Forex Investment and Currency Trading

USD was firmer overnight with DXY peaking at 72.951 as it pushed towards the 73 barrier. This move, in part, was likely the result of falling crude oil prices which touched a low of USD123.62/bl on fears of slowing global demand which are impacting commodities across the board. The key event overnight was the RBNZ’s decision to ease rates by 25bp to 8.00% which resulted in a NZD decline of more than 1%. In other data, UK June retail sales were very weak following the incredible May print, while slowing activity was also evident in the Eurozone with poor July PMI numbers and a soft German Ifo Survey.

GBP was hit hard following the release of June’s abysmal retail sales data with GBP/USD plummeting to 1.9834 and EUR/GBP rallying to 0.79327. After the outsized increase of 3.6% m/m in May, retail sales in June fell by a record 3.9% m/m confirming the belief that May’s report was a one-off aberration. From a policy perspective, today’s data help dim the one apparent bright spot in the UK’s growth outlook - the resilience of the UK consumer - which, in turn, will serve to bolster the majority view on the Committee that maintaining rates at their current levels as the economy slows provides a sufficiently strong signal of the Bank’s commitment to reducing inflation and, by the same token, ensure the likelihood of a “credibility hike” being delivered, as called for by Besley at the July meeting, remains remote.

EUR/USD was driven down to a low of 1.5638 before stops resulted in a small rebound. The initial driver of the EUR sell-off were the flash estimates of July PMI data which came out before the 04:00 EDT time scheduled. Services PMI dipped to 48.3 (cons. 48.8) while Manufacturing fell to 47.5 (cons. 48.7), taking both series down to lows not seen since mid-’03 with the detail in the surveys pointing to further weakness to come. Further evidence of the Eurozone cooling followed soon after with the release of the July German Ifo Survey which disappointed expectations with the headline dropping from 101.2 to 97.5.

EUR/USD is slamming into a massive resistance zone around 1.5640/70 and the failure to penetrate on this morning’s IFO release is a warning sign. Furthermore, looking at the main overlays for EUR/USD (gold, short rates, 2-year rates and oil) … They all suggest equilibrium around 1.5650. Therefore, we need another move lower in commodities or higher in bonds before it is worth getting long USD.

NZD/USD: The RBNZ cut rates by 25bps to 8%. The RBNZ signalled further easing to come given “more unpleasant news has emerged since the June MPS, and there is a risk that the domestic economy will slow further”. They also cited the increased cost of funding, weak activity, the correction in the housing market, and higher oil prices as reasons for the easing.

USDCAD: As risk and the USD continue to make a comeback and commodities have finally begun to roll over, USD/CAD seems to have formed a short-term base at .9975 ahead of barrier interest at .9950. With an overnight range of 1.0077/1.0116, It probably makes sense to look to buy USD/CAD around 1.0060/80 with a stop below 40 and an initial target of 1.0180. There is little on the US data calendar today and nothing at all on the Canadian data calendar, so we may see a bit of consolidation this morning… use any dips in USD/CAD to get long.

AUD: In the absence of any Australian data releases overnight, AUD/USD was dragged down lower in sympathy with NZD to around the 0.96 handle. The sharp pull back in commodities in recent sessions has also begun to weigh on AUD sentiment.

BRL: The Central Bank of Brazil hiked rates by an unexpected 75bp to 13.00% overnight, contrary to market expectations of just a 50bp tightening.

USDCHF: The dollar tried to test higher overnight but USDCHF once again got stuffed above 1.04.  The retracement in the dollar has seen gold and oil bounce a bit but the selloffs in the dollar are getting shallower and with each successive selloff in USDCHF, we keep making higher lows. This seems like the symptomatic of a trend still intact and thus a good trade would be buying USDCHF down to support at 1.0350. The same logic applies to the cross.

Skandies: We’ve seen a small move lower already, but if the S&P rally and the failure in oil continue,  NOK/SEK should be expected to continue to trade lower. The first important support level to consider is 1.16; and the first major resistance level is up at 1.1850.

USDZAR: A lot of momentum indicators finally appear to be turning in favor of being long and with metals weak not to mention strikes from miners in the country, there are some decent reasons to be long. Look to add position on down to 7.53 or on a break of the 200 hour SMA currently at 7.60 which has mapped the downtrend for the past month.

USDMXN: With the USD at a turning point, commodities lower, global consumption/exports falling, Mexican oil production weak and remittances from the United States tumbling and likely to fall further, there seems no fundamental arguments for Mexico. The extreme hawkishness out of Mexico should also have reached its zenith here with corn and crude oil prices massively off the highs.