USD bulls reinvigorated on data dependency

Global Markets

The USD showed resilience deep into yesterday’s session as its appreciation was felt across the corners of the FX markets. The polarity change experienced at the start of the trading week rebalanced in favour of the USD bulls which in turn the EUR and GBP were no matches for. Both the EURUSD and GBPUSD were brought to their knees as the sensitive USD regained bullish momentum after the GDP report showed the consistent economic outlook of the United States.

Though the prospects of a US rate hike in September holds a weak possibility of materializing due to the financial market instability and slowdown in the commodity arena and China, what currently drives the USD bulls is strong data with the Federal Reserve continuing to repeat that any US rate hike would be dependent. The continuation of positive economic data from the United States will act as fuel to reinforce optimism of a US rate hike before the end of 2015.

The overall market tone was positive yesterday with commodity markets clawing back significant losses. WTI finished the day remarkably bullish around the 43.0 level, which provided European equities with positive momentum.

Although sentiment still remains bullish for the UK economy, the recent global financial market instabilitycaught up with the pair and encouraged an aggressive reversal in the GBPUSD. The GBP was previously looking unfazed by the events involvingChina with the currency continuing to progress against its trading partners. The UK’s import/export relationship with China is relatively low compared to others whichare highly reliant on China trade, but the concerns will continue about the depressed commodity markets and what impact this could have on the FTSE 100.

Today the focus of the UK economy will be on the Second Estimates GDP. The forecast is for 0.7% growth and the continuation of consistent data from the UK today will further bring the BoE closer to a rate hike in 2016.

AUDNZD

Fundamentally the AUDNZD is a flat pair. These two commodity currencies have felt the brunt of the effects not only from China, but also from the heavy volatility dished out on Monday. Australia continues to be exposed to an extended period of pressure due to the global decline in demand for commodities. New Zealand is in a period or renewal but the previous effects of the global decline for Milk can still be seen in the single currency. In a technical perspective, AUDNZD was trading in a weak descending channel. Prices resided below the 20 Daily SMA and the MACD was trading to the downside. Ignoring the move on Monday, the previous technical lower high was at 1.130. As long as prices can keep below this level, then the AUDNZD may breakdown below the 1.090 support with first targets of 1.070.

EURNZD

The events of Monday saw the EURNZD trade to the 1.9550 level, a price which has not been observed since February 2011. Fundamentally the EURNZD may be classed as bullish. The paradigm shift which has seen the EUR generate qualities of a safe haven instrument, combined with the bearish sentiment which has suppressed the NZD for the most part of 2015 have caused the EURNZD to gradually trend to the upside. Technically this pair is bullish and both leading/lagging indicators concur. The MACD trades strongly to the upside and prices are above the daily 20 SMA. Previous resistance at 1.711 may act as a support which should propel the EURNZD bulls back to the 1.800 level. A move back below the 1.650 level invalidates this daily bullish view.

EURGBP

As investors flocked to purchase the EUR due to a risk-on environment which was induced by the events of China, the value appreciated across the board. Fundamentally the EURGBP remains flat simply because both the EUR and GBP are fundamentally bullish. The UK economy is doing well and has been affected the least by events of China. In a technical sense, the EURGBP looks bullish. Prices pierced the 0.7400 resistance on Monday before declining back down. With the MACD and 20 SMA trading to the upside, a correction may be in place for another journey back to the 0.7400 level. A move back below the 0.7200 previous resistance which should act as new support will suggest bullish weakness.

CADJPY

The CADJPY has taken a hit both technically and fundamentally. Falling oil prices and the sharp decline experienced with stock markets on Monday had an adverse effect on the CAD which weakened the commodity pair across the board. A risk-on environment nourished the JPY bulls and reinstated bullish sentiments back into this safe haven currency. The effect of both combined caused the CADJPY to drop to the lows of 87.40, levels not seen since the first month of 2013. Technically the CADJPY is bearish and prices are currently testing the previous support at 92.00 which has become a new resistance. If this level does hold, then bearish momentum may continue in the new trading month of September. A move back to 94.00 will invalidate this bearish daily view.