Doubts about raising the interest rate in the United States increases the losses of the dollar and gold up to the level of 1344
Mounting North Korean concerns and dovish Fed comments pushed the Dollar and US rates lower. Minneapolis Fed President Neil Kashkari said recent rate hikes could be responsible for lower wage growth and ultimately, lower inflation. Fed Board governor Lael Brainard, a noted dove, urged caution in raising rates further. Ongoing investor worries on rising tensions with North Korea and an upcoming US debt ceiling deadline sank stocks.
The RBA left its benchmark rate unchanged at 1.5% which was widely expected. In its statement, the RBA remained content with strong employment growth while maintaining its concern on the strong Australian Dollar.
China Caixin Non-Manufacturing PMI printed at 52.7 from 51.8 and previous 51.5
Swiss CPI: 0.0% against a forecast of 0.0% and previous 0.0%
Euro Zone Final Services PMI: 54.7 against a forecast 51.9 and previous 54.9
UK Services PMI: 53.2 against a forecast 53.5 and previous 53.4
US Factory Orders: -3.3% against a forecast -3.3%. The previous data was revised up to 3.2% from 3.0%
The yield on the US Ten Year Treasury slumped 11 basis points to 2.06% (2.17%). German Ten Year Bund yield fell 3 basis points to 0.33%.
Wall Street stocks fell with the DOW closing at 21,772.50, down 1.07%. The S&P 500 ended 0.34% lower at 2461.00.
USD/DXY – closed down at 92.296 from 92.575 yesterday
EUR/USD – finished with mild gains to 1.1917 (1.1895 yesterday)
USD/JPY – fell to 108.77 at the close from 109.68 yesterday
GBP/USD – higher to end at 1.3032 (1.2930 yesterday)
AUD/USD – rose to close at 0.7996 from 0.7946.
Outlook: The deteriorating global market risk sentiment favoured the Yen which rose 0.92% against the Greenback. Disappointing US factory orders, dovish Fed speak and Hurricane Irma saw a more broad based Dollar decline. Big economic news and central bank meetings still await. Volatility will prevail with a risk off stance. The Dollar will remain soft. For now.
Today’s economic data and events are:
Australian Q2 GDP (Annual and Quarterly):(GMT 1.30 am, Sept 6/Local Time 11.30 am, Sept 6) Q/QResult: 0.8%
Canadian August Labour Productivity, and Trade Balance (GMT 12.30 pm, Sept 6/Local Time 10.30 pm, Sept 6) Labour Productivity forecast: 09% from 1.4%, Trade Balance forecast: -CAD 3.8 billion from previous -CAD 3.6 billion.
Bank of Canada Interest Rate Decision and Rate Statement (GMT 2 pm, Sept 6/Local Time 12 am, Sept 7) The Bank of Canada is expected to keep its overnight cash rate at 0.75% (0.75%)
US August Trade Balance (GMT 2 pm, Sept 6/Local Time 12 am, Sept 7) forecast: -USD 44.6 billion from previous -USD 43.6 billion
Trading View: In the current environment where so much is happening, and with more to come to the general rule we’d have as traders were “different strokes for different folks”. As the disconnect widens, each currency will trade differently.
The Yen continues to gain because of risk aversion where it is considered a “safe haven” currency. In the past, any missile launch from North Korea would see the Yen weaken immediately due to Japan’s proximity to the Korean peninsula.
Sterling’s rise against the Dollar is more a reversal of the EUR/GBP cross where some large amounts went through. Possibly due to an options play. The latest CFTC/Reuters data saw a rise in speculative GBP shorts. Speculative EUR longs increased to the highest total in over 4 years.
The Australian Dollar should be higher given strong metals and a weaker US Dollar. But extreme market positioning and a vigilant RBA will keep it capped.
Overall the recent dovish Fed speak will weigh on the US Dollar and keep US yields down. Other Fed heads, Kaplan, Dudley and Harker are due to speak soon.
EUR/USD – traded to an overnight high of 1.19409 before settling lower at 1.1917. Immediate resistance lies at 1.1940/50. Short term support can be found at 1.1870/80. Ahead of the ECB, expect a likely range of 1.1880-1.1940.
USD/JPY – Risk aversion will keep the Dollar under pressure. There is immediate support at 108.50 and then at 108.20. Current resistance can be found at 109.20 and 109.50. The yield on Japanese Ten Year JGB’s actually rose 2 basis points to 0.00%. In contrast, the yield on the Ten Year US bond fell 11 basis points to 2.06% (2.17%). That’s massive. Expect a volatile ride in this currency pair with the likely range today 108.30-109.30.
GBP/USD – rose and broke through the 1.30 barrier to trade to an overnight high of 1.30423 before settling at 1.3031. UK Services PMI missed with a print at 53.2 against a forecast of 53.5. However, a generally weaker US Dollar and strong buying of Sterling against the Euro saw the Pound rally.
EUR/GBP slumped 0.77% to 0.9142 from 0.9201 yesterday. Political uncertainty due to Brexit will keep a cap on GBP/USD with immediate resistance at 1.3050. Immediate support lies at 1.3010 and then at 1.2980. Likely range 1.2990-1.3050.
EUR/GBP could see a drift lower towards 0.9110fromit’s current 0.9142 as the market continues to correct itself.
AUD/USD – strong copper and metals prices and a weaker US Dollar saw the Aussie trade at 0.80283 highs overnight. AUD/USD then drifted lower to close at 0.7995. In its statement, the RBA also pointed to positive economic factors such as strong employment growth. However, RBA Governor Philip Lowe in his speech said that an appreciating exchange rate would not be helpful for growth Immediate resistance lies at 0.8030 and 0.8050 while immediate support can be found at 0.7980.Likely range today 0.7970-0.8030.
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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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