Disappointment after FOMC meeting yesterday on inflation, and split opinions on the coming interest rate decision
The Dollar fell after Fed minutes showed that US policy makers were increasingly worried about inflation staying persistently low. The Greenback had already been under pressure after President Trump disbanded two business advisory councils due to a growing number of executive resignations. The increase in Trump’s political woes has left his policy agenda in shreds.
US housing data missed expectations while UK labor data improved.
Australian Wage Price Index: 0.5% against a forecast of 0.5% and a previous 0.6%
UK Average Earnings Index: rose 2.1% from an upward revised 1.9% and a forecast of 1.8%
UK Claimant Count Change: -4,200 against forecast 3,200 and a previous 3,500 (revised from 5,800)
UK Unemployment Rate: 4.4% from a previous 4.5% and a forecast of 4.5%.
US Building Permits: 1.22 million against a forecast 1.25 million and upwardly revised 1.28 million
US Housing Starts: 1.16 million against a forecast 1.22 million and a previous 1.21 million
US Ten Year Bond Yield fell 5 basis points to 2.22%. Germany’s Ten Year Bund Yield closed up at 0.44% from 0.43%. The yield on the Japanese Ten Year JGB settled at 0.03% (0.04% yesterday)
Global stocks closed mostly up but off highs. The US Dow finished 0.12% higher at 22,018.
USD/DXY – slipped 0.34% to 93.518 (93.857 yesterday)
EUR/USD – rallied to close up at 1.1768 from 1.1735 yesterday
GBP/USD – finished with mild gains at 1.2892 (1.2870 yesterday).
USD/JPY – fell to 110.20 at the close from yesterday’s 110.70
AUD/USD – jumped to close up 1.24% at 0.7929 (0.7822 yesterday). Base metal prices soared. Copper finished up 2.9% while Zinc rose 5.4%.
Outlook: The Fed meeting minutes revealed that the committee was relatively split over the stance toward future rate hikes. This division could potentially forestall a December rate hike. The Fed also signalled that an announcement would be made on reducing its bond holdings most likely at its September meeting.
Traders will now focus on the US economy, the Fed and Trump’s growing policy agenda hurdles. Sentiment will weigh on the Dollar for now but it may be too premature to call an end to its recent pull back. This has been mainly due to better US economic data of late.
Today’s events and economic data releases:
New Zealand Q2 PPI Input (just released) rose 1.4% from 0.8% and a forecast 0.9%
Australian July Employment Change, Unemployment Rate: (GMT 1.30 am, Aug 17/Local Time 11.30 am, Aug 17) Forecast for July Employment Change is for +20,000 jobs from the previous +14,000 jobs. The Unemployment rate is expected to remain at 5.6%.Participation rate is expected to be 65%, the same as June’s.
UK July Retail Sales: (GMT 8.30 am, Aug 17/Local Time 6.30 pm, Aug 17) – forecast at 0.2% from June’s 0.6%. Annual rate is expected at 1.4% from 2.9%
Euro Zone July Final CPI: (GMT 9 am, Aug 17/Local Time 7 pm, Aug 17) forecast at -0.5% from 0.0%. The Annual CPI is forecast at 1.3% from the previous 1.3%
ECB Monetary Policy Meeting Accounts (GMT 11.30 am, Aug 17, Local Time 9.30 pm, Aug 17) – This is a detailed account of the ECB Governing Board’s most recent meeting)
Canada July Manufacturing Sales: (GMT 12.30 pm, Aug 17/Local Time 10.30 pm, Aug 17) forecast -1.1% from the previous 1.0%
US Weekly Jobless Claims: (GMT 12.30 pm, Aug 17/Local Time 10.30 pm, Aug 17) forecast at 240,000 from 244,000.
Trading View: Market opinions are pretty evenly split on a December Fed rate hike after the Fed minutes. The Dollar’s sentiment has been weakened by Trump’s political woes. The recent improvement in US economic data is what supported the Dollar. Traders will need to see further improvements in the economy soon. The Dollar will likely drift lower until then.
EUR/USD – The Euro held the strong support level at 1.1680 well. EUR/USD rallied initially to 1.1730 after the Trump dump. The FOMC minutes release saw EUR/USD trade to an overnight high of 1.17878. There is immediate resistance at 1.1780 and then at 1.1810. Support can be found at 1.1730. Reports that ECB President Draghi would not deliver a fresh policy message at next week’s Jackson Hole meeting initially weighed on the Euro. Likely range today 1.1720-1.1790. Let’s not forget the current extreme market positioning on the Euro.
AUD/USD – The Aussie jumped after managing to hold some strong selling at the low 0.78 levels. The overnight low as 0.78167 (against 0.78078 Wednesday). Broad-based US Dollar selling plus strong base metal prices saw the Aussie rally 1.24%. Today sees the release of Australian July Employment. Forecasts are for a Jobs gain of 20,000 against June’s 14,000. The Unemployment rate is expected to stay at 5.6%. Any Jobs gain of above 20,000 could see the Aussie test 0.80 cents again, which would worry the RBA. A gain of less than 10,000 would see fresh selling emerge. AUD/USD has resistance at 0.7940/50. Immediate support lies at 0.7900 and 0.7870. Likely range 0.7880-0.7940.
USD/JPY – The fall in the US ten year bond yield saw USD/JPY fall back to 110.029 overnight lows. The Dollar traded as high as 110.95. Japanese ten year yields were basically unchanged. This widening differential, as well as potential risk-aversion will weigh on USD/JPY. There is resistance at 110.30. Immediate support can be found at 109.80. Expect USD/JPY to drift lower with the likely range 109.60-110.20.
GBP/USD – Sterling had a mild rally, finishing at 1.2893 from 1.2870 yesterday. Better-than-forecast UK Labour data supported the Pound which has been under recent strong selling pressure. Tonight sees the release of UK Retail Sales data. A forecast of -0.5 % is expected from the previous 0.0%. Anything better than -0.5% will see further Sterling strength. There is immediate resistance at 1.2910 (overnight high was 1.2903). Support can be found at 1.2870 and 1.2850. Likely range 1.2870-1.2920.
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