Summary: Market full of fake moves as the US dollar can’t make up its mind on the general direction. Mixed economic releases don’t help new trends to start and it seems that market is looking for a new trigger.
This August so far has been an extremely ugly one for both bulls and bears as market cannot decide what to do and ranges are holding remarkably despite some pretty interesting events, like Brexit, that happened this summer.
That being said, fake moves are the norm and I would start with the NFP (Non-Farm Payrolls) release on the first Friday of the month. This is good from a broker’s point of view but not from a trader’s one, except scalping is involved.
The overall release was a strong one, with market expectations being well exceeded and previous month’s numbers were revised higher as well. Needless to say that market reaction was to buy US dollars in a fury, but this held only for a few hours.
EURUSD moved to 1.1040 area after the NFP, down from above 1.12 only a couple of days later, but something magical happened at that level as in the same Friday market managed to climb back to 1.11, despite the fact that nothing else happened from an economic point of view.
The same happened to AUDUSD pair, and as a matter of fact on this pair the NFP move was having an even smaller impact as on the next Monday the pair made a new high, totally retracing the NFP drop.
This is forex trading in summer conditions and we can only adapt to it.
With NFP out of the way, market started to squeeze higher slowly but surely and AUDUSD reached almost 0.78 before some sellers stepping in. Even EURUSD climbed back above 1.12, and one can only wonder now what should happen next.
Before that, last Friday saw the Retail Sales in the United States disappointing once again and the US dollar has been sold aggressively, with both AUDUSD and EURUSD regaining 0.77 and 1.12 respectively.
However, like it was the case with the NFP release one week earlier, both moves were proved to be fake ones as at the end of the week they were completely retraced, in yet another hit and run from algorithmic trading.
This trading environment is a dangerous one as it leads to overtrading if the analysis is made on the lower time frames. The way to avoid it is to look at the bigger picture and calmly wait for levels to be reached.
Looking ahead, we have a busy week from an economic point of view. Monetary policy minutes in Australia will be released and considering the RBA (Reserve Bank of Australia) cut rates last time they met, the minutes have all the chances to be dovish.
On Wednesday the FOMC (Federal Open Market Committee) minutes will hit the wires as well and market participants will look for clues regarding any possible rate hike to come from the Fed.
Considering the fact that US elections are coming this fall, I would say the central bank would not hike until after the elections, but it is a close call.
Before the FOMC minutes though, on Tuesday the US CPI (Consumer Price Index – inflation) will keep traders busy as it is expected to be flat at zero. Any surprises, on both direction, should see the overall dollar index moving and maybe this August will not be so confusing.
Keep in mind that inflation, or the lack of it, is the root cause of all these problems in the world at least when it comes to economics, so any news related to inflation is likely to impact markets.
From a technical point of view, these markets are a total mess.
EURUSD is trading in a consolidation area that actually started before the Brexit vote, and this consolidation is probably not going to end any time soon. Looking for the ECB (European Central Bank) meeting in September to bring something new to the table, but even that seems to be unlikely.
I would favor buying on any dip below 1.0950 for a new leg higher, while staying short from current 1.1150-1.12 area.
AUDUSD is doing exactly the same only here the correction higher is taking the shape of a terminal move, in the sense that all the legs are corrective. If on the EURUSD I would look to buy any dip, in this pair I only want to stay on the short side on any move above 0.77 targeting way lower values, perhaps below 0.72.
If that is the case with the AUDUSD pair, should be USDCAD move in an inversely correlated manner? In principle, it should, but in reality the two pairs are kind of lacking any correlation this summer.
On Friday we’ll have the Canadian CPI destined to move the CAD pairs but if previous two Friday’s with the NFP and Retail Sales releases are of any indication, I would say this one has the chances to provide fake moves as well.
1.30 still holds some kind of a magical touch on the pair though, so looking for direction around that level while keeping a bullish bias should be interesting.
GBPUSD is trading with a bearish tone as the GBP turns out to be the world’s worst performing currency this 2016. Brexit uncertainties are still high and no one really knows when and if the UK will trigger the article needed for the whole process to start. In the meantime, signs of recession appeared and BOE (Bank of England) not only cut the interest rates, but also started a mini bond-buying program in order to help the overall economy.
Trading the GBP is a tough call these days and the best thing would be to simply avoid the GBP pairs.
All in all, August so far shows nothing but classical summer trading but prepare for things to change by the time September comes, as new trends are about to start.