Dollar is trying to keep its strength and yen is climbing after the remarks of the President of the Bank of Japan
The Dollar drifted higher against most of its Rivals in slow, featureless Friday trade. The Canadian Dollar jumped against its US counterpart on stronger than expected inflation data. The yield on the US Ten Year Treasury fell 5 basis points to 2.87%. Germany’s Ten Year Bund yield dropped to 0.65% from 0.7 % Friday. The US S&P 500 spiked at the close to finish up 1.6%.
Outlook: There were no surprises from Fed officials in their speeches Friday. On Thursday, St Louis Fed head James Bullard cast doubts that the Fed would hike rates four times this year. San Francisco Fed President John Williams said the economy was steadily improving and sees a positive outlook that warrants 3-4 rate hikes this year.
The market gets its first opportunity to hear from new Fed Chair Jerome Powell when he testifies separately before House and Senate Committees mid-week.
ECB President Mario Draghi is due to speak on monetary policy and inflation outlook before the European Parliament’s Economic and Monetary Affairs Committee in Brussels.
There are no major economic data releases today.
Wednesday sees Euro Zone Preliminary CPI data for February.
US Payrolls data on Friday is the week’s highlight.
Traders will look at the week ahead as crucial in determining whether the Dollar has turned the corner, and move higher.
While the yield on the US Ten year fell five basis points, this was matched by its German counterpart. At the end of the day, it’s the differential between yields that is important. And these differentials are driven by interest rate expectations.
Last week European economic data saw more than a few misses. While that from the US were on the whole better than forecast. Economic data ahead will continue to interest rate expectations.
The political scene in Europe hots up ahead on the weekend with the Italian elections (March 4). A poll of Germany’s Social Democrat members on joining another coalition government with the Conservative Party of Angela Merkel is also due on March 4.
The latest CFTC/Reuters report for the week ended 20 February saw further trimming of net short speculative US Dollar bets. We take a look at the currency breakdowns below.
USD/DXY – The Dollar Index managed to grind higher and close up 0.2% to 89.884 (89.733 Friday). The overnight high traded was 90.059 which remains immediate resistance. The 90.20-50 level is strong resistance and we would need to see a clean break for the Index to move toward 91.00. A break above 91.00 would signal a fresh up trend for the US Dollar. Likely range today should be 89.70-90.10. Look to buy dips.
EUR/USD – The EUR/USD drifted lower to close down 0.28% at 1.2297 (1.2335 Friday). Overall trading range was pretty tight between 1.2280-1.2337. Immediate resistance lies at 1.2320-30, with 1.2340 strong resistance. If we stay below these levels (1.2330/40) we should see further Euro losses. Immediate support can be found at 1.2280 (overnight low). There is further support at 1.2260 which was last week’s lows. The latest CFTC/Reuters report (week ended 20 Feb) saw a small trimming of net speculative Euro long bets to +EUR 126,126 contracts from +EUR 127,289. The amount of long Euro bets are still among the largest in over 10 years. Likely range today 1.2260-1.2320. Look to sell rallies.
USD/JPY – managed to close slightly higher at 106.85 (106.65 Friday). Risk appetite was on the rise Friday as bond yields fell and stocks rallied. The Dollar held 106.50 (overnight low 106.511) and managed to grind higher at the close. Immediate support can be found at 106.40-50. Further support lies at 106.20. There is immediate resistance at 106.95/107.00. The latest CFTC/Reuters report saw net speculative short JPY bets trimmed to -JPY 108,338 contracts from -JPY 115,509. The yield on the Japanese Ten Year JGB closed at 0.04%, one basis point lower than Friday’s 0.05%. While we could see some initial pressure on the Dollar, prefer to buy the dip. Japan Inc is not going to give up on the USD/JPY as we approach 100-103. Likely range 106.60-107.20.
GBP/USD – together with the Canadian Dollar and a few of the Emerging Market currencies (South African Rand) Sterling rose against the US Dollar. GBP/USD closed at 1.3970 (1.3960 Friday). Comments by the UK government that they are leaning toward a free-trade deal such as Canada’s with the European Union buoyed the Pound. This position though is not wholly supported by EU members. Hawkish comments by BOE chief economist Andy Haldane pointed to a need to raise interest rates sooner than investors expect also supported the Pound.
Immediate resistance for Sterling lies at 1.3990-1.4000. Immediate support can be found at 1.3940-50 and then at 1.3910. The latest CFTC/Reuters report saw further trimming of net speculative long GBP bets to +GBP 7,803 contracts from +GBP 14,940. While this is the case would look to sell Sterling rallies with today’s likely range 1.3940-1.4010.
AUD/USD – finished slightly lower at 0.7838 (0.7847 Friday) mainly on US Dollar strength. Copper was lower but iron ore prices rose. Strong stock prices also buoyed the Aussie. The yield on the Australian Ten year bond fell 2 basis points to 2.85%. There are no major Australian economic data releases today and earlier this week until Thursday’s Private Capital Expenditure. AUD/USD has immediate resistance at 0.7850 and then 0.7880. Immediate support can be found at 0.7820 and 0.7810. The latest CFTC/Reuters report saw an increase in net speculative Aussie long bets to +AUD 11,875 contracts from +AUD 9,081. The Aussie will take its lead from the US Dollar. Likely range today 0.7810-0.7860. Trade the range with the preference to sell rallies.
USD/ZAR – The rand continued its rally following the budget, opening at R11.55 to the dollar on Monday morning.
It reached R11.58 to the greenback before moderating to R11.56 by 09:00.
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