European Currencies Are Sizzling and Commodity Currencies Lagging

Posted Thursday, March 16, 2017 by
Eric Furstenberg • 3 min read

Too much was priced into Wednesday’s FED meeting. As I mentioned in the weekly forecast, Don’t Fall for the FED Rate Hike This Week! The Dollar Might Not Be As Strong As Many Think, I strongly suspected that the dollar would underperform on the day, which it did. You see, market players have a way of front-running central banks. Sometimes they run much too fast. I have two little daughters; the eldest (Karlien) is 18 months old. The market reminds me a lot of Karlien. She often gets very excited, tries to run too fast, and catches a speed wobble now and then. The effect is scratches, bruises, and sometimes tears.

Market players often do the same with important events like this interest rate decision by the FED. They run too fast and can’t handle the speed in the end. By the time the actual rate decision had hit the wires, the market was already oversaturated with the pre-positioning by the ‘frontrunners’, which caused an unwinding of long dollar positions. The fact that nothing really changed in terms of the projected future rate hikes also weighed on the dollar.

With all that said, let’s look at the U.S. dollar index:


U.S. Dollar Index – Technical Knockout

European Currencies Are Sizzling 1U.S. Dollar Index Daily Chart

The U.S. Dollar Index took a deep dive on Wednesday and sliced through its 20-EMA like a hot knife through butter. As you can see, the bears followed through with more selling on Thursday, although it was much less intense than on Wednesday.

Although all the other major currencies strengthened against the Greenback on Wednesday, there was a division between them on Thursday. The European majors (pound, Swiss franc, and euro) retained their strength while the Canadian dollar and the Australian dollar (both commodity currencies) gave back some of their gains. Let’s look at the EUR/USD:


EUR/USD – Flying Again

European Currencies Are Sizzling 2EUR/USD Daily Chart

The euro has been pretty resilient in the last three weeks. No doubt, the ECB president Mario Draghi’s hawkish comments at the latest ECB meeting have contributed to these euro gains. I wouldn’t be amazed if we saw a touch of the 200-day moving average on the EUR/USD soon.


USD/CAD – Look Closely…

European Currencies Are Sizzling 3USD/CAD Daily Chart

From the time I started writing this article, the Canadian dollar has strengthened against the U.S. dollar slightly. Nevertheless, it lost some ground against the dollar on the day. Likewise, the Australian dollar failed to hold back the weak U.S. dollar and was forced to give back a few pips on the day (Thursday). Here is a daily chart of the AUD/USD:

European Currencies Are Sizzling 4AUD/USD Daily Chart

The last red candle is Thursday’s price action. Not a very good performance of the Aussie against a weak Buck, is it?

So what can we deduce from all of this info I’ve discussed so far? At the moment the best currencies to buy might not be commodity currencies like the Aussie and the Loonie (CAD). When we compare their performance to that of the euro, pound, and Swiss franc, these three European majors may offer better buying opportunities in the days ahead. Yes, you can trade them against the dollar, but don’t forget that there are many other currencies you can take advantage of. We know that things can quickly change in the FX market, but at the moment the European majors look more attractive than the commodity majors.

Concerning the Canadian dollar, something that could count against it in the near-term is its sensitivity to the oil price. The oil price has turned sharply lower again in the last couple of trading days, and should this decline continue, it could weigh on the CAD.

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