FX Update: USD breaking higher, if in somewhat slow motion

Trading interest

• Maintaining EURUSD and GBPUSD shorts targeting 1.0900 and 1.2750, respectively, with stops above 1.1000 and 1.2950, repectively
• Shorting NZDUSD for test of the sub-0.6300 lows.
• Long USDMXN targeting over 19.00 with stops below 18.60.

Developments
The US dollar closed last week on a new high note for the cycle in the wake of a strong January jobs report, as the official NFP change number was above 200k and the unemployment trate only ticked up slightly on the positive change in the participation rate. (Shhh, the market doesn’t want to talk about the negative 500k revisions to the Apr 2018 to March 2019 payrolls numbers and the fact that a significant percentage of every report is conjure from thin air….). 

US Fed Chair Powell’s semiannual testimony is set for Tuesday before a House committee and Wednesday before a Senate committee. The prepared remarks on the economy and the Fed’s policy mix was released with little fanfare on Friday and the more interesting spin this week will be whether Fed policy is becoming politicized after the Fed’s turnaround in 2019 on interest rates and its aggressive re-inflation of its balance sheet has clearly engineered the tremendous run-up in equity prices and Donald Trump’s non-stop anticipated victory jigs. Democratic senators have already officially inquired into the Fed’s repo operations head of Powell’s testimony.

The Russian central bank went ahead and cut rates again as most expected and was happy to continue to signal an easing bias, apparently feeling that support to the Russian economy – under increasing strain as oil prices have collapsed on coronavirus fears – rather than worrying about the ruble level, which dipped hard on Friday in response and is a bit firmer this morning as USDRUB mulls whether to break the 200-day moving average.

An interesting week ahead for the kiwi as the RBNZ is set to announce the official cash rate on Wednesday with apparently universal expectations that Orr and company stand pat at the 1.00% policy rate. I see room for either a rate cut or the expression of a bias to cut on the ongoing coronavirus concerns. NZ Prime Minister Ardern was out overnight fretting the risk to NZ GDP from the virus outbreak and Orr has a history of liking to surprise the market. In any case, surprises only look possible in the dovish direction.

Chart: AUDUSD
AUDUSD closed at a new low for the cycle and touched its lowest level in more than a decade on Friday as the market tilted into the weekend with a cautious stance on ongoing coronavirus concerns. Given that commodities markets have born the brunt of the negative fallout from the situation, it’s no surprise to see the AUD struggling down at these levels against a firming US dollar. Prices for key Australian commodities like iron ore have stabilized over the last few days, but it is clear that the sense of ongoing disruption needs to improve markedly to suggest that this is a false break lower.