Archives of “Forex” category

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China premier Li says will not resort to competitive devaluation of the yuan

  
Analysis, Forex

Comments by China premier Li Keqiang, via state television

  • Will push forward with yuan market-based reform
  • Will keep yuan basically stable within a reasonable, balanced range
The usual commentary coming out of China on the matter. Even with USD/CNY rising from 6.35 to 7.00 this year, the rhetoric remains more or less the same. In the case of the yuan, actions always speak louder than words.

HSCB’s Bloom: Dollar is the currency to own

  
Analysis, Forex
  • A full blown US-China trade deal will be “game changer”
  • Yuan will stay pretty stable and risk assets will rally
  • Then you’ve got alternatives to the dollar
  • But don’t hold your breath (on a deal)
  • In the meantime, the dollar will “power ahead”
  • The dollar is the currency to own
I always love watching Bloom’s interviews because of how candid and eccentric he can be. He’s certainly a no frills kind of guy and this short clip accentuates that again.
He also goes on to talk about how USD/CNY made a move from 6.35 to 7.00 based on a ‘political change’ i.e. tariffs and how the big picture affecting both currencies is “all about the trade deal”, not cyclical factors such as the economy.

Mood in Beijing on trade deal is pessimistic – report

  
Analysis, Forex
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USD/JPY down on the headlines

Risk trades are under pressure after this report from CNBC’s Beijing correspondent Eunice Yoon:

Mood in Beijing about #trade deal is pessimistic, government source tells me. China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.) Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support.

Dollar weakness among the trends to watch for next year – Morgan Stanley

  
Analysis, Forex
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Strategists at Morgan Stanley view that betting on a weaker dollar will be among the top trades for 2020

Dollar

In a client note detailing the trends to keep an eye out for next year, strategists at the firm view that the dollar is to be hit by stronger global growth outside of the US and dwindling portfolio inflows.

They argue that the greenback will fall against the pound, euro and kiwi dollar while also recommending to short the dollar against the Indian rupee in the EM space.
GBP/USD
Cable should “rally sharply by Q1 2020 as an orderly Brexit path becomes clearer, prompting foreigners to lift their GBP hedges and invest in undervalued GBP assets”. Target 1.40 in Q1 2020 before ending 2020 at 1.35.
EUR/USD
“Narrowing US-Europe growth differentials” and improving political factors should see the euro rally against the dollar. Target Q1 2020 and end of the year at 1.16.
NZD/USD
Recommends taking up a long position in the pair as they see Chinese and global growth improving. Target of 0.69 by mid-2020.

EUR/GBP eases to fresh six-month lows, key support levels eyed

  
Analysis, Forex

EUR/GBP hits lowest level since May, moves closer towards key support region

EUR/GBP D1 18-11

The pound is continuing to extend its good form against the euro after a strong October month with price now easing towards key support levels around 0.8476 to 0.8529.
Sellers stay firmly in control of the pair with the euro sitting in limbo over the past few weeks while the pound keeps firm amid more positive Brexit momentum since last month.
As the pair eases towards the key support region mentioned above, it starts to become more of a technical play (even more than it already has).
A firm break below the region mentioned above will see price accelerate further towards the downside. But perhaps with cable also struggling to break 1.30, EUR/GBP may also find a near-term bottom for now until we get further pricing moves for the UK election.

EURUSD moves to new session highs.

  
Analysis, Forex

Looks toward a test of the 200 bar MA on the 4 hour and 38.2% retracement

The EURUSD has extended the run to the upside and is getting closer to the next target area defined by the 200 bar moving average on the 4 hour chart at 1.1058 and the 38.2% retracement of the move down from the November 4 high at 1.10597.  A swing area is also up near the 1.1062-63 area.
Looks toward a test of the 200 bar MA on the 4 hour and 38.2% retracement
Early in the session the pair moved above its 200 hour moving average for the 1st time since November 5. The pair also extended the very narrow trading range for the week on a move above the Monday high at 1.10426. The range for the week is now up to 65 pips (remember the old days when the range was near 100 pips a day?)
Yesterday and on Wednesday, the price tested the 61.8% of the move up from the October 15 low. That was also a swing low from 1.09908.  The low price reached 109885 before bouncing.
EURUSD

A quick rule of thumb for what’s driving the US Dollar

  
Analysis, Forex

The dollar smile theory

The dollar smile theory

Dollar moves can be tricky to understand at times., as the USD is pushed and pulled by different forces. The dollar is the most widely traded currency, with 70% of all transactions dollar based on a day to day basis. The dollar smile theory was outlined by Stephen Jen, a former currency strategist and economist at Morgan Stanley. He said that understanding the currency movements of the dollar can be illustrated with a smile. That ‘smile’ consists of three distinct reactions:

USD smile theory

Reaction 1: Risk off: Dollar rises

The left side of the smile shows that the U.S. dollar benefits from risk off moves. During times of global concern the USD is considered a safe haven along with the Swiss franc and the yen.

Reaction 2: Economic slowdown and recession

The middle part of the smile. When the Fed begins to reduce interest rates the USD falls. The demand for the USD is reduced and so the USD alls

Reaction 3: Economic growth and risk on

The right part of the smile is when the USD gains value on a hawkish fed and a risk on environment. In an optimistic environment investors are willing to take more risks. The USD gains on higher GDP growth and expectations that the Fed will be increasing interest rates.

USD/JPY sits higher on the day but sellers still hold near-term control

  
Analysis, Forex

USD/JPY buyers have much work to do in order to recapture near-term bias

USD/JPY H1 15-11

The pair is sitting higher on the day as the yen is weaker following renewed hopes of a trade deal from Kudlow’s remarks earlier. The bounce also comes after sellers ran into support around 108.27 in overnight trading.
Despite a slight nudge higher, sellers remain in near-term control as price holds under both key hourly moving averages.
In that sense, price action suggests that markets are a tad more positive on trade talks but not to the extent to fuel a significant shift in the risk mood just yet.
As such, buyers still have much work to do if they are to try and take away near-term control from sellers in the coming sessions.
The first key resistance point is the support-turned-resistance at 108.65 before the key hourly moving averages around 108.88-98 come into play. Those will be the two key levels to watch out for in the event buyers extend the move earlier today.
But as mentioned earlier, markets could yet err on the side of caution if there are no follow-up headlines to bolster the positive narrative from Kudlow.
A case of easy come, easy go may just reinvigorate sellers to test support at 108.27 and then the 108.00 handle next as they continue to hold near-term control.

USD/JPY falls to four-day low as bond yields sink further on the day

  
Analysis, Forex
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USD/JPY falls to a low of 108.80, below the 200-hour moving average

USD/JPY H1 13-11

As the risk mood continues to soften, it is dragging yen pairs lower now as we move towards US trading. 10-year Treasury yields are now down by over 7 bps to 1.862% and that is helping to keep the yen bid at the moment.
There isn’t really any fresh catalysts for the continued nudge softer in the risk mood today but as mentioned earlier, the lack of progress in US-China trade talks appear to be breeding contempt and is starting to weigh on markets.
For USD/JPY, price is now tracking under the 200-hour MA (blue line) as sellers look to seize near-term control. The 7 November low @ 108.65 will be the next key support level to watch out for in case of a push lower later today.
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