U.S. Dollar Trading (USD) was under pressure yesterday with a large drawdown of US Oil inventories by over 3m barrels leading to a 4% Oil spike. This helped commodity currencies to outperform and EUR/USD attempt a small rally. Stocks decoupled from the Oil move and the fall overnight sent USD/JPY to test Y108.20 but we have recovered in the Asian session. The outlook is very muddy here but a continued Oil move back to $50 a barrel should see stocks eventually rally and USD/JPY find support from risk on flows.
The Euro (EUR) with the latest attempt higher failing at 1.1450 the downside is once again in view and the path of least resistance should be lower here. EUR/CAD and EUR/AUD are good sells in a risk on Oil led rally and are good to watch for scenarios where EUR/USD moves lower. EUR/GBP is not going to be a clear indicator as we move closer to the Brexit vote. The Sterling (GBP) was quiet for a third day this week sticking to a 40 pip range but today with the Bank of England meeting and the associated data dump that will give clues as to the outlook from the central bank. Nothing new is expected but last meeting they discounted the recent weak data as just businesses holding off new hiring/investment ahead of the Brexit vote. I expect similar language and the bears may be disappointed if not enough concern is giving by Mark Carney in his speech 45mins after the initial announcement.
The Japanese Yen (JPY) in a positive day for the bulls the pullback from Y109 was reversed in the Asian session and now the topside is back in view with Y109.40 the first target. One of the hardest hit crosses in the EUR/JPY has shown signs of stability recently near Y123 and this is very important for the broader Yen strength trend. If EUR/JPY can break its downside trend it will go along way to helping the other crosses and the USD/JPY mount a more seriously rally. The Australian Dollar (AUD) struggled to gain from the commodity rally overnight and AUD/NZD and AUD/CAD both made fresh lows. Its not just the RBA that is hurting the Aussie with the last few days seeing more losses in Iron Ore and China stocks. The AUD is seen as the best proxy for the China trade in the majors. It will not underperform for long though and if Oil extends its rally the shorts in AUD/USD begin to get nervous here.
Stocks Indices(DAX) Failed at 10000 overnight and was looking weak at the start of Europe but the first hour of trade has seen a dramatic reversal and we are currently 130 pips higher off the lows the day as this report is being prepared. Still the market is lacking conviction but as stated in previous reports buying weakness makes more sense than selling rallies. The burden of proof is definitely on the bears in the coming days. US Stocks (DOW) Surprised many analysts falling even as Oil surged and this was on the back of weak earnings and a few major announcements hurting specific stocks with large weighting in the Index. This is mostly just noise though and i see the Oil link being a stronger longer term directional cue with the back up of a inactive FED providing ongoing underlying support.
Pairs to watch
GBP/USD Next big move likely starts today
EUR/CAD My trade of the day, Room to move on downside
Economic Data Ahead
UK Bank of England Interest Rate meeting and Speech from Governor Carney
US Weekly Jobless Claims forecast at 277k vs. 274k previously
By Anthony Darvall (TonyD)