Dollar reduces losses from yesterday and Gold is rising again
The US Dollar rebounded after it’s sharp slide yesterday following the FOMC statement. The action was a result of market positioning where the Dollar was extremely oversold. Better-than-expected US Durable Goods Orders proved the catalyst for the corrective move. The Dollar Index (USD/DXY) was up 0.56% to 93.923 (93.516 yesterday) at the close.
US Headline Durable Goods Orders rose 6.5% against an expected rise of 3.5%.
US Core (excluding transportation items) Durable Goods Orders rose 0.2% vs a forecast 0.4%
US Trade Balance – improved to -US$63.9 billion from the previous -US$66.3 billion
US Weekly Jobless Claims – rose to 244,000 against an expected 240,000.
The yield on the Ten Year US Treasury was up 2 basis points to 2.31%. The German Ten Year Bund Yield slipped to 0.53% from 0.55% yesterday.
Global stocks closed mixed. In Wall Street, the DOW closed at a fresh record, up 0.39%. The NASDAQ slumped 0.6% while the S&P 500 fell 0.1%.
EUR/USD – dropped to close at 1.1676 from 1.1726 yesterday.
USD/JPY – mild rise to 111.30 (111.20 yesterday)
GBP/USD – slipped to end at 1.3065 from 1.3105 yesterday
AUD/USD – closed lower at 0.7965 from 0.8005 yesterday.
USD/CHF – soared to finish at 0.9655 (0.9512 yesterday).
Outlook: The market’s reaction to the FOMC statement yesterday was overdone. The Fed said that inflation remains below its target and the balance sheet reduction would begin very soon. Which could be as early as September. Which saw a rise in US yields. The impressive rise in durable goods orders was to 6.5% from an expected 3.5% was lifted by aircraft orders.
We should see more of this corrective consolidation.
Data releases today:
Japanese National and Tokyo Core CPI, Japanese Unemployment (GMT 11.30 pm, July 27/Local Time 9.30 am, July 28) – Japanese Core National CPI is forecast at 0.4% from the previous 0.4% while forecasts for the Tokyo Core CPIar 0.1% from 0.0%
Japanese Unemployment Rate is expected to improve to 3.0% from 3.1%.
Japanese Retail Sales (15 minutes after CPI and Unemployment) – forecast 2.3% from 2.1%.
German Preliminary CPI (GMT 12 pm, July 28/Local Time, 10 pm, July 28) –forecast
monthly rate is 0.2% the same as the previous 0.2%. The annualised rate is expected at 1.5% from 1.6%
Canadian Q2 GDP (GMT 12.30 pm, July 28/Local Time 10.30 pm, July 28) – forecast for m/m is 0.2% unchanged from the previous 0.2%
US Advance Q2GDP
annualised (GMT 12.30pm, July 28/Local Time 10.30 pm, July 28) – forecast is for a rise to 2.6% from 1.4% in Q1
Trading View: Market positioning is still at an extreme which reflects the market’s bearishness on the Dollar. The EUR/USD has led the currency resurgence against the Greenback through most of this year. EUR/USD has more than 11% in 2017. The revival started with the removal of political uncertainty in Europe with the French election result. Meantime the US political situation deteriorated with the Trump-Russia probe and the failure to repeal Obamacare. The ECB’s forum on central banking in late June saw more hawkish rhetoric from European central banks. Market positioning has seen speculative EUR longs to their highest in 9 years. The corrective move that started yesterday could have more legs in it. What will the catalyst be this time ?
EUR/USD – traded to a high of 1.1777, fresh 30 month highs yesterday. The Euro dropped to close at 1.1676 which is still higher than where it was before the Fed statement (1.1626). EUR/USD has immediate support at 1.1650 (overnight lows). Short term resistance comes in at 1.1690/1.1700. The extreme market positioning of Euro longs need to be unwound. Sell rallies.
EUR/CHF cross closed at 1.1265 (1.1158 yesterday). These are highs not seen since February 2015 when the Swiss National Bank lifted it’s cap of the Swiss Franc. Prior to that, the EUR/CHF had been trading pretty much above 1.20. The low point for this cross was at 0.9750 before settling between 1.00 and 1.10. The EUR/CHF rise was a function of the impressive move up in USD/CHF.
Likely range for EUR/USD today is 1.1630-1.1700. If the EUR/CHF moves back down, this could trigger more correction for the EUR/USD.
USD/CHF – rallied a spectacular 1.45% to close at 0.9650 from 0.9512 yesterday. The Swiss National Bank Governor Jordan continues to talk the Swiss Franc down, saying it is overvalued. Ten Year Swiss franc rates have not moved away from negative, currently at -0.02%. In the past, the Swiss Franc was often the barometer for the US Dollar. Mark Chandler, global head of currency strategy at US investment bank Brown Brothers Harriman asks “what is the Swiss franc telling us?” Good question from one that has observed currency markets for many years. The impressive rally last night could just be what turns the Dollar around. Keep an eye on this currency pair.
AUD/USD – slumped to 0.7956 overnight low after trading to a fresh 26 month high of 0.80657. The Aussie has immediate support at 0.7950 and then at 0.7920 and 0.7880. Short term resistance can be found at 0.8000 and 0.8010. Just two weeks ago, AUD/USD was trading at 0.7740. We have not had a decent correction even with the warning from two top RBA officials. A broad-based US Dollar corrective rally could see the AUD/USD back to those levels around 0.7740. Likely range 0.7940-0.8010. Sell rallies.
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