USD continues its momentum

This Daily Digest will cover:

• USD continues its momentum
• Poor European PMIs
• All quiet on the crypto front

The USD has extended its rebound through the weekend. Reports that the BoJ saw little need to act on its YCC policy prompted a jump in the USD at the back end of last week, with the momentum being backed up this morning by weaker than expected European PMIs. The outlook for USD continues to firm as participants position themselves ahead of Wednesday’s FOMC decision.

The trend of European manufacturing data misses continued despite pessimistic expectations – a concerning 38.8 reading out of Germany puts it firmly in contractionary territory. EUR/USD undertone already appears soft – with the market uncertain on the prospect of a September rate hike and finding itself heavily short USD, the data release catalysing a push through key levels around 1.1100 could lead to a furthering of the corrective trend in the pair. Cable looks weak to me too – a low close last week has added to GBP headwinds and trend momentum has weakened on the short-term chart. 1.2850 was resistance in June as the pound rallied and a clean break could open the way for a look down to the 1.27 trend support off the March low. The general message seems clear here – USD positioning is heavily short and there looks to be a correction before Wednesday’s risk event. DXY has pushed through the 101 level, where its last base was now acting as resistance. With inflationary risks still present and it being too early for the Fed to switch narratives, the desk is looking to get long dollars with a ‘sell the news’ exit on FOMC day.

Cryptoland has disappointed me recently. There has been minimal volatility and volume in BTC and ETH on the back of the Ripple soft judgement, despite gains in the namesake token. It feels to me like the market is still awaiting catalyst news – but the scene is certainly set.

Good luck this week.

James Laidlaw
OTC Trader