View from London: A Trader's Market with Euro the Focus

08/16/2017 2:53 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The market is back into data reaction mode with the data Tuesday helping push U.S. rates back to the key pivot of 2.28% 10Y and today’s FOMC minutes and housing starts are the tie-breaker for trend, writes  Bob Savage, CEO of Track Research in his Wednesday commentary.


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There is a difference between waiting and patience.

The price action overnight has been choppy and fuel by the news headlines. Patience is required for anyone seeking a trend and hoping to make long-term gains. Timing requires patience.

This is a traders’ market with the euro (EUR/USD) focus of the moment as EU GDP was strong but ECB Mario Draghi now unlikely to talk about tapering this month. The balancing act of letting growth run faster in hopes of getting inflation higher but not too high has been the game plan for central bankers all along. Witness the UK where the British pound (GBP/USD) devalue from the BOE pre-emptive cut helped spur inflation but the wrong kind.

Today the GBP outperforms because wages and jobs were finally moving in the same direction and allow for some further hope that rates normalize by the end of the year (back to 0.5%).

The Australian wages were flat and contrast with the UK story with tomorrow’s jobs report key to keeping the Australian dollar (AUD/USD) above the .7750 stop fest. RBA policy seems far distant from any change compared to the RBNZ or BOE and especially the BOC where another hike has to be expected.

The divergence to the U.S. policy reaction is very much in play still. Fed speakers are laying down their lines for the September debate with Dudley looking different than Atlanta Fed Bostic – where he is worried about sustained inflation, the uncertainty over fiscal policy and warns the FOMC shouldn’t be strident about moving rates steadily higher.

This puts the market back into data reaction mode with the data Tuesday helping push U.S. rates back to the key pivot of 2.28% 10Y and today’s FOMC minutes and housing starts are the tie-breaker for trend. All of this puts the USD reversal or more accurately the bottom formation into play with 94.50 the key level to watch for the day.

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