Euro is rising and Pound is waiting for BOE to meet tomorrow with expectations of higher interest rates

The Dollar Index (USD/DXY) finished unchanged on the day ahead of the FOMC policy meeting. Sterling rose on Brexit hopes and expectations of a BOE rate hike tomorrow.

Euro is rising and Pound is waiting for BOE to meet tomorrow with expectations of higher interest rates

Euro is rising

The Dollar Index (USD/DXY) finished unchanged on the day ahead of the FOMC policy meeting. Currencies were mixed as the disconnect emerged. Sterling rose on Brexit hopes and expectations of a BOE rate hike tomorrow. The Yen weakened after the BOJ kept its stimulus unchanged and trimmed its inflation outlook. The Euro remained confined to a range, closing little-changed. Aussie, Kiwi and Loonie all underperformed while Emerging Market currencies dipped.

New Zealand’s ANZ Business Confidence Index sank to -10.1 from the previous 0
Australia’s HIA New Home Sales sank to -6.1% from a previous rise of 9.1%
China’s Manufacturing PMI missed with a print at 51.6 from 52.4 and an expected 52.2.
China’s Non-Manufacturing PMI fell to 54.3 from 55.4.
Euro Zone Flash CPI (y/y) slipped to 1.4%
against a forecast of 1.5% and previous 1.5%
Euro Zone Flash Core CPI (y/y) missed at 0.9% against a forecast 1.1% (previous 1.1%)
Euro Zone Preliminary Flash Q3 GDP (q/q) rose to 0.6% against a forecast 0.5%.
Canadian September GDP fell to -0.1% from 0.0% and a forecast rise of 0.1%
US Chicago PMI rose to 66.2 from 65.2 and a forecast 60.2
US Conference Board Consumer Confidence Index rose to 125.9 from 120.6 and a forecast 121.1

Stocks closed mostly up led by Wall Street. The US S&P 500 finished up 0.17% (2574.00)

The yield on the Ten years US Treasury rose one basis point to 2.37%. Most other global bond yields were unchanged. Germany’s Ten year Bund yield closed at 0.36% while Japan’s ten year JGB yield was at 0.06%. In contrast, the yield on the Australian Ten year bond fell 6 basis points to 2.67%.

 

USD/DXY – closed flat at 94.555.
EUR/USD – little-changed at 1.1651 from 1.1655 yesterday.
GBP/USD – climbed to 1.3284, from 1.3210 on BOE rate hike expectations
USD/JPY – rose to 113.68 (113.14 yesterday) after BOJ kept it’s Policy Rate unchanged at -0.10%.
AUD/USD – slipped to 0.7656 from 0.7688 on weak new home sales data

 

Outlook: The currency disconnect is emerging once again on central bank divergence, mixed economic data and varying political atmospheres. The Bank of Japan kept its massive monetary stimulus policy unchanged. Inflation remains well below the BOJ’s 2% target. The BOJ cut it’s 2017 and 2018 inflation targets. The BOJ’s policy has signaled divergence from that of its peers (ECB and US Fed). Sterling rose on reports that the European Union’s chief negotiator was willing to speed up Brexi negotiations. Britain was reported to have hired 5,000 additional staff to work on post-Brexit planning. The Bank of England is expected to raise rates at tomorrow’s meeting for the first time in a decade. Australian (new housing sales), Canadian (fall in GDP) and New Zealand (ANZ Business Confidence) disappointed last night.

 
The Dollar should remain firm after the Conference Board’s Consumer Confidence Index rose to 125.9, its highest since December 2000. The FOMC is expected to keep its policy and interest rates unchanged at its meeting later. The Dollar Index (USD/DXY) held its recent gains and is poised to grind higher.

 
Breaking data released this morning:

New Zealand’s Q3 Unemployment Rate fell to 4.6% from 4.7%.
New Zealand Employment Change rose to 2.2% against a forecast of 0.8%.
Events and economic data releases today:
China October Caixin Manufacturing PMI: (GMT 1.45 am, Nov 1/Local Time 12.45 pm, Nov 1): forecast 51.1 from 51.1
UK Nationwide HPI (House Price Index): (GMT 7 am, Nov 1/Local Time 6 pm, Nov 1): forecast: (GMT 9.30 am, Nov 1/Local Time 8.30 pm, Nov 1) forecast: 0.2% from 0.2%
UK Manufacturing PMI: (GMT 9.30 am, Nov 1/Local Time 8.30 pm, Nov 1) forecast: 55.8 from 55.9
US October ADP Non-Farm Employment Change: (GMT 12.15 pm, Nov 1/Local Time 11.15 pm, Nov 1) forecast: 200,000 from 135,000
US ISM Manufacturing PMI and Construction Spending: (GMT 2 pm, Nov 1/Local Time 1 am, Nov 2): forecast for Manufacturing PMI: 59.5 from 60.8; forecast for Construction Spending: 0.0% from 0.5%
US Federal Reserve FOMC Monetary Policy Statement and Rate Decision: (GMT 6 pm, Nov 1/Local Time 5 am, Nov 2): The FOMC is expected to keep the Fed Funds rate at it’s current 1.25%

 

Trading View: While the currency disconnect will continue to influence the individual currencies, the US Dollar will remain firm. Its medium term up trend is under way as US economic data improves. Markets will keep their focus on US tax reform despite the latest news on indictments from the FBI’s Russian probe. With the FOMC expected to keep policy unchanged, the Payrolls data on Friday will be keenly anticipated.

 
EUR/USD – traded in a narrow range in spite of weaker than expected Euro Zone inflation data. EUR/USD has immediate resistance at 1.1665/70 (overnight high was 1.1661). Immediate support can be found at 1.1625 (which is the overnight low). In the current environment, expect the Euro to grind lower with today’s likely range 1.1610/1.1660. Sell rallies.

 EUR/USD
 

USD/JPY – more of a slow grind higher following the BOJ’s meeting outcome which most economists had expected. The Dollar traded to an overnight high of 113.73. Immediate resistance lies at the 113.80 level with 114.00 the next barrier. Immediate support can be found at 113.40 and then at 113.05. Speculative JPY shorts increased in the latest Reuters/CFTC data to their largest since July. This should keep the topside limited to the 114.00/50 level for now. Likely range today 113.40-113.90. Sell rallies to 114.00

USD/JPY

 
AUD/USD – slip sliding away. The Aussie continues to grind lower in true fashion. Metal prices remain weak. Last night the yield on the Australian Ten Year Bond fell 6 basis points to 2.67% while it’s US counterpart was up one basis point to 2.37%. The yield differential is narrowing. It was 0.58 in late September and is currently now at 0.3. That’s almost a cut in half. This will keep the Aussie under pressure against the US Dollar. AUD/USD has immediate resistance at 0.7700 and then at 0.7720. Immediate support can be found at 0.7650 and then 0.7630. Likely range today 0.7630-0.7680. Sell rallies.

AUD/USD

 
GBP/USD – climbed to 1.3285 from 1.3210 yesterday. The Bank of England is forecast to raise its Official Bank Rate to 0.5% from 0.25% at its meeting tomorrow. The MPC vote is expected to change to 6-0-3 from the current 2-0-7. Which means 6 to
vote for an increase, none voted for a decrease and 3 voted for no change. Any change from that which is less hawkish could see Sterling come lower. Brexit negotiation progress (or lack of it) will keep the Pound volatile.

GBP/USD has immediate resistance at 1.3290 and 1.3300. Immediate support can be found at 1.3260 and 1.3230. Likely range 1.3240 to 1.3300. Sell rallies above 1.3300.

GBP/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.

 

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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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