Euro jumps to its highest level since 2015 after the European Central Bank meeting yesterday and the dollar increases its losses
The Dollar fell on renewed bearish sentiment fuelled by the Euro’s rise above the 1.20 barrier. The ECB left interest rates unchanged and did not announce any changes to its QE program. The rising Euro saw the European Central Bank downgrade its inflation outlook. The ECB’s economic growth outlook remained broadly unchanged. Mario Draghi said he is watching the Euro’s gains which may have consequences for the continent’s economy.
Australian August Retail Sales missed with a print of 0.0% against a forecast of 0.2%
Australia’s Trade Surplus rose to A$ 460 million, which was less than the forecast rises of A$ 930 million.
German Industrial Production: 0.00% against forecast 0.5%.
UK Halifax House Prices rose 1.1% against a forecast gain of 0.2%.
Canadian Building Permits missed with a print of -3.5% against a forecast -1.5%
Canada’s IVEY PMI fell to 56.3 from 60.0 and a forecast of 61.3
US Initial Weekly Jobless Claims rose to 298,000 against a forecast gain of 245,000. and a previous 236,000. Most of the claims were from Texas, which was hard hit by Hurricane Harvey.
Global Treasuries rose and yields fell. The yield on the US Ten years note fell to 2.04% (2.10 % yesterday). The German Ten Year Bund yield fell 4 basis points to 0.30%. Japan’s Ten Year JGB yield closed at 0.00%, down 1 basis point.
USD/DXY – falls 0.74%, closing at 91.527 (92.240 yesterday)
EUR/USD – finishes up at 1.2023 from 1.1920 yesterday.
USD/JPY – slumps to close at 108.55, the lowest close in 4 months
GBP/USD – rises to settle at 1.3100, up 0.4% (1.3045 yesterday)
AUD/USD – higher close at 0.8048 (0.8000 yesterday)
USD/SGD – drops to 1.3400 from 1.3502, fresh 14 months lows.
Outlook: The broad-based fall in the Greenback yesterday highlights the market’s extremely bearish sentiment. Doubts are increasing the effectiveness of the US Federal Reserve after Vice Chairman Fischer’s resignation announcement. Yellen’s future as head appears bleak. The agreement made by Trump with US Democrats over the debt ceiling raises questions over Republican support for his fiscal spending. Continuing threats from North Korea remain a risk.
Economic Events and Data Today:
Australian August Home Loans: (GMT 1.30 am, Sept 8/Local Time 11.30am, Sept 8) forecast: 1.0% from 0.5%
China Trade, Exports and Imports Data: (GMT 2 am, Sept 8/Local Time 12 pm, Sept 8) forecast for Trade Surplus (in USD): US$48.6 billion from US$ 46.7 billion
Previous growth in Exports was 11.2% while previous growth in Imports was 14.7%
RBA Assistant Governor Guy De Belle speech to Financial Services Institute of Australasia in Sydney (GMT 3 am, Sept 8/Local Time 1 pm, Sept 8)
RBA Governor Philip Lowe speech to Bank Of China Sydney’s 75th Anniversary (GMT 8.30 am, Sept 8/Local Time 6.30 pm, Sept 8)
UK Manufacturing Production (GMT 8.30 am, Sept 8/Local Time 6.30 pm, Sept): forecast: 0.3% from 0.00%
Canada Employment Change and Unemployment Rate: (GMT 12.30 pm, Sept 8/Local Time 10.30 pm, Sept 8) Employment Change forecast: 17,800 from previous 10,900
Jobless rate forecast: 6.3 % from 6.3%
Trading View: Yesterday’s broad-based fall in the Dollar reflects the strength of the market’s negative sentiment. This time it was not just the case of a strong Euro but a generally weak Greenback. The Dollar Index (USD/DXY) is on the verge of breaking through the gain which saw an uptrend in late 2014. It’s difficult to see any catalyst to change this and turn the sentiment around. Just yet.
EUR/USD – failed to break up through strong resistance at 1.2070. The overnight high was 1.2060 which remains a strong resistance level today. Immediate support can be found at the 1.2000 level and then at 1.1980. Until we see stronger, and clearer rhetoric from ECB officials (like drawing a clear line in the sand as to a specific level), the Euro looks to grind higher. The latest data on market positioning which is released late Monday next week will be interesting. Likely range today 1.1985-1.2065.
USD/JPY – slumped to trade to an overnight and 10 months low of 108.05 before rallying to end at 108.54. The gap between US and Japanese Ten year yields continue to narrow. This will keep the Dollar heavy against the Yen. There is immediate support at the 108.10/20 level. Strong support for USD/JPY can be found at 107.75, a break of which could see this pair down to 106.40. Japanese officials have been quiet lately but any further depreciation in the Dollar could see protest rhetoric emerge. Market positioning is still long of USD and short of JPY and this will keep the Dollar offered. Likely range
GBP/USD – broad-based USD weakness enabled Sterling to trade above 1.3100 for the first time in 5 weeks. GBP/USD has resistance at 1.3120 and 1.3150. Immediate support lies at 1.3080 and then 1.3050. UK Manufacturing PMI data are due out later on today and a good number (higher than 0.3%) could see the Pound make further gains. Likely range today 1.3080-1.3130.
AUD/USD – The Aussie held its gains and extended them to trade to an overnight high of 0.8049, closing just under that level. AUD/USD is on the verge of breaking through the 0.8065 resistance levels which are the July highs. AUD/USD has immediate support at 0.8010 and then at 0.7980. The two top RBA heads are speaking today with Assistant Governor De Belle up first, followed by Governor Lowe. They will attempt to talk the Aussie lower but only a weaker US Dollar can stop the Aussie’s strong upward trend. Likely range 0.8000/0.8070.
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