The USD is on a tear lately as the Forex traders come back from holidays. The EURUSD reached levels above 1.20 today.
Only a few weeks/months ago this was unthinkable. It makes for an interesting summer, at least for the Euro pairs. All of them moved higher in what seems to be a terrible short squeeze for bears.
the EURGBP cross is in the 4th bullish monthly candle. It jumped from 0.83 to 0.93 during the summer months. Such a one-thousand pips move can only be explained via flows into the common currency. Brexit may have a thing to say here too.
What Next for the USD?
This week we have the NFP on the table. On Friday, we’ll find out the state of the US jobs market.
But the cards seem to be made for any outcome. Think of it for a second.
If the NFP beats expectations, the USD will rise on renewed Fed hiked hopes. However, the Fed raised the rates multiple times so far.
In fact, it was the only major central bank to do that in the last years. And yet, the dollar struggles at the lows.
The interest rate differential simply doesn’t reflect the current situation. But, like all traders know, the market may stay irrational more than a trader can stay solvent.
US Inflation in Focus
The ECB will meet next week to set the rates on the common currency. The recent Jackson Hole Symposium brought a squeeze higher, as Draghi didn’t address any Euro strength concerns.
But the ECB alone can’t do much. A currency that strengthens only on the idea of the ECB tapering, will explode higher when the central bank will actually taper. That won’t happen.
The key comes from the Fed. If only the US CPI helps a bit, the Fed will be forced to raise rates again. So for the EURUSD to move lower, we’ll need not only ECB actions, but Fed ones too.
My two cents are on a turning point at current levels. Multiple patterns on different time frames are stretched and call for reversals. But geopolitics doesn’t help.
North Korea and the JPY
The JPY is known for its safe-haven status. Traders find shelter when things go wrong. But this time things went wrong for Japan. North Korea launched a missile that flew over the Japanese island.
In a stunning move, the first reaction was for the market to find shelter in….the JPY. Expect this to turn if things don’t calm in the region.
We’ll find out soon enough how the Korean crisis will end.