The Forex pairs we are keeping an eye on at present include the Yen
(USDJPY), The Euro against Sterling (EURGBP), Cable (GBPUSD), the Swissie
(USDCHF), the Aussie (AUDUSD), the Aussie against the Kiwi (AUDNZD), Spot Gold
(XAUUSD) and the Single Currency (EURUSD). Most of these have a US dollar
component, as can be seen.
And we are expecting US dollar strength, although we will be waiting for
other technical and fundamental indicators before we act on this. The severe
weather that has pummelled many parts of the USA is held by many to be
responsible for soft numbers Stateside in everything from employment through
Purchasing Managers’ Index (PMI) to manufacturing output. This is all having a
bad affect on the US
currency.
A case in point is the Yen against the US dollar (see chart above). A
great many market participants were expecting the high marked by the horizontal
dotted line to have been well and truly breached by now, but the pair failed to
oblige. For that to happen requires either US dollar strength or Yen weakness,
or both of these together. As is discussed below, US dollar strength is at
least on hold while the correction in equities has resulted in extensive buying
of the Japanese currency, which is regarded as a safe haven and often moves
inversely to the equity markets for that reason.
The climate for Forex
Foreign Exchange trading has been in one of those periods that come
along from time to time when it seeks direction. This is down to a number of
factors. One is the transition between chairs of the US Federal Reserve,
without doubt the single most influential body on global Forex markets, not
only those that affect the US dollar. Janet Yellen was always perceived as
someone who would be amenable to the continuation of Quantitative Easing (QE)
but it looks now as if it will finally meet its total demise on her watch.
The economic indicators that seem to have convinced the FOMC to end QE
have stalled somewhat, most notably those that deal with employment in the US . In the
meantime the market is not sitting on its hands and has well and truly begun
the process of withdrawing what will be cheap capital for only a while longer
from high yielding emerging markets, much to their discomfort. Equities seem to
have had their correction, which was coming.
But the real biggy in terms of trading is China . That massive nation has
begun its transition to a more consumer led economy. This was always set to
lower growth which should have effects everywhere, but most notably in Australia and New Zealand . One disconcerting note
regarding China
is the persistent feeling that the integrity of the data is less than perfect.
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