Current Positions:
- Flat
Typical Time Frame: 1-day to 1-week
Markets have been exceptionally volatile to start the week (and the month of June) but this type of price action has been more or less anticipated, at least from where I'm looking from (with that said, I haven't taken trades in either direction - long or short the USD - to start the week). Much has been made about the severely disappointing ISM Manufacturing (MAY) report this morning, and in my opinion can be credited as the spark for the US Dollar decline this AM. But there are several other factors here in the days leading up to Friday's NFP report that are likely to keep volatility elevated.
- AUD - The Reserve Bank of Australia meets tonight and there;s only a slim expectation of another rate cut (CS Overnight Index Swaps points to 16% chance of 25-bps cut), but these expectations were much more negative just last week - a 28% chance of a cut was priced in on Wednesday. With that said, a hold by the RBA is likely in my opinion, and the AUDUSD could see covering take it up to $0.9860 before the next leg lower begins.
- EUR - As I talked about in my morning piece and the weekly forecast for the Euro, I think that the near-term implications of negative rates by the European Central Bank are overcooked, and accordingly, the Euro has room to rally.
- JPY - The Nikkei 225 is the only thing you need to watch for the Yen - well, that and the S&P 500. Both have begun falling (the Nikkei nosediving) the past few weeks, and the Yen's appeal as the ultimate "safe haven" amid global equity market weakness is very much in play. Until the Bank of Japan does something to ease fears that bond vigiliantes could wreak havoc to JGBs, the Yen should remain volatile and pressured by profit taking.
Overall, the moves today, and I think this week, aren't USD-centric - they're about exogenous forces that haven't had their turn in the limelight. I'm not a US Dollar bear, but I'm not looking long right now either. I'd be more interested after the ECB meeting on Thursday, but not before then.
Are you new to FX or curious about your trading IQ?
As always, any other trade ideas and general macroeconomic musings can be found in the DailyFX Real Time News feed, or by following me on Stocktwits/Twitter @CVecchioFX.
I also host a weekly Live Trading Q&A in DailyFX Plus, on Tuesdays at 07:15 EST / 12:15 GMT, in which I delve deeper into my positions and thought processes behind my analyses.
--- Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
