Difficult market conditions this August as fundamental news are simply being ignored with market in a squeeze looking like mode especially on the EURUSD pair.
After the NFP (Non-Farm Payrolls) release two Fridays ago, it took the EURUSD pair only one full trading day to completely reverse the move, despite the fact that the actual jobs data was pretty impressive and previous month’s outcome was revised higher as well.
This is the beauty of forex trading: fundamental analysis works until market decides to turn around and squeeze everyone.
The same thing happened this previous Friday, only this time the other way around. The Retail Sales in the United States were a disappointment and as a consequence the US dollar has been aggressively sold. However, it was only a fake move as by the time Friday closed, the US dollar gained ground and, in some cases, like the AUDUSD, completely reversed the move higher.
So far we can say that this August brought nothing but ranges, or at least this was the impression at the end of the previous week. But market started to squeeze higher the EURUSD shorts with 1.1270 being printed on Tuesday morning during the opening of the London session.
There are no fundamental reasons as no economic releases influenced this move, simply a pure and old squeeze.
US CPI (Consumer Price Index = inflation) is going to be released today in the United States and market expectations are for the print to be 0.0% when compared with the previous 0.2%. Probably we’ll have a release to meet expectations as inflation is missing all over the world, but this doesn’t mean the US dollar will not travel.
This Tuesday the UK inflation picked steam and it seems that the Brexit vote was the case for prices to pick while the GBP fell. It is funny when you think of the fact that Bank of England was actually being forced to cut rates and now inflation is picking up.
The end of the week will see the Canadian CPI on Friday but Wednesday the FOMC minutes will make headlines as market participants will look to see if Fed members really favor a rate hike in the period ahead or not.
From a technical point of view, I would favor a comeback of the dollar index from current levels, but this should be only temporary as until US elections are behind us, ranges on bigger time frames should still hold.