The Forex market continues to give mixed signals. Fake moves are the norm this August.
Inflation in the United States proved to cause such a fake move. It came lower than expected.
As such, last Friday the USD made another leg lower. But, the move wasn’t sustained on all currency pairs.
The most bid was, of course, the EURUSD. Strong flows into the Euro ended up pushing the common currency to higher and higher levels. 1.1910 is the high so far.
If you come to think of the fact that only a few months ago “experts” saw the pair heading to parity, then the current move is even more impressive.
After the CPI last Friday, the EURUSD only checked for more stops. However, other currency pairs fade the move.
USDJPY and USDCHF reversed the course on Friday. But not the EURUSD.
FOMC Minutes in Focus
Yet, from the moment this week started, the EURUSD is well off highs. It threatened the 1.17 level.
With this move, all USD pairs reversed the CPI spike lower in the dollar. What changed?
Nothing. The focus now shifts to the FOMC Minutes to be released tomorrow.
While they lag, as they offer information from three weeks ago, the market is eagerly looking for clues about a possible rate hike. Judging by the latest US inflation data, that may not come.
At current levels, the dollar is a bit stretched. Reversal patterns start to form on bigger time frames and on various currency pairs.
Even if the Fed won’t hike anymore, the current interest rate differential still favors a higher dollar. The only thing we don’t know is the timing of such moves.
UK Inflation Disappointed
Earlier today, the UK inflation disappointed. Cable fell like a rock, dragging EURGBP to values higher than 0.91.
Bank of England faces a dilemma. With Brexit consequences still largely unknown, any forecast now would be a simple guess.
Most likely the central bank will wait for more evidence on how the Brexit negotiations will end. As such, it is unlikely that the interest rate will change anytime soon.
Look for this week to be a typical summer trading week. Fake moves and slow price action should reign.
But, traders looking for tops and bottoms know that fake moves happen when market tops/bottoms. Such price action indicates uncertainty. And that’s the moment traders look for reversals.
Besides the FOMC Minutes on Wednesday, there’s no other important economic news. Only CAD traders should be careful on Friday’s Canadian inflation release.
As for the US dollar, time will tell if these summer weeks brought an end to the recent decline.