Dollar is rebounding strongly to its bullish path after FOMC meeting yesterday and expectations of higher interest rates
The Dollar resumed its advance after initially falling following the release of the Fed’s January meeting minutes. FOMC members saw a stronger economy than at the end of 2017 with more rate hikes in the offing. The US Ten Year bond yield closed up at 2.95%, near a 4 year high. The DOW reversed a 300 point rally, turning negative to fall 0.65% in late New York.
German, French and Euro Zone Manufacturing and Services PMI’s missed expectations while the US Flash Manufacturing and Services PMI beat forecasts. The UK’s Jobless rate increased.
The Fed’s January meeting minutes showed that policymakers were concerned about lagging inflation which saw the initial Dollar sell-off. However, traders realized the recent signs of rapidly rising inflation weren’t incorporated into this meeting. Markets turned their attention to the Fed’s confidence on the economic growth and increased the likelihood of more rate hikes ahead.
Fed speakers begin later on today with FOMC member Randall Quarles delivering a speech at the International Financial Symposium in Tokyo.
Tomorrow sees New York Fed President Dudley, Cleveland Fed President Mester, and Atlanta Fed President Boster speaking at the US Monetary Policy Forum in New York.
Economic data releases today include Germany’s IFO Business Survey and the UK’s latest GDP Estimate.
The resumption of the Dollar’s advance augers well for more corrective moves ahead. After the FOMC meeting, four rate hikes are now likely in 2018. Differentials between the US and other global interest rates have widened in the Dollar’s favor. The economic data ahead will determine whether we see more.
The market’s decidedly bearish stance toward the Dollar is now changing and this latest advance puts the bias for a stronger Greenback.
USD/DXY – The Dollar Index managed to climb back above 90.0 to close at 90.09, up 0.41%. Overnight high traded was 90.134 with the low recorded at 89.588. Immediate resistance lies at 90.20 and then 90.50. Immediate support can be found at 89.80 and 89.60. The Dollar Index bottomed out just above the 88.10 level and now looks headed toward 91/92. Expect the Dollar Index to grind higher today toward 90.50.
EUR/USD – French, German and Euro-Zone PMI’s all saw misses yesterday from expectations and were lower than the previous month’s data. US Flash Manufacturing and Services PMI, on the other hand, showed higher than forecast rises. The balance now shifts in favor of the US economy which may see more Euro bulls head for the exit. EUR/USD closed just above the strong support level of 1.2280 after failing to trade above 1.2360. Immediate support lies at 1.2280 and then 1.2250. Immediate resistance can be found at 1.2300 and 1.2330. German Ten Year yields were actually off 1 basis point to 0.72%. The pressure is for a lower EUR/USD with today’s likely range 1.2250-1.2300. Look to sell rallies.
USD/JPY – finished up at 107.75 after trading to an overnight high of 107.90. Immediate resistance lies at 108.00 and 108.20. Immediate support can be found at 107.60. The rise in the US Ten Year yield puts a bid on the Dollar-Yen and we should see further gains. Japan’s Ten Year JGB yield was down 1 basis point to 0.05%. Widening interest rate differentials with the US will keep USD/JPY bid. Look to buy dips toward 107.20.
GBP/USD – Sterling quickly reversed its gains after initially rising to just above 1.40 immediately following the FOMC meeting minutes. In true volatile fashion, the Pound got bashed down to 1.3905 lows before settling at 1.3910. GBP/USD feels heavy and while we should see some support here at 1.3900, the near-term direction is further south. The rise in UK unemployment offset the wage-price increase and UK Ten Year Gilt yields were down 3 basis points to 1.55%. GBP/USD has immediate support at 1.3900 followed by 1.3870. Immediate resistance can be found at 1.3930 and 1.3960. The speculative community is long of Sterling. Likely range today 1.3870-1.3930. Sell rallies.
AUD/USD – The Aussie was hit hard after an initial rally to 0.7880 post FOMC. AUD/USD slumped to 0.7820 initially finding temporary support at 0.7805. This morning we’ve seen s further drift lower to 0.7797. The Aussie Ten Year bond yield closed down 4 basis points to 2.86%. Couple this with the rise in the US Ten Year yield of 5 basis points and you have a soggy Aussie, even at these levels. Immediate support lies at 0.7780 and then 0.7750. Immediate resistance can be found at 0.7820 and then 0.7850. Likely range today 0.7770-0.7820. Look to sell rallies.
USD/ZAR – South Africa’s currency reached a three-year high after Cyril Ramaphosa made what is called the sworn in as head of state on February 15, fueling optimism among investors that management of the economy will improve.
By 07:20 on Wednesday morning, ahead of National Budget to be delivered later in the day, the rand was trading 0.41% weaker at R11.77 against the US dollar from its overnight close.
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