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The USD falls vs all the major currencies this week except one

USD falls the most vs the NZD

The USD fell versus all the major currencies is weeks with the exception of one…the CHF.
USD falls the most vs the NZD
The US dollar fell the most versus the NZD and AUD as those currencies benefited from risk on sentiment, somewhat improving China and expectations that as Covid spread slows, central banks would start to look toward reversing some of the expansionary policy.
After trading sideways on Monday, the NZDUSD rose on each successive day this week.  The pair has risen 9 of the last 11 trading days.
Versus the AUDUSD, the pair was modestly lower on Monday, before also rising on each successive day this week.
For the USDCHF, last Friday, the pair closed near the low for the week.  After trying to extend lower early in the session on Monday, the pair moved sharply higher. That moment it was reversed on Tuesday before rallying up to the weeks high on Wednesday and moderating lower on Thursday and again today. Overall, the week was full of up and down price action with only an 88 pip trading range.

Euro Stoxx index falls for the first time in 11 trading sessions

European indices move lower today

The major European indices have closed lower today.

  • The Euro Stoxx index fell for the first time in 11 trading sessions (10 higher closes).
  • The German Dax came off of a record levels.
  • The France’s CAC could not reach its all-time high from 2000
A look at the provisional closes shows:
  • German DAX, -0.5%
  • France’s CAC, -0.9%
  • UK’s FTSE 100, -1.0%
  • Spain’s Ibex, -0.83%
  • Italy’s FTSE MIB, -0.85%
The Euro Stoxx index fell -0.7%.
In other markets as London/European traders look to exit:
  • Spot gold plus $5.50 or 0.32% at $1784.85.
  • Spot silver is up for cents or 0.21% $23.75
  • WTI crude oil futures are down $0.35 or -0.49% at $67.60
  • bitcoin is trading down $773 at $46,248. The digital currency traded above $48,000 today
In the US stock market, the major indices are lower but off their lowest levels:
  • Dow is down -79 points or -0.22% at 35436
  • S&P index is down -16.29 points or -0.36% at 4451.53
  • NASDAQ is down 125 points -0.85% 14697.65
In the forex market, the CHF is now the strongest of the majors while the CAD remains the weakest. The USD is mixed with gains vs the CAD, AUD and NZD and declines vs the JPY and CHF. The greenback is near unchanged levels vs the EUR and GBP.

CFTC commitment of traders: EUR longs increase to 200K (all time largest long position).

Weekly FX speculative positioning data from the CFTC

  • EUR long 200K vs 180K long last week. Longs increased by 20K
  • GBP short 3K vs 15K short last week. Shorts trimmed by 12K
  • JPY long 27K vs 31K long last week. Longs trimmed by 4K
  • CHF long 17K vs 12K long last week. Longs increase by 5K
  • AUD short 1K vs 1K short last week. Shorts trimmed by 4K
  • NZD 0K vs 1K short last week. Shorts trimmed by 1K
  • CAD short 30k vs 23K short last week. Shorts increased by 6K

Highlights:

  • EUR longs continue to rise and are at new record long position at 200K. The largest short position all time is at -227K
  • GBP position has been whittled down to near unchanged after being short by 36K at the beginning of June 2020
  • AUD and NZD speculative positions are near unchanged
  • CAD shorts are the more or less, the only short currency position (long USD position).
Weekly FX speculative positioning data from the CFTC

Trade the strong against the weak

NZD

One of the key trading maxims in the FX world is pairing strength against weakness.If you need a refresher on that concept please do check that out here. So, yesterday we had the RBNZ rate meeting which has given us a weak NZD bias. Going into the event a client was asking me what I was going to do before the RBNZ rate meeting. The answer was simple, wait. Waiting to for the central bank to show its hand. The RBNZ has now done that and that is what gives us a bearish bias.

Reasons for the RBNZ’s weakness

The RBNZ has launched a set of bearish policies extending its asset purchases programme and showing openness to negative interest rates. They increased their quantitative easing (LSAP) programme to $100bn and extended its length from 12 to 22 months. Furthermore, the RBNZ expressed a preference for a lower or negative OCR and a ‘Funding for Lending Programme’, while leaving all options on the table.

So, we now have a short to medium term NZD bearish bias, look to pair it with currencies as they show strength. Yesterday’s strong AUD employment data make AUDNZD longs appealing on pull backs.

NZD

CFTC commitments of traders: EUR longs spike by 32K to a record long level

Weekly FX speculative positioning data from the CFTC

 

  • EUR long 157K vs 125K long last week. Longs increased by 32K
  • GBP short 25K vs 15K short last week. Shorts increased by 10K
  • JPY long 29K vs 19K long last week. Longs increased by 10K
  • CHF long 8K vs 7K long last week. Longs increase by 1K
  • AUD short 5K vs 0K long last week. Shorts increased by 5K
  • NZD short 1K vs 2K last week. NZD switches from long to short. 3K change
  • CAD short 13k vs 17K short last week. Shorts trimmed by 4K
Highlights:
The BIG HIGHLIGHT for the week is in the EUR.  The EUR longs spiked up by 32K to 157K in the current week to a record high for long positions. The move higher is corresponding to higher EURUSD prices. The price of the EURUSD has been up for 6 consecutive weeks.  The long position started to move more to the upside during the May 19 week when the position was at 72K.  The EURUSD during that week was down at 1.0800. The price high today reached to 1.1908 before backing off.  Nice trade for the longs.
Of course, a concern for markets that get too long or short, is that there can be a squeeze the other way if prices start to lose trend momentum.   As a result, be careful of too much of a good thing, but let the technicals tell the story. They have been bullish.
Weekly FX speculative positioning data from the CFTC_
The GBP shorts, however, increased by 10K to 25K (still much lower than the EUR longs) while the currency has moved higher.
The JPY longs increased and the USDJPY moved down (higher JPY) into early trading today. However, the price snapped back higher and nearly erased the full move lower this week in a single day.

Nikkei 225 closes higher by 1.59% at 22,945.50

Japanese stocks boosted by more upbeat Wall Street sentiment

Nikkei 15-07

The late surge by US stocks overnight is helping to give Asian equities a decent lift in trading today, though Chinese and Hong Kong stocks are weighed down by US-China tensions after Trump removed Hong Kong’s special status earlier in the day.

The Hang Seng is seen at flat levels now after trading in the red earlier while the Shanghai Composite has pared some losses to be down by 0.2% currently.
Elsewhere, US futures are still keeping more upbeat with S&P 500 futures up by ~0.8%.
That is keeping the likes of the aussie and kiwi more underpinned ahead of European morning trade, with AUD/USD flirting with the 0.7000 handle while NZD/USD is trying to crack back above its key hourly moving averages at 0.6552-69.

August forex seasonal scorecard

You can’t predict anything from Donald Trump but the August seasonal patterns did a great job of predicting how the month would go.
1. Weakest month of the year for NZD/USD
This one delivered in a big way. Month-to-date the kiwi is down 3.7%. It’s fallen every which way and is the worst performing major currency this month.
2. 2nd weakest month for CAD
The loonie has been bolstered by some upbeat economic data including today’s GDP report but even with all that, the Canadian dollar fell 0.7% on the month against the US dollar.
3. 2nd weakest month of the year for AUD
It was the second-weakest month and AUD was the 2nd weakest performing major. AUD/USD fell 1.6% in the month.
4. 2nd weakest month for cable
This one bucked the trend but only modestly. Cable is up 0.4% on the month with more than half the gain coming today. Maybe it’s a good sign that the pound has been able to buck seasonal weakness?
5. 2nd strongest month for gold
Few traders need a recap on this one. Gold was a rocket ship in August posting one of its best months in years as it gained nearly 7%.
6. Poorest month over the past decade for the S&P 500
Stock markets have shown some impressive resilience over the tail end of this week but all that has done is narrowed a loss that was as much as 6.2% at one point down to -2.7%.
Verdict:
That’s a solid 5 out of 6 wins with a few homeruns in there. Ready for the September seasonal playbook?