Dollar increases its losses and gold up to 1270
The US Dollar reversed gains built from it’s rally on Friday. US Advanced Q2 GDP data failed to inspire markets. The Euro resumed its impressive climb on a narrowing of German and US yield differentials.
German Preliminary CPI (monthly): 0.4% from 0.2% and a forecast of 0.2%
GDP : annualised rate rose to 2.6% vs a forecast of 2.5%. Q1 GDP growth was revised down to 1.2% from 1.4%.
US Advance Q2 GDP Price Index: rose to 1.0% against a forecast rise of 1.3%
US Advance Q2 GDP Cost Index: 0.5% against a forecast 0.6%
Canada’s Q 2 GDP (monthly): 0.6% against a forecast of 0.2%
US Ten Year Treasury Yield – fell 2 basis points to 2.29%. The yield on the Ten year German Bund rose to 0.54% (0.53%). UK Ten year Gilt closed up 1 basis point at 1.21%.
Global stocks were mostly down on disappointing earnings. The US S&P 500 closed down 0.06% while the NASDAQ fell 1.4%.
Oil prices extended their rally. Brent Crude Oil rose 2.2% to close at two month highs. OPEC’s pledge to cut output and a fall in US inventories continued to push prices up.
EUR/USD – extended climb to close up at 1.1753 (1.1676 Friday).
GBP/USD – rose to finish at 1.3135 from 1.3065 Friday. Sterling closed at it’s highest in 10 months
USD/JPY – ended down at 110.74 (111.30 Friday).
AUD/USD – closed at 0.7987 from 0.7965 Friday. The Aussieheld
it’s support around 0.7930/40.
USD/CHF – finished higher at 0.9687 (0.9655 Friday). The Swiss Franc was the only G10 currency to fall against the Greenback.
Outlook: The market’s sentiment on the Dollar remains decidedly bearish. Growth in the US economy for Q2 rose as forecast. However, it was the downward revision in Q1 and lower Price and Employment cost components that traders chose to focus on. The US political environment will weigh on the Dollar. However, speculators remain short of Dollars against most currencies.
The week ahead is heavy in terms of primary economic data.
We start with today:
New Zealand June Building Permits (GMT 10.45 pm, July 30/Local Time 8.45 am, July 31) – The previous data (May) was 7%.
Japanese Preliminary June Industrial Production (GMT 11.50 pm, July 30/Local Time 9.50 am, July 31) – Forecast up to +1.7% from the previous -3.6%
New Zealand ANZ Business Confidence Index – (GMT 1 pm, July 31/Local Time11am, July 31) previous Index was 24.8
Australian May New Home Sales (GMT 1 pm, July 31/Local Time 11 am, July 31) – previous 1.1%
Chinese Manufacturing and Non-manufacturing PMI (GMT 1 pm, July 31/Local Time 11 am, July 31)
Manufacturing PMI forecast at 51.5 from 51.7, Non-manufacturing PMI, previous was 54.9
Major data and events later on in the week –
RBA cash rate meeting and accompanying statement (Tuesday) as well as Euro Zone, UK and US Flash Manufacturing PMI’s
Wednesday sees the release of New Zealand Unemployment Data and UK Construction PMI
Thursday – The Bank Of England MPC Official Bank Rate Meeting and Monetary Policy Summary
Friday – US Non-Farms Payrolls data
Trading View: The Dollar bearish sentiment will be balanced out by the market’s extreme short positioning. The latest CFTC/Reuters Commitment of Traders report (week ended July 25) saw speculative longs in the Euro, Aussie and Kiwi are multi-year highs. Speculators increased Canadian Dollar longs to the highest since March 2017. In Sterling, speculative GBP shorts rose while those in the Yen dropped. Traders will also keep their focus on the US political situation. A correction in the Dollar’s fall has been postponed but it’s still around the corner. Expect consolidation today within the recently established ranges.
EUR/USD – managed to hold the support at 1.1670 with a decent bounce to close just above 1.1750. The differential between German and US yields narrowed on Friday. This enabled the Euro to regain the ascendancy against the Greenback. Immediate resistance lies at 1.1770/80. Short term support can be found at 1.1700. The strong support level remains at 1.1670. Likely range today 1.1700-1.1770.
GBP/USD – finished up at 1.3135 (from 1.3065 Friday), its highest close since September 2016. Sterling has immediate resistance at 1.3150 (overnight high was 1.31519). There is short term support at 1.3080 and 1.3060. The Pound is one of two currencies where the market positioning is long of US Dollars. The Bank of England’s MPC rates and policy meeting is on Wednesday. The meeting will be closely scrutinised given recent comments from various MPC members.
AUD/USD – The Aussie held it’s lows well around 0.7930/40 with the overnight low traded 0.79369. AUD/USD then rallied to trade at 0.8007 after the US GDP release before slipping to end at 0.7987.. The RBA has its cash rate meeting and monetary policy statement tomorrow. The currency has risen 5 % in July alone. The RBA is not going to hike rates of change its policy stance with the currency up here. Instead, expect them to continue to jawbone the Australian Dollar lower. Likely range today 0.7950-0.8010. We can expect a corrective move lower soon.
USD/JPY – closed lower at 110.75 from 111.30 on Friday. This was the lowest close in USD/JPY in 6 weeks. The differential between US and Japanese ten year bond yields also narrowed. USD/JPY has immediate support at 110.50 and then 110.20. Resistance is found at 111.30 and 111.80. Likely range today 110.30-111.20.
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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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