FX markets were stunned the other day when they found out that US industrial production was revised way lower than the Fed expected. As a consequence, the US dollar fell drastically across the dashboard.
In a way, it was a welcomed move as summer trading conditions are starting to pour in now that Greece is (sort of) behind us, and price action was pretty dull and uneventful.
The EURUSD made a bold move to the upside with more than 150 pips on a summer’s day, and that is considered an extreme move by some. However, everyone is talking about how bullish the US dollar is and the fact that the Fed is going to hike the rates.
I don’t know for certain if the hike is going to come, but what I do know is that one side positioning usually leads to squeezes, and this is what the EURUSD did the other day: it squeezed shorts and is now resting in the middle of the 1.09 area. It is virtually impossible not to give a try to the now all-important 1.10 level, so watching for continuation patterns there should do the trick for bulls.
The USDJPY was affected by a sharp drop in US equities as the revised industrial production made US equities dive in the triple digits, and as USDJPY is strongly correlated with the equity markets, they couldn’t stay still either.
I am still saying that the USDJPY pair needs to go and test the 120 level again, and sooner rather than later. Therefore any bounce above the 124 should be seen as just another opportunity to sell the pair with a stop loss at the highs.
St. Louis’ Fed President James Bullard, spoke this week as well, and while he is not a voting member, he indicated that a September rate hike is still on the table. This makes next week’s FOMC (Federal Open Market Committee) will probably announce no rate hikes, therefore the focus is now shifting to September. However, until September we do have two more NFP releases. If one or maybe both of these are disappointing, or we see some previous numbers revised lower, then we can kiss the September rate hike goodbye.
The only currency pair from the majors front that stood still was USDCAD. This is hardly surprising given the fact that the Bank of Canada cut rates last week and commodities are effectively being killed all over the dashboard, even gold diving below 1100 level on the back of the Chinese selling.
All in all, given the above, we can’t say that the lulls of summer trading are really present just yet. If you missed Greece and its headlines that used to create volatility in the FX markets, the news out of the US may replace those Greek headlines sooner than you think.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
