Dollar index reaches its highest level in 4 months and the pound is below the 1.40 level
Rising US interest rates and lessening trade fears boosted the Dollar Index (USD/DXY) to 4-month highs. The benchmark US Ten Year Treasury yield lifted to a four year high of 3.03%. The Euro extended its fall ahead of today’s ECB policy rate meeting today.
Outlook: The interest rate differential story has kicked in with a vengeance as speculators rushed to cover their short US Dollar positions. Lessening trade war fears have enabled the traders to focus on the basics, recalling FX 101: interest rates and market positioning matter!
There were no major data releases yesterday. Australian and New Zealand markets were closed for the ANZAC public holiday.
Traders have their sights set on today’s ECB rate decision and Mario Draghi’s press conference.
Trading View: Higher US interest rates and continuing upbeat economic data has seen the Dollar Index (USD/DXY) jump from 89.40-91.25 in a week. The Greenback’s sharp rally has slowed against some currencies such as the British Pound and the Australian Dollar. We should see some consolidation at current levels with upcoming key events and data releases to determine whether the Dollar extends its gains.
The ECB is expected to keep rates firmly on hold. Mario Draghi is not about to shed any light on the interest rate outlook even with the EUR/USD a bit lower. The BOJ meeting on policy tomorrow. UK and US First Quarter Gross Domestic Product data are also due on Friday.
The Dollar Index (USD/DXY) broke above strong resistance at 91.00 to trade to 91.25 where it closed. The overnight low was 90.75. Immediate support now lies at 91.00 and then 90.75. Immediate resistance can be found at 91.50. The next strong resistance level is 92.00. Expect the Dollar Index to consolidate today ahead of the remaining key events and data due this week. Let’s not forget that just last December, the USD/DXY was trading between 94-95.00. Likely range today 90.80-91.30.
EUR/USD – extended it’s fall, down 0.63% at 1.2165 (1.2205 Tuesday). The Euro traded to an overnight high of 1.22387. The 1.2240 level is now strong resistance. Immediate resistance today lies at 1.2200. Immediate support can be found at 1.2150-60. A clean break of 1.2150 could see an immediate drop to 1.2100 and 1.2070. And while the EUR/USD is lower, the Euro is still firm on a trade-weighted basis. Speculative market positioning has remained near multi-year highs. Sustained US Dollar strength could see this puppy back to 1.1500. For today the likely range is 1.2150-1.2210. Look to sell rallies.
USD/JPY – has steadily risen from the low 107.00s a week ago to an overnight high of 109.454 on the rising US Ten Year yield. Japan’s Ten Year JGB Yield was unchanged at 0.05%. The Dollar has immediate resistance at 109.80 and then 110.00. Expect those levels to hold until the BOJ policy meeting tomorrow. USD/JPY has immediate support at 109.00 and then 108.80. Likely range today 108.70-109.70. Just trade the range shag.
AUD/USD – broke through 0.7600 supports on overall US Dollar strength. The Aussie has been on a sharp downward trajectory in just a week’s time. Just a week ago AUD/USD traded above 0.78 cents briefly. Last night AUD/USD traded to 0.7552 lows. That’s huge! AUD/USD rallied off this support base to close at 0.7565. The immediate support at 0.7550 should be strong with further support at 0.75 cents. Immediate resistance lies at 0.7600 and then 0.7630. We should see consolidation today with a likely range of 0.7550-0.7620. Look to trade the range shag on this one too.
GBP/USD – closed with modest losses at 1.3925 (1.3940 Tuesday). Sterling also had a sharp fall against the US Dollar in just over one week, hitting a high of 1.4376 on April 18. GBP/USD has immediate support at 1.3920 (overnight low 1.3923) and then 1.3900. Immediate resistance can be found at 1.3950 and then 1.3990. UK First Quarter GDP is released tomorrow and a small rise over the previous quarter is expected. Expect Sterling to consolidate with a likely range of 1.3920-1.3970 today.
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