Dollar Trims Losses after Fed Raises Rates and Signals Taper in Choppy Trade
The Dollar recovered from heavy losses in volatile trade after the Fed raised interest rates for the second time this year. The FOMC maintained its forecast for one more hike in 2017 despite growing concerns over weak inflation. The US central bank also set out a plan to shrink its balance sheet this year.
The Dollar Index (USD/DXY) ended flat at 96.92 (96.99 yesterday) after testing 96.323.
Stocks were mixed. The DOW climbed, finishing up 0.22%. The S&P 500 slipped 0.14% at the close.
Brent Crude Oil prices fell 3.6%, closing at US$ 47.00 (US$ 48.25). US Crude Inventories rose for the second month running.
The US Ten Year Treasury Yield slumped to 2.13% (2.21% yesterday). Two Year Yields fell to 1.33% from 1.36%.
The FOMC lifted the Fed Funds rate to 1.25% from 1.00%. US Retail Sales and Inflation numbers missed with lower outcomes. May Retail Sales fell to -0.3% from a forecast 0.1% and a previous 0.4%. US Headline CPI fell to -0.1% from 0.2%, while Core CPI was also lower at 0.1% from 0.2%.
EUR/USD – closed at 1.1212 (1.1210 yesterday) after an overnight high of 1.1296.
GBP/USD – finished flat at 1.2754 (1.2753) ahead of today’s BOE rates meeting
USD/JPY – ended lower at 109.68 from 110.08 yesterday.
AUD/USD – soared to end at 0.7587 (0.7537 yesterday).
USD/CHF – closed higher at 0.9710 (0.9687). Tenyear Swiss Franc bond yields slipped ahead of SNB later today.
Outlook: The weaker print in the US Retail sales and CPI data saw traders crush the Dollar before the Fed announcement. US yields were pushed lower. The FOMC raised rates and signaled a plan to shrink its balance sheet. The relatively upbeat statement enabled the Dollar to recover and finish flat.
Traders remain skeptical given the recent poor US data releases. This will keep the Dollar from rallying further for now.
The ABS (Australian Bureau of Statistics) releases the Australian Employment data today (GMT 1.30 am, June 15)/Local Time 11.30 am, June 15). Australian Employment for May is expected to show a gain of between 9,700 to 10,000 against the previous rise of 37,400. The Jobless rate is forecast to remain unchanged at 5.7%.
The Swiss National Bank has its policy meeting later on today (GMT 7.30 am, June 15/Local Time 5.30 pm, June 15). The SNB is expected to maintain its -0.75% benchmark interest rate.
The Bank of England is not expected to change its Official Bank Rate of 0.25% at its meeting (GMT 11 am, June 15/Local Time 9 pm, June 15)
GBP Retail Sales (GMT 8.30 am, June 15/Local Time 6.30 pm, June 15) – Forecasts are for a -0.9% print from the previous +2.3%.
The Dollar managed a decent rally but the sentiment remains weak. The currency divide was evident again last night with the weakening of the Swiss Franc and the strengthening of the Australian Dollar and Japanese Yen. Sterling and the Euro were relatively flat. While US yields fell, there were equal falls in magnitude for UK and Canadian bond rates. It is worthwhile keeping an eye on the different yield differentials with the Dollar as we move ahead.
EUR/USD – soared to trade just under 1.1300 after US inflation data printed a miss. After the Fed statement, the Euro slumped from 1.1270 to 1.1196 (overnight low). There is immediate resistance at 1.1230 and 1.1260 with support at 1.1200 and 1.1180. Bearing in mind the market’s positioning, we should see the Euro trading between 1.1190 and 1.1270 today.
GBP/USD – finished flat at 1.2755 (1.2755). The Bank of England’s Monetary Policy Committee (MPC) is expected to keep interest rates unchanged (0.75%). UK Retail Sales numbers are due out just ahead of the BOE meeting. Forecasts are for a fall to -0.9% from the previous +2.3%.
Sterling has resistance at 1.2820 and support at 1.2720. Likely range 1.2730-1.2810 today.
USD/JPY – slumped to 108.81, mid-April lows before rallying to finish at 109.60 (110.08 yesterday). The 9 basis point drop in the US Ten year bond yields had a huge negative effect on this currency pair. US Ten Year JGB’s closed flat at 0.05 %. This should keep the USD/JPY under pressure until the BOJ meeting tomorrow. Immediate support lies at 108.80. The next support level comes in at 108.60. There is resistance at 109.70 and at 110.00. Likely range today 108.70-109.70.
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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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