Monday was great, we started selling the USD against all its forex counterparties in the last US trading session and it turned out great (as per the morning analysis).
Today will be an interesting trading day and we started it off with volatility in the AUD and other forex trading pairs.
Before we continue with the forex analysis, there are currently issues arising about a “Nexit” and this has happened recently. The next political risk event on the European agenda will be the Dutch elections for the lower chamber of parliament on 15 March. Benefitting from the rising populist mood, the far-right Freedom Party (PVV) led by Geert Wilders is expected to perform well, whereas established parties from the governing coalition (liberal-conservative VVD of Prime Minister Rutte and centre-left PvdA) will likely see their support dwindle.
Risk-off sentiment hit the European fixed income market yesterday and particularly France and Italy came under strong pressure. The 10-year yield-spread against Germany surged to the widest level since 2012 for France and 2014 for Italy, respectively. The reason is the rising political risks in Europe, where focus is on France and the growing concerns that Marine Le pen could win the French Presidential election after the Francois Fillon ‘fake job’ scandal. The ‘excuse’ or explanation from Fillon yesterday afternoon did little to calm the markets.
German Factory Orders came out negative 3% today.
Rising political risks and dovish speaking to the EU parliament by the ECB’s Mario Draghi weighed on EUR and risk sentiment yesterday. The widening of French government bond yields (and periphery bonds) relative to Germany is driven by development in French politics, where the presidential candidate Marine Le Pen reiterated a pledge to take France out of the euro. A recent poll shows that Le Pen currently has the support of 25% of the voters compared with 20.5% for Emmanuel Macron and 18.5% for Francois Fillon.
This is the reason you are seeing a weaker Euro this morning, but you will see a stronger one later in the day.
Credit: ForexFactory.com Time: +2 GMT
Chinese leading indicators have pointed to a peak in the cycle for some time. The recent round of PMIs suggests the peak is taking place in Q1.
We look for a moderate slowdown during 2017 as the leading indicators support:
1. Slowing housing market
2. Fading boost from infrastructure
Exports serve as a buffer as they are underpinned by a) stronger global growth and b) a weaker CNY.
The main risk is a hit to exports if there is a trade war with the US.
Monetary policy has been tightened moderately but we do not expect a lot of tightening this year as the cycle fades and inflation is still low.
Forex Trade Idea: USDCHF Selling Continues..
It is important to note that the USDX (US Dollar Index), one of the leading USD indicators, is currently creating a rising wedge pattern, this is a strong bearing technical pattern which indicates the USD will get its butt kicked soon.
We are bearish on the USD from 10:00 am GMT.
Today’s Lesson: Successful Trading Requires…
A strong level of Commitment
A feeling of Confidence
A pattern of Consistency
The ability to Adapt
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