Dollar to its lowest level after FOMC yesterday
The Dollar slumped on broad-based selling after the FOMC left its interest rate unchanged at 1.25%. The Fed said that it would cut its massive bond portfolio very soon and that inflation remains persistently below target. The Dollar Index (USD/DXY) fell 0.61% to close at 93.517 (94.098 yesterday), the lowest level in more than a year.
New Zealand’s Trade Balance rose to NZD 242 million from an expected 147 million. There was a rise in both exports and imports.
Australian Q2 Headline CPI fell to 0.2% from the Q1’s 0.5% and a forecast of 0.4%
Australian Means Tested Q2 CPI was 0.5% as forecast.
Australian Annual Headline Q2 CPI fell to 1.8% from an expected 2.2%.
UK Preliminary GDP printed at 0.3%, the same as median forecasts
The yield on the US Ten Year Treasury bond fell 5 basis points to 2.29%. The German Ten Year Bund yield was down 1 basis point to 0.56%.
Global stocks were mostly higher. The US Dow finished up 0.45%, closing at a record high. The S&P 500 was down 0.05%.
Oil prices extended their gains. US Crude Oil Inventories fell to -7.2 million barrels from the previous -4.7 million barrels. Brent Crude Oil finished up 1.37% at US$ 51.00 (US$50.83 yesterday).
EUR/USD – closed at 1.1726 (from 1.1647 yesterday.
USD/JPY – slipped 0.7% to finish at 111.20 from 111.97 yesterday
AUD/USD – soared to close at 0.8005 (0.7937 yesterday).
GBP/USD – ended up at 1.3105 from 1.3027.
NZD/USD – rose to close at 0.7515 (0.7415 yesterday).
Outlook: The Fed’s dovish leaning saw the Dollar sold aggressively across the board. It means that there won’t be a rate hike in September. The FOMC said that a balance sheet reduction would begin “very soon” which is ambiguous. The Dollar hit multi-year lows against the Euro, Aussie, Kiwi and Canadian Dollar and fell against all EM Currencies. USD/ZAR (Dollar/South African Rand) slumped 1.33%. The only barrier to further Dollar selling is the current extreme market positioning.
Data releases today:
US June Headline and Core Durable Goods Orders (GMT 12.30 pm, July 27/Local Time 10.30 pm, July 27) – Headline DGO are forecast to rise to +3.0% from the previous -0.8%. Core (minus transportation) is forecast to print at 0.4% from the previous 0.3%.
US Weekly Jobless Claims – (GMT 12.30 pm, July 27/Local Time 10.30 pm, July 27) forecast is for 240,000 from 233,000.
Chicago National Fed Activity Index (GMT 12.30 pm, July 27/Local Time 10.30 pm, July 27) – analysts are looking for +0.35% from the previous -0.26.
Trading View: The extremely weak finish for the Dollar will keep it under pressure in Asia until tonight’s US economic data releases. The less than hawkish Fed bent has fuelled market bearishness for the Greenback. This has spilled into the Emerging Market currencies, all of which have risen against the Dollar (apart from the Philippine Peso). On the political front, the US Senate Republican plan to repeal Obamacare is headed nowhere at the moment.
Markets would need to see an improvement in US economic data releases ahead to turn the Dollar around. The Dollar traded to multi-year lows against many currencies. Market positioning, which was already at extremes is even more so now. This is a warning so bear this in mind.
EUR/USD – easily broke through 1.1700 after the FOMC statement was released. Immediate resistance for the Euro is at 1.1740 (which was the overnight high). EUR/USD closed at 1.1726. There is short term support at 1.1680. The market has ignored the negative Euro news this week. Tomorrow sees the release of Euro zone economic indicator for July. It will be the US data and developments that will affect the Single Currency for today. Likely range 1.1670-1.1750.
USD/JPY – slipped to close at 111.20 from 111.95. The Dollar still managed to hold steady against the Yen. However, the only currency where the speculative positioning is long of USD is against the Yen. We could see further pressure on the USD/JPY as a result of this. There is immediate resistance at 111.40 and then at 111.70. Short term support is found at 111.05. The strong support level at 110.50 is likely to be tested at some stage. Likely range today 110.70-111.70.
AUD/USD – reversed its losses to climb from 0.7910 pre-FOMC to trade to an overnight high of 0.8014. The fall in Australian CPI data and comments by RBA Governor Lowe were ignored after markets interpreted the Fed statement as dovish. Metals also rose with Copper soaring 1.7%. AUD/USD has immediate resistance at 0.8020 and then at 0.8050. There is short term support at 0.7980 and 0.7960. Let’s not forget that we have come a long way in such a short time. The AUD TWI will be higher this morning which the RBA will not be pleased about. Likely range 0.7950-0.8020.
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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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