hold despite a positive DMI and a trending ADX. The catalyst has been oil prices that although gapped lower on trade worries, managed to fill the gap and end higher towards the session’s finish as the risk-off trade turned risk-on in hopes of a US-China reopening of negotiations even though it lacked confirmation from the latter’s side. If oil prices manage to rise (and its more difficult at this stage with the outlook still relatively negative), it’ll give the Canadian dollar’s energy underlying a leg to stand on.
AUD/USD: Commodity currencies pull themselves off the lows in a volatile trade risk related session
Commodity currencies outperformed yesterday despite gapping lower initially, and the Australian dollar was at the top of the charts compared to the FX majors. Thus far however, keep in mind that the bulk of the gains are based on rumors that US-China trade talks could occur, the absence of which would likely send commodity prices lower, and take down commodity currencies and China-related proxy currencies like AUD with it. From a technical overview standpoint, it’s a stalling bear trend that’s been getting severely tested due to what has been mostly oscillatory movement at the lows, with its price still below all its main long-term moving averages. In terms of bias, retail sentiment is down 9% from yesterday to a heavy long 70% on a combination of long squeeze and take profit on retracement.
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