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Dollar Firms But Prepare for Bigger Moves this Week

  • Kathy Lien
  • 12 December 2017

Daily FX Market Roundup 12.11.17

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

 

The U.S. dollar had a quiet but firm start to what will quickly become a busy trading week.With four monetary policy announcements, the European Union's Summit and a U.S. tax conference underway we look forward to market moving headlines.  Add to that the release of major news reports such as US retail sales, Eurozone PMIs, UK inflation and Australian employment, we would be surprised if there weren't big moves in FX over next 72 hours.  The firming of the dollar coincides with the reversal in 10 year yields which started the NY session down over 2bp and ended the day up 1bp.  On this relatively, quiet day, this move in U.S. rates pushed EUR/USD, GBP/USD lower and helped USD/JPY extend its gains above 113.50.  Ahead of the FOMC meeting, we're not surprised by the dollar's bid and if this week's economic reports show stronger inflation, we could even see USD/JPY hit 114. Traders should also watch the headlines because progress on reconciling the House and Senate tax bills could also extend the dollar's gains.

While the euro ended the day unchanged against the greenback, we think the single currency could face further losses this week. As   the year draws to close we don't see a compelling reason for the ECB to move away from their accommodative monetary policy stance.  They made it very clear at their last meeting that they would keep rates steady until QE ends, which means no rate hike until October 2018.  So despite improvements in data, we don't expect the ECB to alter its view this Thursday after having just tweaked its asset purchase program in October.  The German ZEW survey is due for release on Tuesday and Germany's recent political troubles should continue to weigh on investor sentiment. Technically, if EUR/USD breaks below 1.1750, then 1.1700 becomes fair game.   

Sterling was on its back foot throughout the North American trading session with GBP/USD closing at its lows near 1.3340. Technically, the currency pair is at risk of further losses, especially if it breaks the 20-day SMA (at 1.3330) in a meaningful way. Fundamentally however, it all depends on data.  This is a busy week for the pound with UK inflation, employment and retail sales data on the calendar alongside a Bank of England monetary policy meeting. The U.K. economy is performing better since the BoE raised interest rates in November but at the time, they said inflation peaked, which suggests that tomorrow's CPI report could come in softer. If they're right and price pressures eased in November, then GBP/USD could take out 1.33 easily.  

All 3 of the commodity currencies traded higher against the greenback today with the New Zealand dollar leading the rally.  NZD was easily the day's best performer. The New Zealand government has chosen Adrian Orr as the country's new central bank governor.  The market likes the fact that he's an old pro with extensive monetary policy and investment experience.   As reported by our colleague Boris Schlossberg, Orr is a "former deputy governor and chief economist at the RBNZ. He currently runs the New Zealand government's sovereign wealth fund which has returned 16.2 percent per annum over the last five years..... While Mr. Ott is neither a dove or a hawk, investors were reassured that he will keep the monetary policy on an even path restraining the worst impulses of a stimulatory monetary policy."  Given the recent consolidation and oversold nature of NZD, further gains are likely. The Canadian dollar is also consolidating its gains, suggesting a possible retracement.  The Australian dollar could make a move up to .7575 but that depends largely on tonight's business confidence, credit spending and house price reports.

 

 

For more information, they can be reached at http://www.bkforex.com/.

 

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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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