Dollar Falls After Doubts for Interest Rate Increases More than 3 times this year and Gold is settling below the 1130 level
The Dollar slipped as traders saw the sluggish wage data constraining the Fed from raising rates more than three times this year. The yield on the US Ten Year Treasury slipped back to 2.86% from 2.89%. Stocks finished lower as upside momentum waned.
All eyes are now focused on the US CPI data (later on today) and Retail Sales (tomorrow) for clues to the next move. In Europe, comments by two ECB officials pointed to persistently low inflation which will keep rates on hold. A political scandal is brewing in Japan with current Finance Minister Taro Also under pressure. His ministry is under investigation for altering documents linked to a controversial land sale.
Amidst all of this, the Dollar can’t find a bid and remains lethargic. And it seems to be screaming out at traders, “Come on baby light my fire”. The speculative community remains short of US Dollars.
Apart from wages, consumer price inflation is the other key factor that the Fed uses setting interest rates. Forecasts for Core CPI are for a slightly lower rise in February following January’s surprise upside gain.
The yield on the US Ten year eased back three basis points to 2.86%. Bond yields from other major countries were mostly flat. Which is why the Dollar has slipped lower overnight.
Apart from the US Headline and Core CPI data (GMT 12.30 pm, 13 Mar/Local Time 11.30 pm, 13 Mar), Australia’s NAB Business Conditions and Confidence Index is released later this morning (Local Time 11.30 am). Chinese Foreign Direct Investment for February is also released later today (Local Time 2 pm). The UK government releases it’s Annual Budget Report (GMT 11.30 am, Feb 13/Local Time 10.30 pm, Feb 13).
Dollar Index (USD/DXY) – struggled past immediate resistance level of 90.20 (overnight high 90.187) and slipped to close at 89.88. The overnight low was 89.84 with today’s immediate support at 89.80. Next support level lies at 89.60 which should hold in today’s trading. Today’s likely range is 89.80-90.10. Prefer to buy on dips, ideally between 89.60-89.80.
EUR/USD – The EUR/USD rose on the back of the generally weaker US Dollar to finish at 1.2335, up 0.3% (1.2305 yesterday). Overnight high traded was 1.23456 which puts today’s immediate resistance at 1.2350. The next resistance level is at 1.2380. Immediate support can be found at 1.2310 and then 1.2290. ECB officials continue to view inflation as too low which means rates will be on hold. Last night the yield on the German Ten year Bund fell one basis point to 0.63%. Even if the Fed is seen constrained to hiking rates more than 3 times this year, they are still going to hike. The interest rate differential will widen in favor of the US Dollar. Look to sell Euro rallies ideally to 1.2350. Likely range today 1.2290-1.2350.
USD/JPY – lost upside momentum as the US Ten Year yield eased. The yield on the Japanese Ten Year JGB was flat at 0.04%. USD/JPY slipped to close at 106.42 (106.82 yesterday). A political scandal is brewing in Japan that involves current Finance Minister Taro Aso. See above. Aso has been PM Shinzo Abe’s deputy since he took office in late 2012. Aso supports weakening the Yen to boost exports. While the Yen may strengthen due to the possibility of Aso being replaced, Japan Inc will continue to operate. Last week, BOJ President Kuroda said officials have no plans to change monetary policy before reaching a 2% inflation target. Which means, “Traders read my lips…” Policy divergence will keep the USD/JPY supported. Immediate resistance can be found at 106.60 and then 106.80. Immediate support lies at 106.20/30 and then 105.80. Look to buy dips with today’s likely range 106.30-106.80.
AUD/USD – kept its strong stance and continued to grind higher in true Aussie fashion against the overall weaker US Dollar. Yesterday most commodities traded lower although they have stabilized overnight. Ten Year Australian bond yields have climbed to 2.84% (2.78% yesterday) while that of its US counterpart eased. AUD/USD traded to an overnight high of 0.78795 which puts immediate resistance today at 0.7880. The next resistance level comes in at 0.7900. Immediate support lies at 0.7840/50 (overnight low at 0.7845). The next support level is found at 0.7810/20. Today sees the release of National Australia Bank’s Business Conditions and Confidence Index Survey. Most analysts are looking for a slight easing of both from the previous survey. Look to sell rallies with today’s likely range 0.7810-80.
GBP/USD – also gained on the back of the generally weaker US Dollar. The British Pound closed up 0.4% at 1.3902 (1.3850 yesterday). GBP/USD traded to an overnight high of 1.39176. The overnight low traded was 1.3841. The yield on the UK Ten year Gilt was unchanged at 1.49%. Today sees the release of the UK Government’s Annual Budget. Sterling has immediate resistance at 1.3920 and then at 1.3950. Immediate support lies at 1.3870 and then at 1.3840. Market expectations for a UK rate hike are close to 70%. The outcome of Brexit negotiations is due later this month. Speculative Sterling bets are close to flat. Likely range today 1.3850-1.3920.
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