My take on currency price action year to date

Currencies caught in ‘hike/no-hike’ see-saw

This is a chart overlaying ‘major’ currency pairs starting from first FOMC interest hike last December.

Observations

  1. Tight cluster, close positive correlation between NZD, AUD, SGD, EUR and CAD.
  2. This group displays 3 clear short term trends first weakening against the USD following the first rate hike in Dec, strengthening from turning point A late January and then weakening from late April.
  3. These three trends can be characterised as hike – no-hike – hike which are in turn driven by a Fed that is hawkish – dovish – hawkish in a span of 6 months.
  4. As a result, NZD, AUD, SGD and EUR are near unchanged against the USD since Dec.
  5. JPY was different right from the beginning, persistently strengthening.
  6. GBP is clearly the worst performer but also appears to be in a world of it’s own (affected by narrative from Brexit).
  7. Going short GBPJPY, NZDUSD, AUDJPY, USDJPY are YTD best performers.
Currency price action from Dec '15 FOMC till date

Currency price action from Dec ’15 FOMC till date

 

Current leg since end April

  1. Fed change from dovish to hawkish drives USD strengthening. Technically this coincided with DXY hitting and rebounding from 2015-low of 92.6. (There is a comprehensive analysis written here on 29 April, log-in required to access.)
  2. This current trend should persist if a. Fed delivers rate hike in June b. Fed delivers bigger hike than expected c. Fed assures market that that are more hikes coming d. market believes the Fed. In other words, there must be solid reasons for the market to believe that the USD will appreciate more.
  3. In this case, AUD is the weakest (short AUDUSD).
  4. GBP strength may not be a function of USD expectations. It is more likely due to dynamics to do with Brexit (see point 6 above).
  5. Good crosses to look at are GBPAUD, EURAUD and AUDSGD.
Currency price action since end April

Currency price action since end April

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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