A week that was dominated by US dollar strength just ended and it is very interesting to see what the next move in the dollar index will be. The week started virtually with a consolidation on all major pairs as EURUSD, AUDUSD and GBPUSD traded in small ranges all the way until Thursday. The only exception was the coming from the USDJPY but more about the Japanese Yen pairs a bit later.
Therefore, when ranges are present, all we have to do is to trade with a bigger horizon in our mind, so expiration dates need to be at least end of week or even end of month.
JPY Sold Aggressively
The last NFP (Non-Farm Payrolls) number brought us nothing but confusion again as while the US dollar has been sold as the initial reaction to the release, it turned out it was a fake move and no other pair showed this fake move than the USDJPY. Monday and Tuesday saw a continuation of the uprising trend with market trading all the way above 119.30 level on Tuesday a whoopy two hundred pips higher when compared with low in the NFP day. What changed from a fundamental point of view? Nothing, as it was a pure squeeze.
The same squeeze was valid on other JPY pairs as well in the sense that EURJPY traded above3 124.50 for the first time in more than three weeks. However, the Euro cross sold aggressively after reaching 124.60 to trade below 123 on the back of the EURUSD weakness.
Super Thursday Not So Super
Thursday was the main day of the week for the GBP traders in the sense that Bank of England met for setting the monetary policy for the period to come while the Inflation Report was due as well in the same time. In UK, if the Central Bank is not changing the interest rate then there is not any press conference but this time the Governor, Mr. Carney, used the Inflation Report in order to communicate to market participants what the central bank’s intentions are.
That being said, traders were set for huge volatility in the GBP pairs as a lot of questions regarding the upcoming EU referendum are still unanswered but unfortunately they were disappointed. It turned out that the GBP pairs were actually quite stable as BOE left rates unchanged and reinstated that an eventual Brexit is not going to have positive consequence for the pound nor the economy.
To add fuel to the fire and make things even more complicated when it comes to the referendum, IMF’s Lagarde on Friday said that the fund has done its homework and there is nothing positive from a Brexit outcome.
Blistering US Retails Sales
Friday was supposed to be a regular trading day and in a way it was, with one exception: the Retail Sales in the United States were released and the outcome was staggering: they came way better than expectations, above 1% on +0.3% expected, and this is one of the situations when market is taken by surprise. It was the needed trigger for the US dollar index to make the high of the week as EURUSD, USDJPY, AUDUSD and other pairs were seeing the dollar surging.
This release only comes to add more fuel to the fire on the bullish side as two other members of the Fed came out with relatively hawkish speeches calling for higher rates as soon as possible. This Wednesday we will have the pleasure to see the FOMC minutes and to see if the Fed is serious when it comes to hiking in June or not.