I got a Skype message at 4:30 AM on Tuesday morning from someone asking for my end of the day view on EURUSD, USDJPY and AUDUSD. Considering I had not woken up yet I did not reply. However, when I looked at the message it got me to thinking how far ahead I could offer a view in a forex market that seems to jump from headline to headline.
Take GBPUSD as an example. If he had asked me at 4:30 AM when GBPUSD was trading around 1.5460 I would probably have given a bearish end of the day view. I would have likely given the reverse call a little over an hour later after BOE Governor Carney suggested the risk of a rate hike saw GBPUSD spiked to 1.56+.
Similarly, EURUSD, which fell steadily since peaking yesterday after the Greek debt agreement hit the wires, took on a brief bid after weaker-than-expected US retail sales were reported. While this has not changed the overall risk and as of this writing has not followed through, it tempered the extreme bearish view that was seen earlier today.
Why News Matters
One clue to a currency’s strength or weakness is often how it reacts to news, such as ignoring positive and reacting to negative news or vice versa. This type of behavior is most prevalent when there is a clear trend and momentum. It is less predictable when there is a lack of a strong trend, a time when the market tends to be more fickle in the way it reacts or overreacts to news. This can be exacerbated by the increase in volatility that often sees exaggerated reactions to news headlines.
My point is that in the current environment, it does not pay to get wedded to a view unless there are supporting technical and/or fundamentals to support it as the market can be vulnerable to the latest headline. Looking ahead, with Greece soon to be off page 1, one focus will be on US economic reports as a data dependent Fed debates when to start raising rates. This suggests to keep an eye on the reaction to positive vs. negative economic surprises as it will give a clue as to expectations of when the Fed will start to normalize rates, which in turn will have implications for all markets.
Postmortem: July 17, 2015
The dollar has firmed this week, ignoring two below consensus economic reports (US June retail sales and Phildelphia Fed survey), suggesting a forex market that is more sensitive to news that would suggest a sooner rather than later Fed interest rate hike. Fed Chair Yellen reiterated that a rate hike would likely occur this year and the debate is whether it will come in September or later on.
Jay Meisler, founder
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.