US Session Forex Brief, Feb 6 – USD Benefits as Everything Else Heads Lower
Skerdian Meta • 4 min read
The US Dollar was under pressure in the last two weeks and it got dumped again on Wednesday evening after the FOMC meeting. But, on Thursday it started getting its act together and a bullish reversal followed, which has been going on since then. Today, forex traders seem reluctant to buy anything else, so they have just been finding comfort in the USD again, which continues to crawl higher.
The commodity Dollars are under heavy pressure after the Reserve Bank of Australia Lowe sounded sort of dovish during the Asian session. The market sees the RBA as neutral now after being hawkish for a long time and Lowe even mentioned rate cuts in his speech which sent AUD/USD more than 100 pips lower. That dragged the Kiwi lower as well. The CAD is considerably lower while Oil prices retreat lower.
The Brexit rhetoric continues with British politicians pushing for the Irish backstop to be removed as some point, especially the DUP Party of Northern Ireland, while the EU doesn’t want to reopen the Brexit deal again. Brexit might be postponed further or it might not as Theresa May has insisted lately, but the market sentiment has turned pretty bearish for the GBP as the uncertainty remains elevated.
- German Factory Orders – Factory orders for December posted another massive decline after the 1% decline that we saw in the report released last month. Although the number for November was revised lower to -0.2%, orders in December fell by 1.6%, against expectations which were for a 0.3% increase. Things continue to deteriorate in the Eurozone.
- German Construction PMI – The construction PMI indicator declined to 50.7 points for January from 53.3 points previously. There was a recovery towards the end of last year for this sector in Germany, but it starts to decline again, falling close to stagnation now.
- No Progress on Trade Talks Between the EU and the US – A report on the Politico today suggested that the trade talks between the EU and the US are more of a show because both sides are far away from each other with lots of obstacle in between. The US Steel and Aluminium tariffs are still on but the EU is trying to prevent another tariff on European cars which could be between 10% and 25%. The Eurozone economy is in a difficult spot, so car tariffs would only make things worse.
- DUP Wants Backstop Removed – The DUP Leader Foster had a meeting with Prime Minister May and she came out saying that the backstop is the problem and it needs to be replaced. They would love that, but the EU is sticking up with Ireland, so it will be a difficult issue to solve.
- UUP Says That May Doesn’t Want to Postpone Brexit – The leader of the other Northern Ireland Party the UUP also had a meeting with PM May this morning and he came out saying that May is reluctant to postpone Brexit beyond March 29. May spoke about putting a time limit on the Irish backstop which is just one of the options raised by May during the meeting. Although, the time limit is not the answer, because it can be extended.
- No New Offer on Brexit on the EU – European Council President Donald Tusk commented a while ago saying that the withdrawal agreement is not open for renegotiation, that the Irish border is top priority and that he hopes to hear realistic suggestions from May on how to end this confusion. The most important task for the UK and the EU is to prevent a no-deal scenario. He believes that a common solution is still possible, but the EU will not put a time limit on the backstop, so there you go Theresa May.
- Ireland’s Vadarkar Supports Tusk – The Irish PM Leo Varadkar said that the EU is in agreement that the backstop is needed. He added that the UK political instability shows why we need a legal guarantee and if the UK intentions on future relationship evolve, the EU could change political declarations.
The US Session
- US Trade Balance – The US trade deficit has been growing in the last several months. The trade balance for January was expected to decline a little from -$55.7 billion previously to $54 billion, although today’s report showed a bigger decline as the trade balance came at -$49.3 billion.
- Canadian Building Permits – Building permits posted a 2.5% jump in November in Canada. Although, that was revised lower to 2.1% today. Building permits were expected to decline by 0.9% for December, but they posted a massive increase of 6.0%.
- Canadian Ivey PMI – The Ivey PMI which shows the shape of businesses in Canada increased to 59.7 points in December from 57.2 points previously. Although, today’s report which is for January is expected to fall to 56.4 points which is the lowest since exactly a year ago.
Trades in Sight
- The trend has turned bearish in the last two weeks
- Fundamentals are deteriorating
- Brexit uncertainty is increasing
We will wait again for a pullback higher to the 200 SMA before going short
GBP/USD turned bearish at the beginning of last week as Theresa May’s Brexit plan grew increasingly unconventional for the British Parliament. As a result, the GBP reversed lower and entered a bearish trend since then. The economic data has also been getting weaker in January and so far this month, and today’s decline in services gave the GBP another push lower. We will be trying to get short on GBP/USD, but will wait for a retrace higher to the 200 SMA (purple) before opening a trade.
The markets are pretty quiet again today apart from commodity Dollars which have lost the ground beneath their feet. Everything seems bearish today apart from the USD and the JPY which are acting as safe havens in uncertain markets.