Will Friday’s US Retail Sales data send us into the weekend with some much needed volatility?

Hope everyone is having a good week trading! As Thursday began it struck me as being a rather strange week. Lots going on in the world, but FX seems to be taking the week off. Trump impeachment hearings, wavering US / Chinese trade deals, continued protests in Hong Kong and US equities making all time highs. Throw in an imminent election in the UK with a healthy dose of unresolved Brexit, plus of course the beginnings of the US electoral process, and you would think there was enough for the world of FX to react to or speculate on. But thus far the highlight, at least in terms of volatility, has been a spike higher in NZDUSD as the RBNZ left interest rates unchanged. I confess, not my original pick for highlight of the trading week!

So did Thursday provide more clarity or at least some volatility for us to fret over? In short, not really. A worse than expected Australia employment change saw AUDUSD head lower from 0.6840 to 0.6770. The first half of that move happened in seconds, so if you blinked you missed it. The only real recurring theme of the day was for JPY crosses to slide lower, which seemed rather at odds to the US equity gains. However the lack of follow through in global equities today was enough for some traders to sell JPY crosses. The USD, against the JPY aside, started off brightly, but with a brick wall of support sitting between 1.0990 and 1.1000 in EURUSD (as per my commentary earlier this week) as well as a move lower in US bond yields (10Y down to 1.81%), the USD would do a U-turn during the US session. EURUSD rallied from a low of 1.0990 to touch 1.1027. GBPUSD jumped from 1.2830 to 1.2888 and USDJPY would drop to 108.27 from 108.85. The beneficiary of lower US rates would be XAU which rallied from $1,462 to $1,474. So for Thursday, FX seemed motivated by the US bond market as much as anything else. As for equities, the early day sell-off didn’t last and all 3 major indices closed near flat on the day. For FX, the main talking point will be the holding of support sub 1.1000 for EURUSD.

My last technical piece focused on the aforementioned support level in EURUSD between 1.0990 and 1.1000. Today’s price action more than justified that reference. Today, let’s take a quick look at USDJPY. We broke support from the previous low at 108.65 after some initial unconvincing price action around that level. That in turn dragged JPY crosses lower. All this on a day when US equities essentially close near record highs. So for now respect that break, and expect that level to at least act as short-term resistance. To the downside, 107.90 will be the next level of good support.

David Hannigan

A graduate of the Cass Business School, Dave's career began with Credit Suisse as an Equity Options Trader on the London Stock Exchange, before moving into the world of FX with Chemical Bank and Citibank. 1994 saw him join National Australia Bank, first as a Senior Dealer, then Senior Vice President and Chief Dealer.

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