The last summer trading month brought a lot of confusion in the FX market. Put it simply, the moves in the first half of the month were entirely reversed in the second half. At least, that was the case with the Euro pairs, with EUR/USD and EUR/JPY screwing both bears and bulls. After breaking a two-and-a-half-month-old consolidation area to the downside, the EUR/USD reached 1.13.
It seemed the next step would be 1.10, but bulls stepped in and sent it vertically to above 1.17, tripping stops after stops in its way up. Even more dramatic was the EUR/JPY price action. It dived to the 125 area only to find buyers that pushed the cross back above 130.
Such confusion isn’t abnormal in summer trading month. The velocity of the moves, though, is. With one day ahead of the end of month flows, traders attention is split. First, Trump’s administration’s trade talks with various parties sent the stock market to all-time highs. It’ll be interesting to see if the stocks will continue the rally into the next month. Next, the USD seems to be at crossroads. Many argue that higher stocks are poised to set the dollar lower, but flows generated by the tax reform still favor the American dollar. Not to mention the Fed’s double tightening cycle that makes the dollar even scarcer.
Finally, the JPY isn’t following on the stocks move, and that’s one of the biggest question marks in this summer trading environment. With no critical economic releases until the end of the month and with a long weekend ahead (the U.S. closed on Monday due to holidays), chances are September will start in the same note. As always, patience plays an important role in the right positioning and most of the times it makes the difference between a successful or a losing trade. Make no mistake, things will change in September. As traders come back from holidays, the pressure mounts to position on the right side of the market. And that will move prices.