Euro falling to its lowest level since July and the dollar is extending gains

The Euro traded to July 20 lows before steadying at the close as traders adjusted positions. A growing awareness of policy divergence between the US Fed and most other central banks saw traders drive the Dollar Index (USD/DXY) to 95.15, the high seen late last month.

Euro falling to its lowest level since July and the dollar is extending gains

Euro falling to its lowest level

The Euro traded to July 20 lows before steadying at the close as traders adjusted positions. A growing awareness of policy divergence between the US Fed and most other central banks saw traders drive the Dollar Index (USD/DXY) to 95.15, the high seen late last month. The Fed is widely expected to hike rates next month, followed by at least 2 more in 2018. In contrast, the ECB is prolonging it’s bond purchases well into 2018. The Dollar also benefited from renewed hopes that a tax deal could be struck with US lawmakers expected to work out their plans.

The RBA left its key interest rate unchanged at 1.5%.

German Industrial Production fell to -1.6%, much lower than the forecast of -0.7%.

Euro Zone Retail Sales rose to 0.7% against a forecast gain of 0.6%

The UK Halifax House Price Index rose to 0.3%, higher than the forecast of 0.2% but far from the previous 0.8%

US JOLTS Job Openings rose to 6.09 million, beating a forecast of 5.98 million.

New Zealand’s (GDT) Dairy prices fell 3.5% from the previous fall of 1%. This was the third straight price drop

 

Wall Street stocks slipped by the DOW down 0.11%. The S&P 500 was down 0.19% to 2588.

 

The yield on the US Ten Year Bond closed at 2.31% from 2.32% yesterday. Germany’s Ten Year Bund yield was 1 basis point lower to 0.32%.

 

USD/DXY – finished at 94.917, up 0.18% from yesterday after trading to 95.15 (October highs)

EUR/USD – lower, ends at 1.1585 (1.1605 yesterday)

AUD/USD – down, slides to October lows before closing at 0.7642 (0.7688 yesterday).

GBP/USD – mildly lower to 1.3160 from 1.3170 yesterday

USD/JPY – slightly higher to 113.88 (113.77 yesterday)

NZD/USD – drops to 0.6903 from 0.6937 yesterday. RBNZ has it’s policy meeting tomorrow

 

Outlook: Technically the Dollar Index (USD/DXY) is poised to take out last months highs at 95.15. In order for a sustained break above there needs to be a catalyst. Policy divergence would need to be reinforced with a widening of yield differentials. And although hopes for a tax deal being struck was a minor support factor for the Dollar, any further signs of progress could be the driver for a push higher.

 

Events and economic data releases today:

China October Trade Balance, Imports and Exports; (GMT 2 am, Nov 8/Local Time 1 pm, Nov 8); forecast for Trade Surplus in CNY: 275 Billion from CNY 193 Billion; forecast for Trade Surplus in USD: USD 39.5 Billion from USD 28.5 Billion; forecast for Imports: 16.0% from 18.6%; forecast for Exports: 7.2% from 8.1%

Canadian Housing Starts: (GMT 1.15 pm, Nov 8/Local Time 12.15 am, Nov 9) forecast: 220,000 from 217,000

Canadian Building Permits: (GMT 1.30 pm, Nov 8/Local Time 12.30 am, Nov 9) forecast: 1.1% from -5.5%

US Crude Oil Inventories: (GMT 3.30 pm, Nov 8/Local Time 2.30 am, Nov 9): forecast -2.3 million barrels from -2.4 million barrels

 

Trading View: The market’s renewed focus on the policy divergence will continue to drive the Dollar higher. There will be bouts of position adjusting. Economic data releases are light for today.

Technically The Dollar Index (USD/DXY) would need a clean break of 95.15 for a more sustained rally higher.

 

EUR/USD – traded down to 1.16540 which are the lows last seen on July 20. The Euro then rallied to close at 1.1685. Overnight high traded was 1.16155. Yesterday Mario Draghi in his speech at the ECB banking forum in Frankfurt said that conditions for a deposit rate hike had not yet been met. Policy divergence between the Fed and ECB will keep the Single Currency under pressure. EUR/USD has immediate resistance at 1.1600 and then 1.1615. Immediate support can be found at 1.1550. The next strong support level is 1.1500. Likely range today 1.1550-1.1600. Look to sell rallies.

EUR/USD

AUD/USD – slumped to a low of 0.7627 after initially rising following the RBA’s policy meeting. The Australian central bank left its key interest rate unchanged. Inflation remains low and consumers are becoming debt-laden which has translated into poor retail sales. Metal prices fell after rising for the past few days. Copper was down 2.1%. China’s trade balance is due today and a poor outcome could weigh on the Aussie. AUD/USD has immediate resistance at 0.7670/80 and then 0.7700 (overnight high). Immediate support can be found at 0.7625. Today’s likely range is 0.76200.7670. Look to sell rallies for an eventual move to 0.7550.

AUD/USD

GBP/USD – continues to grind lower amidst broad-based US Dollar strength. The next stage of Brexit negotiations begins on Thursday. Weak consumer demand has weighed on the British economy in the wake of the recent BOE dovish rate hike. Sterling has immediate resistance at 1.3170/80 (overnight high of 1.3177). Immediate support lies at 1.3110 and 1.3100. Broad-based US Dollar strength will keep Sterling under pressure. Likely range today 1.3110-1.3180. Look to sell rallies.

GBP/USD

NZD/USD – closed lower at 0.6905 from 0.6935 yesterday. A weak New Zealand Dairy auction which saw prices fall for the third straight time weighed on the Kiwi. The RBNZ has it’s policy meeting tomorrow and is expected to leave its key Official Cash Rate at 1.75%. There is a slight risk of a dovish outcome. NZD/USD has fallen around 4 % since mid-October when the Labor party took over the country’s reigns. Expect Kiwi trade to remain heavy. NZD/USD has immediate resistance at 0.6930 and then at 0.6950. Immediate support lies at 0.6890 (overnight low 0.6891).  Likely range 0.6890-0.6930. Look to sell rallies.

NZD/USD

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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.

 

HIGH RISK WARNING:

Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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