Lesson No 4 – Does the market know something we don’t?
Last week we opened a thread within the market update section, where we can discuss price action in the forex market and what it´s trying to tell us. Looking at the price action in major forex (USD) pairs during last week, we thought of posting an update tomorrow before the FED meeting about the relentless USD demand last week.
But, the BOJ meeting will be held tonight, which might totally change the landscape in forex. As we have often seen recently, when the BOJ disappoints the market USD/JPY is the first to plunge. Soon after, the other major pairs start following the shepherd and the snowball starts rolling, which turns into a broad USD selling. So, let´s get this out of my system before the BOJ ruins the plans.
In the last few weeks we have seen plenty of disappointing US economic data such as retail sales, producer inflation (PPI), capacity utilization, industrial production and most importantly the non-manufacturing sector. But, the US Dollar hasn´t felt any pain, apart from a small tumble here and there.
Now that´s very weird. In the last 1-2 years, the USD has suffered greatly when the economic data disappointed, particularly when the next rate hike depends on it.
The most flagrant case was last Monday when FED´s Brainard flooded the media with dovish comments, following her colleagues who did just the same. Guess what? After a short-lived dip, the buck resumed it´s short term uptrend. That doesn´t seem normal when FED´s Bullard sent the USD hundreds of pips lower a couple of years ago with a less dovish speech.
So, what does this sort of price action tell us?
It shows that the forex market just doesn´t want to go against the Buck right now.
I can´t figure out why. The US economic data and the FED officials have made it clear that there won´t be a rate hike tomorrow and the rate hike odds have tumbled. Yet, the USD keeps moving higher and no one knows why.
Either the market knows something we don´t (a surprise rate hike against all odds) or it just wants to go long on the Buck ignoring the surrounding environment. Whatever the reason, we can only follow the market. Thank God there is price action which keeps telling us what the market wants. So, long USD is the place to be right now, until the forex market changes its mind.
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