US Dollar Still in Driver’s Seat versus Commodity Bloc
- EURUSD remains highly sensitive to shifts in global equity markets.
- See the August forex seasonality report.
It's been over two weeks since we've delved into FX markets, and at first glance, it doesn't seem like much has happened. Yet there is a stark contrast between my experience and that of the market: whereas I was on my honeymoon in Tuscany and the Amalfi coast relaxing; global equities, bonds, and FX markets were rocked in ways we haven't seen since the summer of 2011, or even the depths of the 2008 financial crisis. Even though I'm back in Manhattan now, and EURUSD is back at $1.1200 - the places we were when we last delved into markets over two weeks back - our respective journeys unfolded quite differently.
Seeing how much has changed (in terms of price ranges) and how much has stayed the same (in terms of closing price levels relative to two-plus weeks ago), I'm reminded of an old statistics joke: a man with his head in the freezer and his feet in the oven will be, on average, feeling pretty comfortable. The gist here: the end result (the closing price levels relative to two-plus weeks ago) doesn't reveal everything about the journey (the recent extremes in price ranges). Volatility is back in a big way, even if things on the surface look, on average, pretty much the same from a few weeks ago.
If there was one big takeaway from price action in the second half of August, it was the market coming to terms with the role of the Euro. After our initial August 12 report on why the Euro was behaving as it was with respect to global equity markets, DailyFX's Quantitative Strategist David Rodriguez outlined a strong argument supporting the same view that the Euro's moves reflect its role as a funding currency, and explicitly not that of a safe haven.
Elsewhere it's worth pointing out that as resilient as USDCAD has been, AUDUSD has been weak. USDCAD has been leading the USDOLLAR Index since at least April (in my opinion), and the fact that USDCAD held up so well during the recent EURUSD/USDJPY-driven gyration in the USDOLLAR Index speaks to the overarching concerns surrounding global growth and commodity prices. Needless to say, the commodity currency bloc remains rather weak, and from a momentum perspective, there are appealing setups in both AUDUSD and USDCAD (which favor greenback strength) on the H4 timeframes at the start of the week.
See the above video for technical considerations in AUDUSD, EURUSD, USDCAD, and the USDOLLAR Index.
--- Written by Christopher Vecchio, Currency Strategist
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