Dollar is stabilizing and Euro is retreating awaiting the FOMC meeting tomorrow
The US Dollar stabilised after falling to 13 month lows to begin the week firmer. Treasury yields rose ahead of the Federal Reserve FOMC meeting on Wednesday. The Euro retreated off it’s highs as Euro Zone manufacturing and services activity slowed in July. In the US, factory activity rose in while existing home sales fell.
French Manufacturing PMI was 55.4 vs forecast 54.6
German Manufacturing PMI print 58.3 vs forecast 59.1
Euro Zone Manufacturing PMI was 56.8 vs f/c 57.3
US Flash Manufacturing PMI print 53.2 vs f/c 52.3
US Existing Home Sales fell 1.8% to 5.52 million from the previous 5.62 million
Global stocks were mostly lower. The US Dow closed down 0.31%. Germany’s DAX slipped 0.2%.
The US Ten Year Treasury yield closed up 2 basis points to 2.26%. The yield on the Ten Year German Bund was unchanged at 0.50%.
Oil prices rallied as Saudi Arabia pledged to cut exports in August. Brent Crude Oil ended at US$ 48.71 (US$ 47.97 yesterday), up 1.35%.
EUR/USD – closed at 1.1642 from 1.1663 yesterday.
USD/JPY – finished flat at 111.12 from 111.13 yesterday.
GBP/USD – rose to end at 1.3028 from 1.2995 yesterday. Sterling was
brought against the Euro as traders lightened positions.
EUR/GBP – dropped to 0.8935 from 0.8975 yesterday.
AUD/USD – little-changed, ends at 0.7922 from 0.7915 yesterday.
Outlook: Expect more position adjustments today ahead of the economic data and events coming up in the next few days. This should be mildly supportive of the Dollar given the market positioning. While US existing home sales disappointed, Markit Economics saw manufacturing and service sector activity picked up in July. This contrasted with a slowing of services and manufacturing activity Germany and the Euro Zone. Tomorrow sees the release of German IFO report.
Economic Data releases later on today:
German IFO Business Climate (GMT 8 am, July 25/Local Time 6 pm, July 25) – The median forecast for the Business Climate index is 114.9 from the previous 115.1.
US Case-Shiller Annual Home Prices for May (GMT 1 pm, July 25/Local Time 11 am, July 25 –
forecast at 5.8% from April’s 5.7%
US CB Consumer Confidence (GMT 2 pm, July 25/Local Time 12 am, July 26) – Forecast at 116.5 from the previous 118.9.
Trading View: The FOMC is not expected to raise rates at its meeting tomorrow. The Fed will maintain it’s positive outlook and hawkish bent. The question is whether the market will believe them or not. It is a long way until December when the next rate hike is expected. Recent US economic data releases have missed expectations. Yesterday we saw German and Euro Zone economic activity slowing with a miss on services and manufacturing activity. A slowing of economic activity from the rest of the world may be at hand. This will be US Dollar supportive.
EUR/USD – retreated from highs, to close at 1.1642 from 1.1662 yesterday. EUR/USD traded to an overnight high at 1.16844. Softer than expected German and Euro Zone services and manufacturing data took away some Euro strength. On Monday we saw a 1.6% fall in the German DAX due mainly to lower exporter and car maker prices. The strong Euro is starting to impact negatively on economic activity. The Euro has been one of the strongest currencies this year. It has risen to over 10% against the Dollar in 2017. Market sentiment is still bullish on the Euro. And market positioning remains at multi-year highs. Net speculative EUR longs are at their highest in over six years. The warning signs for the bulls are clear. EUR/USD has immediate resistance at 1.1680 with support at 1.1620. A miss on the German IFO Business Climate would see the Euro back to 1.1480-1.1520 area.
AUD/USD – ended little-changed with the overall trading range 0.7903-0.7968. Immediate resistance lies at 0.7960/70. There is good support at 0.7900 and 0.7880. The next set of Australian data is the Q2 CPI which is released tomorrow. We highlighted that speculative Aussie longs are at their second largest for 2017. The 0.80 cent barrier is formidable and should hold. Likely range today 0.7890-0.7970. The AUD TWI is a wee bit strong for the RBA. Sell rallies.
GBP/USD and EUR/GBP – Sterling rose against the Dollar and the Euro. For the Pound, no news is good news. And there was no news on the UK front. This forced a lot of EUR/GBP longs to cover. EUR/GBP peaked at 0.8984 yesterday and 0.8995 Friday. The 0.90 EUR/GBP level is a strong psychological and technical resistance level. The market appears to be long of EUR against the USD and GBP. More misses on Euro Zone economic data could see more unwinding of these Euro longs.
GBP/USD has immediate and strong resistance at 1.3060. Support is found at 1.2990. The UK begins post Brexit trade negotiations with the US today. We could see more EUR/GBP unwinding which would be Sterling supportive. The likely range for GBP/USD is 1.2980-1.3080. With more unwinding possible the likely range for EUR/GBP is 0.8870-0.8970.
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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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