The Aussie/Japanese yen (AUD/JPY) currency pair’s price action over the last five months provides a picture-perfect case study of rangebound trading opportunities. Like many so-called “risk assets,” the pair peaked in January of this year before trending low through February and March. In March, the pair put in a high around 84.50 and 80.50, keeping the established downtrend intact.
For now, though the USD/JPY is clinging onto an important bullish trend line after the rally came to an abrupt halt around the 113 handle last week. While a couple of important support levels such as 112.05 and 111.35 have broken down, the USD/JPY is yet to break its market structure of higher highs and higher lows.
The dollar resumed its slide on Monday morning as trade jitters seem to have stepped up, further threatening a currency war. President Donald Trump publicly criticized the Federal Reserve’s tightening policy on Friday, stating that “the United States should not be penalized because (they) are doing so well” -- in his opinion, tightening now is hurting his efforts to boost the economy.
The U.S. dollar/Canadian dollar (USD/CAD) slumped on Friday following the release of stronger Canadian data, while the U.S. dollar pulled back across the board amid profit-taking and after President Donald Trump had criticised the Federal Reserve’s interest rate rises the day before. Canada's retail sales rose 2.0% month-over-month in May versus 1.0% expected with core sales climbing 1.4% on the month, also better than expected.
Notwithstanding President Trump’s daily twitter condemnations (trade partners and the Federal Reserve drew his ire this morning), traders have started to look ahead to next week’s trade. The marquee economic events impacting next week’s FX market will likely be Australia’s Q2 CPI reading in Wednesday’s Asian session and Thursday’s ECB meeting.
The U.S. dollar was on course to end sharply higher yesterday until Donald Trump spoke. While the greenback has steadied and could still push higher, market participants are now in no doubt what the President thinks of the currency’s growing value and rising interest rates in the United States. But can he actually do anything to stop them rising?
Earlier I wrote on the U.S. dollar/Japanese yen (USD/JPY) currency pair, highlighting a potential breakout in that pair above a long-term bearish trend line. In fact, weakness in the yen is a dominant theme as the ongoing stock market rally continues to undermine the appeal of the safe haven currency. One interesting yen pair to watch this week could actually be the Canadian dollar/Japanese yen (CAD/JPY), due to the Bank of Canada’s rate decision tomorrow.
To say this week has been a poor one for the British pound is an understatement. The downbeat currency – already reeling from ongoing Brexit and political uncertainties – has been hit further by disappointing domestic economic data. Investors have been left wondering whether the soft data may have any implications on the Bank of England’s decision to hike interest rates next month. Although a 25 basis point rate rise is still likely, the probability of a no change has risen thanks to the disappointing wages, inflation and now retail sales figures.
The British pound/U.S. dollar (GBP/USD) currency pair broke down earlier on the back of a slightly disappointing UK wages data and after reports emerged that Prime Minister Theresa May could lose an important parliamentary vote on Brexit. Apparently, Labour will support a move from pro-European Tory MPs to keep the UK in a customs union with the EU if no trade deal is reached by January.