Dollar is falling and Pound is fluctuating with a return to the upside and Gold is rising to the 1340 level
The Dollar ended mixed overall, down against the Euro, Aussie and Kiwi while up versus the Yen, Swiss Franc and Canadian. Sterling was flat following a choppy session. The yield on the Ten Year US Treasury slipped further to 2.86% (2.87% yesterday). Wall Street stocks extended their gains, with the Dow surging 1.8% at the close.
ECB President Mario Draghi gave nothing new away in his testimony to the EU Parliament.
While the FX and bond markets were mixed, stocks extended their surge. The yield on the Ten year US bond eased to 2.86%, stabilising after it’s rise to 2.95% last week which buoyed the equity markets.
Markets have their focus on Jerome Powell’s testimony later today (GMT 1.30 pm, Feb 27, Local Time 12.30 am, Feb 28).
In his speech to the Committee of Economic and Monetary Affairs of the EU Parliament ECB President Mario Draghi said that despite the strong growth of the European economy, inflation has yet to show a sustained up trend.
Powell’s testimony to the House Financial Services Committee in Washington DC is a prepared statement followed by a Q&A session. From the prepared speech, markets expect Powell to indicate that the tightening path will remain gradual. Which points to three 0.25 % rate hikes in 2018. Should Powell talk about an expected boost in the economy from fiscal policy, traders could start to price in more rate rises.
The Dollar’s rise last week coincided with the US Ten year yields surge to 2.95%. Yesterday, the yield eased further to 2.83% before settling at 2.86%. As yields stabilise, so will the Dollar. Keep an eye out on global yields as it’s really the rate differentials with the US that determine the currency’s direction. Germany’s ten year Bund yield was flat at 0.65% as was Japan’s ten-year JGB at 0.04%.
Amidst the talk from central bankers this week, let’s not forget the economic data this week. Yesterday US New Home Sales missed expectations. This was offset by an upbeat rise in the Dallas Fed Manufacturing Index.
Today sees Euro Zone February Business Climate, Industrial Confidence, and Economic Sentiment Indicator (GMT 10 am, Feb 27/Local Time 9 pm, Feb 27). Germany reports it’s Harmonised Index of Consumer Prices (GMT 1 pm, Feb 27/Local Time 12 am. 28 Feb). Finally, US January Core and Headline Durable Goods Orders (GMT 1.30 pm, Feb 27/Local Time 12.30 am, Feb 28).
USD/DXY – the Dollar Index finished little-changed, albeit slightly lower at 89.879 (89.884 yesterday). Immediate resistance lies at 90.05 (overnight high) and 90.20. Immediate support can be found at 89.70 and then 89.50. Expect further consolidation with a likely trading range of 89.70-90.20.
EUR/USD – The EUR/USD backed off its highs following Draghi’s speech from 1.2355 to close at 1.2313, slightly higher than yesterday’s 1.2298. Immediate resistance can be found at 1.2330 and then 1.2360. Immediate support lies at 1.2280 and 1.2260. Draghi gave away nothing new in his speech. While he acknowledged that European growth is strong, Draghi also said that inflation has yet to reach a sustainable level. Tomorrow sees the release of Euro Zone Headline and Core CPI for February. Let’s not forget the speculative community are still long of Euro bets. And this weekend we have some political news with the Italian elections and a decision from Germany’s political parties on whether they form a coalition with Angela Merkel’s party. Likely range today 1.2260-1.2350. Look to sell rallies.
GBP/USD – The GBP/USD finished little-changed at 1.3963 (1.3962 yesterday) after a choppy session. Sterling jumped to an overnight high of 1.4070 following remarks from Bank of England deputy Governor Dave Ramsden that the central bank may need to raise interest rates sooner than he expected. Ramsden voted against the BOE rate hike last November. The Pound then fell on further Brexit uncertainty combined with a strengthening US Dollar. Likely range today 1.3930-1.4030. Prefer to sell rallies.
AUD/USD – managed to gain against the US Dollar on further rises in Oil and stocks. Most commodities kept their gains. While there is little domestic economic data out this week for the Aussie, the focus will be on Chinese data. Tomorrow see Chinese Manufacturing and Non-manufacturing PMI data for February. While growth momentum for China has picked up, the February data may be clouded by the Lunar New Year holidays. AUD/USD traded to a high of 0.7893 before easing to close at 0.7852. Immediate resistance lies at 0.7870 and then 0.7900. Immediate support can be found at 0.7830 (overnight low 0.7826) and 0.7810. Likely range today 0.7820/0.7870. Prefer to sell rallies.
USD/JPY – rose to 107.14 before easing to close at 106.93. Yesterday BOJ Governor Haruhiko Kuroda said the BOJ has no desire to overhaul the current plan of easing. Kuroda has expressed his belief that a strong Yen undermines Japan’s growth potential and will not taper their asset purchasing programs until their growth target of 2% is reached. USD/JPY has immediate resistance at 107.20 and then 107.50. Immediate support can be found at 106.70 and 106.50. Expect the Dollar continue to grind it’s way higher against the Yen with today’s likely range 106.70-107.40.
USD/ZAR – The rand strengthened to a three-year high of R11.52 to the dollar leading up to President Cyril Ramaphosa’s Cabinet reshuffle on Monday night, and remained stable in early trade on Tuesday morning.
The local currency opened at R11.55/$, and was trading at R11.57 to the greenback at 09:15.
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