Dollar Maintains its Recovery and the British Pound Jumps to the Highest Levels ahead of today’s BoE Meeting
The Dollar’s recovery extended with broad-based gains supported by a further rise in US yields. US President Trump urged Congress to move forward with tax reform. The Euro fell 0.7% as longs start their unwind. Sterling dropped 0.6% on lower wages data ahead of the BOE’s policy meet later.
UK Average Earnings Index: 2.1% against a forecast of 2.3% and previous 2.1%
UK Claimant Count Change: -2,800 against forecast 800
UK Unemployment Rate: 4.3% from forecast 4.4% and previous 4.4%
US Headline PPI (monthly): 0.2% against forecast 0.3% and previous -0.1%
US Core PPI (monthly): 0.1% against 0.2% and previous -0.1%
The US Ten Year Bond Yield closed at 2.195% from 2.17% yesterday. Germany’s Ten Year Bund yield finished flat at 0.40%.
Wall Street stocks were mixed. The Dow closed up 0.18% while the S&P 500 finished 0.13% down.
USD/DXY – closed at 92.412, up 0.55% (91.926 yesterday)
EUR/USD – fell 0.7% to 1.1882 from 1.1965 yesterday.
GBP/USD – lower to 1.3210 at the close from 1.3283 yesterday.
USD/JPY – mild gains to finish at 110.50 (110.18 yesterday)
AUD/USD – slips to end at 0.7985 from 0.8018 yesterday, down 0.4%.
USD/SGD – higher to 1.3505 (1.3475 yesterday). The US Dollar saw broad-based gains against most Emerging Market currencies.
Outlook: The Euro faltered and is looking tired once again. It was the Euro’s rally that led to the Dollar’s fall. Equally, if the Euro extends its fall further, the Dollar will rally. The Dollar managed a more broad-based rally yesterday. This puts added pressure on the Single Currency.
China’s move to halt the rise in the Yuan saw the Dollar climb against the Emerging Market currencies. More US officials are moving toward tax reform with a new framework to be released in two weeks. At the start of
this week we reported that total net speculative US Dollar shorts rose to the largest since January 2013.
Economic and Event Data releases later today:
Australian Employment Change, Unemployment Rate And Participation Rate for August: (GMT 1.30 am, Sept 14/Local Time 11.30 am, Sept 14): Employment change: result in positive 54,000; Unemployment Rate: result 5.6% from 5.6%; Participation
China August Industrial Production, Retail Sales and Fixed Asset Investment: (GMT 2.30 am, Sept 14/Local Time 12.30 pm, Sept 14): Industrial Production forecast: 6.6% from 6.4%; Retail Sales forecast: 10.5% from 10.4%; Fixed Asset Investment forecast: 8.2% from 8.3%
Swiss National Bank Libor Rate and Monetary Policy Assessment: (GMT 7.30 am, Sept 14/Local Time 5.30 pm, Sept 14): Libor Rate -0.75% from -0.75%
UK Bank of England Asset Purchase Facility, Interest Rate Decision, MPC Vote and Monetary Policy Summary: (GMT 11 am, Sept 14/Local Time 9 pm, Sept 14): Asset Purchase Facility forecast : GBP 435 billion from GBP 435 billion; Interest Rate Decision forecast: 0.25% from 0.25% (no change); MPC Vote forecast: 2-0-7 from 2-0-6 (2 for hike, 0 for cut, 7 for no change).
US Initial Jobless Claims, August Headline and Core CPI: (GMT 12.30 pm, Sept 14/Local Time 10.30 pm, Sept 14): forecast Jobless Claims: 303,000 from 298,000; forecast Headline CPI: 0.3% from 0.1%; forecast Core CPI: 0.2% from 0.1%
Trading View: The Dollar should keep its firmer tone within established ranges as we await the data and event releases today. The fall in the Euro and the rise in US yields has put pressure on the speculative Dollar shorts. Investors are less pessimistic on US President Trump’s ability to get his reform agenda under way. Trump’s collaboration with the Democrats to extend the debt ceiling a few weeks has stabilised US politics. This new dynamic should support Trump’s reform agenda and see a likelihood of a rise in US interest rates.
On the other side of the Atlantic, the political landscape in Europe and the UK face many challenges. This will be crucial in determining whether the Dollar’s rally has more legs in it in the weeks and months ahead.
EUR/USD – closed at 1.1885, just above the immediate support level of 1.1870 (overnight low 1.1873). The Euro has resistance at 1.1910/20 and then at 1.1940. A break through 1.1870 would pave the way for further losses to 1.1810/20 strong support level. Look to sell any bounce to 1.1910/20. EUR/GBP remains heavy although there is good support at the 0.8990-0.9000 level. This would depend much on the outcome of the BOE meeting later today. Any further losses on the EUR/GBP cross could see further losses for the Euro against the Greenback.
GBP/USD – finished down 0.6% at 1.31210 from 1.3284 yesterday. Sterling traded to an overnight high of 1.3329. Yesterday saw the UK jobless rate fall to 4.3% from 4.4% although wages also fell to 2.1% from an expected 2.3%. Divergent UK economic data is expected to see the Bank of England keep its official bank rate at 0.25%. The MPC vote is forecast to see between 1-2 dissenters in favor of raising interest rates. Immediate resistance lies at 1.3240, and then at 1.3280. There is immediate support found at 1.3180 (overnight low was 1.31837). Likely range today 1.3180-1.3230.
USD/JPY – traded to an overnight high at 110.70 before settling back to close at 110.50. There is immediate resistance at 110.70. Immediate support for the Dollar lies at 110.10 and 109.90. While risk aversion still remains a factor in the Yen’s short term movements, the movement in the US Ten year yield will prevail in the long run. Likely range today 110.10-70.
AUD/USD – broke through 80 cents once again to close just above support at 0.7970/80. A rise in Australian employment is forecast between 15,000-20,000 from the previous 27,900. The Jobless rate not expected to change from 5.6%. China also reports on its Industrial Production and Retail Sales figures. The Australian Dollar has immediate support at 0.7970. There is good support found at 0.7940/50. Immediate resistance lies at 0.8000 and 0.8020. Any disappointment in the Australian Jobs gains (say 5,000 or lower) could see the Aussie trade lower. A strong number would have to be higher than 20,000. which could see 0.8020 again. Ultimately the US Dollar will drive the Aussie’s direction in the weeks to come.
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***Information contained in this newsletter 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 is made available as per the events occurring in the financial markets.
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