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Outside Influences Weigh Heavily on FX Markets

Outside Influences Weigh Heavily on FX Markets

2015-05-07 11:30:00
Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- EURUSD driven by ECB's QE unwind, NFP speculation.

- GBPUSD in holding pattern as market awaits election results.

- See the May forex seasonality report.

Although FX markets have been behaving in a fairly clear technical manner the past few days (as evidenced by the clean unfolding of the USDOLLAR Index head & shoulders pattern), that's not to say that fundamental influences haven't been significant. However, the fundamental influences haven't been so much of the data variety rather than non-recurring (to borrow an accounting term) or unique events: the sudden unwind of the ECB's QE-driven trades, especially in EURUSD; the impact of the UK general election on GBPUSD; and the sway of yields around the April US labor market report on USDJPY.

So, while charts have unfolded in volatile yet distinctly identifable ways, there's been a great deal of outside influence on FX markets: traders are spending a great deal of energy speculating on the unknown, rather than a more predictable course of events driven by recent economic data and central bank policy changes. This creates a more challenging trading environment for short-term traders.

See the above video for technical considerations in EURUSD, GBPUSD and USDJPY.

Read more: USDOLLAR Index Exhibiting Tendency of a Bearish Market

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.