Euro breaks below 1.200 and the markets await today’s FOMC meeting
While the Dollar’s rally was broad-based it occurred in less liquid markets. Many Asian (Singapore, HK, China) and European (Germany, France, Spain, Italy) were on their Labour Day holiday. The move was the result of some large speculative Dollar shorts (Euro, Sterling longs) scrambling to cover.
The yield on the benchmark US Ten-Year bond edged up one basis point to 2.96%, still below 3.0%. Germany’s Ten-year Bund yield was flat at 0.56%. The yield on the Japanese Ten Year JGB closed at 0.03% from 0.05% yesterday.
Market focus now turns to the FOMC.
US data released yesterday showed a fall in US ISM Manufacturing PMI in April. Traders shrugged this aside with short-term sentiment remaining bullish US Dollars.
Next up, FOMC. The FOMC is not expected to change interest rates. Markets will focus on the language they use and indications for a rate rise in June.
For the Dollar to get fresh legs we would need to see yield support (ie the Ten years above 3.0%) and a much more hawkish Fed.
The Dollar’s up move has been one-way since April 17 (ten straight trading days) without pause. This to me is a warning not to get too bulled up on the Buck at current levels.
The Dollar Index (USD/DXY) broke through strong technical resistance at 92.00 to trade up to 92.57 overnight before settling at 92.46. Much of this move was the result of the 0.75% fall in the Euro and 1.16% slump in the Pound. Together, these European currencies take 69.5% of weight in the Dollar Index. Immediate resistance lies at 92.50/60. There is immediate support now at 92.00/10. In the medium term, the potential is to trade up to 95.00/50. Short term though, a corrective move lower may be on the cards. Expect consolidation today with a likely trading range of 92.10/50.
EUR/USD – extended its fall to 1.1992 at the New York close, down 0.74%. The Euro broke through the strong support at 1.2050 on further unwinding of speculative Euro longs. The Single Currency fallen now for ten straight sessions breaking some key technical levels on the way. The pace of economic growth in the Euro area has slowed from 2017 while that in the US has picked up. EUR/USD has immediate support at 1.1980 (overnight low 1.19814). This level is pretty solid and should hold into the FOMC meeting conclusion. Likely range today 1.1980-1.2080. Am neutral at these levels.
GBP/USD – Sterling was pounded hard after the release of UK April Manufacturing PMI which fell, much weaker than forecast. The pressure on the Pound this week has been relentless as is often the case with Sterling. Just two weeks ago, markets speculated on a BOE rate hike at their meeting on May 10. Traders have now reduced their bets on that to happen. Sentiment on Brexit turned negative and key resignations in the May cabinet have seen a slump from 1.4380 to last night’s low of 1.3588 in a little over 3 weeks. GBP/USD has immediate support at 1.3600 and 1.3580. Expect those levels to hold today into the FOMC. Immediate resistance lies at 1.3650 and then 1.3690. Likely range today 1.3590-1.3690.
AUD/USD – grinded its way lower to trade at 0.74728 overnight low before settling at 0.7487 currently. The Aussie fell under the weight of the overall stronger US Dollar. The RBA kept its key interest rate at 1.5%. RBA Governor Philip Lowe in his speech at the RBA Board dinner in Adelaide last night was positive on Australia’s economic outlook. Lowe also said that interest rates weren’t going anywhere soon. Strong support lies at 0.7430. Immediate resistance can be found at 0.7530 and then 0.7570. Likely range 0.7475-0.7575. Prefer to buy on dips today.
NZD/USD – NZ Jobs data was just released which shows that NZ Employment Change and Unemployment rate beat expectations. The Kiwi was hovering around 0.70 cents when the report was released. NZD/USD jumped to 0.7025 before dropping lower to its current 0.6998 level. NZD/USD has immediate support at 0.6980 and 0.6960 which is strong support. Immediate resistance lies at 0.7025 and 0.7075. Am not a short-term bear on the Bird down here and would look to buy dips with today’s likely range 0.6980-0.7080.
USD /ZAR – As South Africans celebrated Workers' Day on Tuesday, the rand (USD/ZAR) fell to its lowest level yet under a Cyril Ramaphosa Presidency.
At 22:10, the rand was trading at R12.67/$, down 1.72% on the day. It had opened at R12.45 to the dollar. The last time the local currency traded at this level was in mid-December 2017.
The fall in the rand was caused mainly by dollar strength
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