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Carney Brexit Testimony Shakes the Pound, Aussie Dollar Rallies Post CPI

Carney Brexit Testimony Shakes the Pound, Aussie Dollar Rallies Post CPI

2016-10-26 03:52:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Of three key central bank speeches this past session, it was BoE Governor Carney's remarks that moved the market
  • Drive may cool with the Fed in the 'black out' period before FOMC, while the UK and Eurozone docket in a lull
  • Aussie inflation data has pushed to AUD/USD and AUD/JPY to key levels, but is there enough there to force a break?

See the DailyFX Analysts' 4Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

Central banks still have the run of the market. However, they still have to shove to get the market moving. Opportunities by BoE Governor Carney, ECB President Draghi and Atlanta Fed President Lockhart generated various levels of short-term volatility. None of these engagements would spark the kind of trend that the market is hungry for though. The last Fed speaker before blackout period before the November 2 FOMC decision declined to speak on market-moving monetary policy. The ECB President stuck to the script of suggesting monetary policy effectiveness was reaching its natural limitations but again demurred on a time frame for the inevitable Taper.

Governor Carney wouldn't escape the topic that interests Sterling traders the most: Brexit. His testimony before the House of Lord's Economic Committee offered a somewhat rosier picture than the central bank had delivered in the past few months and the imminent fear of a departure by the bank's leader was tempered for now. This generated another abrupt swing for GBP/USD and the Pound crosses, but there was little evidence of new trend from it. More remarkable was a traditional piece of data: the Australian CPI figure for 3Q. Inflation pressures rose more quickly than had been expected. While that only lowers the chance of another RBA cut - rather than change the bearing from dove to hawk - it was enough to lift the Aussie Dollar. The question with this move as with most other fundamentally-motivated drives of late is what degree of follow through is there.

The reaction from the Aussie crosses was unmistakable after the data, but the depth of the support is dubious at best. A slightly less dovish outlook for a deflated carry currency in a market that is in a holding pattern for trouble sentiment does not really support a strong bullish case. For AUD/USD and AUD/JPY at serious technical boundaries, that raises the question of trade potential. If they were capable of breaks, they could offer good technical seeding. However, conviction would likely have to come from another source - most likely strong risk appetite. In holding and retracing to range, the two are not created equal. Looking ahead to coming 24 hours, the docket is in something of a lull before heavier event risk Thursday and Friday. We discuss the trading conditions and options in today's Trading Video.

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