Highlights:
- Dollar Bulls dealing with multiples vials of poison: inflation, relative weakness, and politics
- AUD bests USD as RBA’s hawkish shift joins the normalizing central bank chorus
- Gold price at 2-week high thanks to a faltering USD, Bitcoin bounces on easing split threat
- Sentiment Highlight: Bullish AUD/USD as retail short positions continue to add against trend
Trading in markets is no place for “I told you so.” Instead, we look to the future, and it remains bleak for the Dollar. There is low hanging fruit in blaming the dollar’s troubles on falling political capital in the US after the Obamacare repeal was shelved, but there remains more to the dollar bearish story than that.
The USD-loyalists may claim that the supported belly and front-end of the yield curve is argument enough that the USD is oversold, but there are holes in that logic. The Fed is pressing forward with rhetoric, but the bond market is pricing in doubt the Fed will successfully hike again in 2017 and three times in 2018. Also, the message from UK CPI on Tuesday morning is that inflation is consistently disappointing central bankers and causing import dependent economies (Japan, US, & UK) to scale back on their confidence that hitting their inflation targets are “just around the corner.’
A game that the US previously held the trump card, monetary policy divergence is now losing to a slew of central banks. On Tuesday, the RBA minutes signaled that they are beginning to empathize with the Bank of Canada who engaged in a hawkish hike by signaling more hikes could come last Wednesday. After the RBA minutes were announced, AUD/USD traded at 2-year highs, and now it’s fair to say that a move to 0.8000 on a cocktail of Chinese growth that has led to base metal demand and a weakening USD is a logical conclusion.
When looking at 25-delta risk reversals or ‘Riskies,' AUD/USD are trading at the smallest premiums to calls since 2009, which is a theme we looked at in our article, 3 Big Mistakes Traders Are Making in 2017 And How To Correct Them as an indication of where the market was pricing breakouts.
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In the commodity arena, the focus has returned to precious metals and Bitcoin as Gold prices climbed higher for the sixth day in seven days on doubts the US government will be able to pull the fiscal feats claimed in November. Gold traded at a 2-week high and silver also appears set for volatility as a battle of small investors vs. big investors on the Comex could end in one side getting the glory, and the other side capitulates. The smaller traders are betting on a price rise while institutions are predicting the downtrend of late will soon resume.
In cryptocurrency news, a breakthrough in a software development is helping to lift Bitcoin as major miners are said to be deploying a software aimed at solving the scalability probability to support smart tracks. Smart Contracts are a way to utilize Blockchain, the underlying technology Bitcoin to decentralize lists and contracts and globalize and legitimize the use of Bitcoin in every day uses.
Recommended: Understanding What Bitcoin & Gold Have In Common in Financial Markets
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Closing Bell’s Top Chart: July 18, 2017, DXY trades at lowest levels since September, little Bullish hope
Chart Created by Tyler Yell, CMT
Tomorrow's Main Event: AUD Westpac Leading Index (MoM) (JUN)
IG Client Sentiment Highlight: Bullish AUD/USD as retail short positions continue to add positions
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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