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Will Euro rally last and Risk Stay On?

  • Kathy Lien
  • 11 April 2018

Daily FX Market Roundup 04.10.18

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management

 

All of the major currencies traded higher today as U.S. stocks extended their gains.Investors were relieved that Chinese President Xi refrained from escalating trade tensions in his speech last night and instead talked about the possibility of lowering trade tariffs on autos and tightening enforcement on intellectual property. They were further encouraged by White House Trade Adviser Peter Navarro's comment that the doors are open for trade talks with China. The Dow Jones Industrial Average closed up 400 points but a move above 24,750 is needed to break the downtrend.

Although USD/JPY spent most of the day above 107, it struggled to extend its gains as investors opted to buy high beta currencies like euro, sterling, Canadian, Australian and New Zealand dollars over the greenback.Producer prices also rose more than expected, setting the stage for an uptick in consumer prices tomorrow. Data continues to take a backseat to political headlines but the FOMC minutes could remind the market that the Fed is optimistic and looking to raise interest rates a few more times this year. With that in mind, the greatest risk is still headline risk and at any moment, President Trump could raise or ease the trade war stakes. There have been other political developments that are worth watching such as Tom Bossert's resignation as Homeland Security Adviser and President Trump's decision to cancel his trip to Latin America to deal with Syria. More could come from that.

Meanwhile EUR/USD hit a one week high after ECB member Nowotny said the central bank will end bond buys this year.The single currency pair shot to a high of 1.2379 after taking out stops at 1.2340. However it dropped almost as quickly after the ECB came out to say that his views are his own and not a reflection of the governing council. We find all of this interesting since yesterday's comments from ECB President Draghi were positive and there's no doubt that European policymakers see growth improving so it won't be long before they start talking about changing forward guidance again. After the dust settled, the EUR/USD was still hovering above its breakout levels, which suggests that a further move to 1.24 is likely.

Sterling also caught a bid today thanks to stronger U.K. data and hawkish comments from the Bank of England.According to monetary policy committee McCafferty, who voted for a rate hike at last month's meeting, the central bank should not procrastinate with monetary policy normalization. As indicated by our colleague Boris Schlossberg, "the comment was seen as nod to nudge the BOE to raise rates in May." Sterling "was also boosted by better than expected BRC like for like numbers which printed at 1.4% vs. 0.7% showing a pick up in UK retail demand for the first time in months." The U.K.'s trade and industrial production numbers are due for release tomorrow and marginal improvements are expected after the small uptick in the PMI manufacturing index last month.

The biggest beneficiaries of the improvement in risk were the commodity currencies.The Australian dollar led the gains followed by the New Zealand and Canadian dollars. Although Australia will be hit hard by a U.S. - China trade war the deeply oversold currency also benefitted the most from China's attempt to ease tensions. Yet if they are serious about devaluing the Yuan, their reduced purchasing power won't be good news for Australia. In light of all this, its no surprise that Australian business confidence is down. The New Zealand dollar continues to power higher, rising to its strongest level in 6 weeks while USD/CAD broke through 1.26 following stronger Canadian housing starts. The uptick in oil prices and increase in Canadian bond yields also lent support to the pair. USD/CAD is now trading at a 6 week low and the next stop could be 1.25. Investors are still waiting on a NAFTA announcement which may be needed to drive the pair lower.

 

 

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About the Author
Kathy Lien
Kathy Lien is Managing Director and Founding Partner of BKForex. Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on currencies

Ms. Kathy Lien is Managing Director of FX Strategy for BK Asset Management and Co-Founder of BKForex.com. Her career started at JPMorgan Chase where she worked on the interbank FX trading desk making markets in foreign exchange and later in the cross markets proprietary trading group where she traded FX spot, options, interest rate derivatives, bonds, equities, and futures.

In 2003, Kathy joined FXCM and started DailyFX.com, a leading online foreign exchange research portal. As Chief Strategist, she managed a team of analysts dedicated to providing research and commentary on the foreign exchange market.

In 2008, Kathy joined Global Futures & Forex Ltd as Director of Currency Research where she provided research and analysis to clients and managed a global foreign exchange analysis team. As an expert on G20 currencies, Kathy is often quoted in the Wall Street Journal, Reuters, Bloomberg, Marketwatch, Associated Press, AAP, UK Telegraph, Sydney Morning Herald and other leading news publications.

She also appears regularly on CNBC’s US, Asia and Europe and on Sky Business. Kathy is an internationally published author of the bestselling book Day Trading and Swing Trading the Currency Market as well as The Little Book of Currency Trading and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game all published through Wiley. Kathy’s extensive experience in developing trading strategies using cross markets analysis and her edge in predicting economic surprises serve key components of BK’s analytic techniques.


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