FX trader view - The USD breaks out to the highest since November
There's an incredibly ominous double top that is now in play, with the pair closing through the neckline at 1.1704, which puts a target sub-1.1200. Imagine a world with the USD at 1.11 or so.
This sounds pretty deflationary to me, although one has to ask why we got there – that being risk-off factors and safe-haven flows, or because of the US being the exceptional story and attracting capital for positive reasons – this is the crux of the ‘USD smile’ theory, and right now the USD has the tailwind of a market that is trading slower global growth and a less accommodative Fed.
With EURUSD starting to bear trend there is no glaring buy signal for me, so I’d be selling rallies. This is true of AUDUSD, although AUDUSD is tied to the fortunes of bulk and industrial metals near-term and also the CNH. If USDCNH can indeed squeeze higher then AUDUSD may go onto test 0.7000, although it will likely be next week and not in the session ahead. AUDCHF and AUDJPY are also moving at pace.
Next week heralds the Jackson Hole Symposium – will it prove to be an event risk? I don’t see it myself, but I certainly not against Jay Powell shaking some further life into these markets – we’re seeing more opportunity emerge, which I’ll never be against. After the FOMC minutes I suspect any speech from Jay Powell will not deviate too much from that, as the following week we get US consumer confidence, ISM manufacturing and US payrolls where the consensus is already 750k and only 5 estimates have been placed. Trade the opportunity with Pepperstone.