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Video: Have EUR/USD and AUD/USD Forced Self-Sustaining Breakouts?

Video: Have EUR/USD and AUD/USD Forced Self-Sustaining Breakouts?

2017-07-19 02:00:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The Dollar indexes dove to new lows this past session; but the key breaks were concentrated on EUR/USD and AUD/USD
  • News that the US healthcare replacement effort had faltered revived the political risk factor, but it didn't turn equities
  • Fundamental power behind technical triggers is not evenly distributed, a concern for trade potential

Dollar is threatening a break of the midpoint to its three decade range while the S&P 500 is luring in bulls with close proximity to fresh record highs. Download our 3Q forecasts to see what the DailyFX analysts expect from these markets over the next 3 months.

The volatility and technical progress in the market continues to impress. It also remains spotty with a notably lack of conviction and momentum for the entire system. If we are to make that transition to high opportunity trends from stunted ranges across the financial system, conviction needs to be adopted by the bulk of the most liquid markets. This is a likely limitation to yet another round of remarkable technical developments this past session. One of the most impressive waves in the financial system currently is the Dollar's tumble. It has slid throughout 2017 but the progress this past session to fresh multi-month lows still impresses. It was particularly remarkable when looking at a few select pairs. EUR/USD cleared 1.1500 and in doing so puts the market at the very upper margins of a range that has been in place since the beginning of 2015. A few degrees more intense, AUD/USD has clear a major technical resistance 0.7850 which has stood for two years. These look like critical breakouts, but profit is made on the follow through, not the initial signal.

To gauge what these high profile chart patterns can offer for trades, we should gauge the environment in which they have occurred. Though the Greenback has shown progress, robust trends are uncommon across the broad markets. Working against the notion that this is the first mover in a systemic shift, the fundamental motivation to the Dollar's dive does not offer self-generating momentum. News that the US Senate had again lost the numbers necessary to push forward a healthcare agenda meant the increasingly diminished hope of fast-tracked tax reform or infrastructure spending (growth-oriented policy the markets have come to already price in) were all but snuffed. There is a degree of fundamental intensity to this development, but given the multi-month retreat, considerable premium has already been bled off. What was remarkable was the limited response from the S&P 500 and other traditional outlets for US market sentiment. The initial selloff was limited and the equity index mounted a recovery to secure another record high close.

In the meantime, the drive from some of the other majors was just as intense. However, their motivations should still be evaluated before we develop too much confidence in any particular trades. Strong moves from the EUR/USD and EUR/GBP did not reflect a uniform rally from the Euro - though news unconfirmed sources reporting ECB officials are discussing plans for the eventual normalization of monetary policy certainly hits upon a capable theme. The market may just wait for verification Thursday on whether this is actionable or not. Meanwhile, there was a monetary policy for the Pound, Aussie and New Zealand Dollars. UK CPI disappointed this past session, undermining the BoE Governor's recent suggestion that rate hikes are perhaps closer at hand than many are accounting for. A New Zealand 1Q CPI reading made the RBNZ's job more difficult at best - dangers at worst - and the Kiwi crosses responded in kind. It was the RBA's minutes that drew the most remarkable response with the day's biggest rally despite otherwise questionable foundation. Are there lasting moves to be found in this volatility? Can Euro and Yen pairs progress with the ECB and BoJ just over the horizon? Has political risk triggered a deeper risk trends? We answer all of these questions in today's Trading Video.

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Video: Have EUR/USD and AUD/USD Forced Self-Sustaining Breakouts?Video: Have EUR/USD and AUD/USD Forced Self-Sustaining Breakouts?Video: Have EUR/USD and AUD/USD Forced Self-Sustaining Breakouts?

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