Dollar get stronger, waiting FOMC today
Risk appetite made a come during Tuesday European trading as rising government bond yields help financials stocks, as well as lift the euro and the pound. On the other hand, the greenback was still stuck in a slow-mo fashion for the majority of the sessions as market participants are acting cautiously ahead of the FOMC meeting and political uncertainty burdened the common currency.
The Ifo’s business climate index rose to a record high of 116.0 in July from an upwardly revised 115.2 in June. The figure was well above expectations of a decline to 114.9. The current conditions and expectations indices also both beat forecasts. The Ifo report described German business sentiment as “euphoric”, adding that companies were the most satisfied with current conditions since the country’s reunification.
An additional boost to the euro was the Greek government successful sale of five-year bonds to private investors. The sale helped reduce the yield spread between periphery Eurozone government bonds and German bunds.
As a result, the euro surged to a fresh high of 1.1711 on Tuesday, breaking above the 1.17 level. The single currency was bolstered by a jump in German bund yields, while much stronger-than-expected Ifo data from Germany further supported the euro.
The pound found itself supported to advanced to a weekly high of 1.3083, with the single currency benefited from data from the Confederation of British Industry that showed the UK manufacturing output was at its highest.
On the other hand, the dollar found little to no support from rising US treasury yields, especially with the Yen broad weakness. US treasury yields were sharply higher on Tuesday as investors bet that the Fed will signal at its meeting tomorrow the possible start date of its balance sheet reduction.
Trump’s political worries still manage to steal the spot light from the much awaited Fed policy and this continued to weigh on the dollar. However, the US currency got a late boost from surprisingly strong consumer confidence data. The Conference Board’s consumer confidence index increased from a downwardly revised 117.3 in June to 121.1 in July, beating expectations of 116.5.
Other data out of the US included the S&P CoreLogic Case-Shiller 20-city home price index. The index was unchanged at an annual rate of 5.7% in May, which was slightly below forecasts of 5.8%.
In commodities, Gold lost ground as the dollar recovered and was trading below the 1251.40 an ounce. Oil prices extended their gains following the latest move by OPEC to curb supply. WTI oil advanced to $47.38 a barrel, while Brent crude was up at $49.65 a barrel.
With no crucial macroeconomic releases in the Euro-zone today, investors will anxiously await the Federal Reserve’s (Fed) monetary policy announcement, due later in the day, to get cues on its balance sheet reduction plan. Also, the US new home sales for June and MBA mortgage applications data will be eyed by traders.
The US Dollar is strengthening a bit ahead of the Fed interest rate decision tonight. The market is not expecting any changes from the Fed, and it is unlikely that there will be any surprises. Therefore, the Fed meeting should be a USD-neutral event.
The Australian Dollar came a bit under pressure overnight, following weaker than expected CPI data. However, losses were limited as the trimmed mean and weighted CPI arrived in line with expectations. AUD/USD traded as low as 0.7890 and strong support is seen between 0.7830 and 0.7840.
EURUSD: Despite edging higher to 1.1711, EUR/USD quickly retreated. Considering weak momentum with 4-hour MACD staying below the signal line, intraday bias is turned neutral first.
GBPUSD: GBP/USD is still bounded in a range below 1.3125 and intraday bias remains neutral first. With 1.2811 support intact, another rise is mildly in favor.
USDCAD: No change in USD/CAD’s outlook. While deeper fall could be seen, considering bullish convergence condition in 4-hour MACD.
USDCHF: USD/CHF’s rebound indicates temporary bottoming at 0.9437 and intraday bias is turned neutral first.
USDJPY: The recovery from 110.61 temporary low extends higher but USD/JPY is staying below 112.41 resistance so far. Intraday bias remains neutral first.
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***Information contained in this news letter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making, but merely provides information from the market for its clients as additional information being made available as per the events occurring in the financial markets.
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