Currency markets were unnaturally calm during trading on Tuesday with major currency pairs lacking direction as anxious traders awaited the next big macro release. Stock markets meandered between losses and gains as the conflicting combination of rising oil prices and heightened expectations of a U.S. interest rate kept investors on edge.
The Australian dollar has been fairly stable recently, and it has actually risen against weaker rivals such as the New Zealand dollar and Japanese yen. However, that could all change if investors start to dislike risk, if, for example, U.S. elections or disappointing corporate earnings cause global equities to retreat.
Looking at the Euro/U.S. Dollar currency pair we see price trapped in a big consolidation pattern, a triangle that seems to be over as of recent bearish price movement. It's a five-wave correction, a continuation pattern that can after its completion push price lower into a strong decline.
It has been a very good week for the U.S. dollar and a really bad one for the euro and Canadian dollar, among others. The rally has lifted the Dollar Index to its highest level since early February and possibly on course to 100.
Stock markets were erratic on Thursday with most major arenas violently swinging between losses and gains as the messy combination of depressed oil prices, a resurgent U.S. Dollar and rising European Central Bank stimulus hopes kept investors on edge.
The Canadian dollar has been among the weakest of currencies in G10 in recent days. The sell-off has been sparked by the Bank of Canada’s Governor, Stephen Poloz, who on Wednesday said the central bank “actively” discussed the prospects of adding more stimulus into the economy, but in the end decided to keep rates unchanged.
The dollar held its earlier gains versus a basket of currencies on Friday as data on U.S. retail sales and producer prices in September came within analysts expectations, supporting the view of a modest U.S. economic expansion.
The main story last week in the markets was the flash crash of British pound on Friday. The currency lost 6% in under two minutes at the start of the Asian trading session. There are multiple theories on what sparked the move with algorithmic trading and human error among others. The British pound touched 31-year lows and although it recovered some ground it will close the week under the 1.25 price level.
While the headline reading of 156,000 jobs being created in the U.S. economy over the previous month might not be enough to inspire further dollar strength across the financial markets, the United States has released another solid jobs report that supports the aspirations of the Federal Reserve to raise U.S. interest rates before 2016 is over.
At 23:07 GMT (7:07 PM ET) on Thursday, October 6, the British pound/U.S. dollar (GBP/USD) currency pair started falling from its established level around 1.2600. The selling snowballed a couple of seconds later on the break of the 1.2500 level as the pair hit an air pocket in the low liquidity post-North-American, pre-Asian session "twilight zone."