Welcome to another FOMC week!
While probably not yet in play, the Fed’s rhetoric out of the meeting will be hugely influential in how the US dollar behaves heading into the following month.
Economists surveyed suggest that 80% still believe that the Fed will move to hike rates in September, meaning that a clear statement of intent could be given on Wednesday. The Fed has spoken before about limiting market surprises so a hawkish tone could signal liftoff is imminent.
If however the Fed fails to give any indication of a September hike, any early move that has been priced into the US dollar will look to be unwound across the majors. Just how long this unwind will last is debatable.
Just remember that the day after FOMC, we get the US Q2 GDP number. This will be most significant if again the Fed delays in their rhetoric, and the GDP number or revision beats expectations.
USDX Daily:
Also, keep in mind the divergence between monetary policies of other major central banks. With most others, bar the Bank of England maintaining an easing bias, keep in mind where you can take the most advantage.
Greece:
I’ve thrown this one into the Monday Morning post because we all need a smile on a Monday.
With Greece set to begin a fresh round of negotiations for its next bailout on Tuesday, journalists have been told that the talks have been delayed because of “technical reasons”.
“The delay… is due to technical reasons and not due to political or diplomatic reasons.”
There have been ‘logistical problems’ holding up officials representing the international creditors.
Seriously.
With Greek banks set to continue with capital controls, the economy continues to weaken. If people don’t have access to capital then things grind to a halt pretty quickly. One of the most concerning side effects of capital controls is the steady increase in loans that are failing to be re-paid. The cycle continues.
EUR/USD Daily:
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On the Calendar Monday:
EUR: German Ifo Business Climate
USD: Core Durable Goods Orders
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Chart of the Day:
Further to my point above about divergent monetary policies, we take a look at a cross with 2 economies heading in different directions - meaning the chart is heading in only one way.
GBP/AUD Daily:
This chart is just absolutely ruthless!
Price moved upwards off its bottom inside a nice bullish channel, giving nice pullbacks to parallel lines along the way, before exploding into a move that can only be described as parabolic. And it's still on its highs!
I get questions all the time about charts that look like this:
“So it’s time to fade it, right?”
“Its way overbought, we should look to sell into this move, right?”
THERE IS NO SUCH THING AS OVERBOUGHT.
Don’t go broke fading strength, and if you ever need a refresher as to why, favourite the GBP/AUD chart above.
What are your thoughts on trading overbought/oversold charts?