Euro reached 1.19 and Dollar waiting for FOMC tomorrow
The Euro surged ahead, popping above 1.19 before finishing at fresh 2.1/2 year highs. Sterling rallied, trading to its highest in almost 11 months ahead of the BOE’s rate decision meeting. The Dollar’s rebound proved to be short-lived on growing doubts that the Fed will increase rates this year. USD/DXY (Dollar Index) slipped back to 92.89 from 93.08 yesterday.
UK Construction PMI for July: fell to 51.9 against a forecast of 54.3 and June’s 54.8. The Purchasing Managers Index survey dropped to an 11 month low.
US ADP Non-Farm Employment Change: Private Sector jobs increased to 178,000 against expected 187,000. The previous number was revised higher to 191,000 from 158,000.
US July Crude Oil Inventories: -1.5 million barrels against a forecast -3.2 million barrels
The yield on the US Ten Year Treasury rose 2 basis points to 2.27%. The German Ten year Bund yield closed at 0.48%, down from 0.49%. UK Ten Year Gilt yield finished at 1.23% from 1.21%.
Global stocks were mostly lower although the US DOW finished at fresh all-time highs.
Brent Crude Oil rallied 1.14% to close at US$52.35 (US$51.35 yesterday).
EUR/USD – finished up 0.37% at 1.1857 from 1.1800 yesterday.
GBP/USD – rallied to close at 1.3225 (1.3205 yesterday).
USD/JPY – rose as risk appetite increased to 110.75 from 110.38 yesterday.
AUD/USD – closed flat at 0.7965 after trading to a low of 0.7942.
NZD/USD – fell after the weaker NZD Jobs data to finish at 0.7428 (0.7468 yesterday).
Outlook: The Dollar’s rebound proved to be short-lived as the Euro continued to forge ahead. There were no fresh factors to drive the Single currency higher. Fed speak was pretty balanced. St Louis President Bullard (a noted dove) said he was opposed to further rate increases. Loretta Mester (Cleveland Fed President) said further hikes would be needed. San Francisco’s Fed Head John Williams said he wants to start shrinking the balance sheet “this fall”. Meantime expectations for a hawkish ECB continue to lift the Euro.
Sterling rallied on the eve of the Bank of England’s policy meet. Resource and Emerging market currencies were the under performers.
Today’s events and data:
Australian June Trade Balance (GMT 1.30 am, Aug 3/Local Time 11.30 am, Aug 3) – forecasts are for a trade surplus of a $1.8 billion from the previous surplus A$ 2.47 billion. Inthe last report Exports rose 9% while Imports rose 1%.
China Caixin Services PMI for July – (GMT 1.45 am, Aug3/Local Time 11.45 am, Aug 3) – forecast 51.9 from previous 51.6
UK Services PMI (GMT 8.30 am, Aug 3/Local Time 6.30 pm, Aug 3) – forecast at 53.6 from 53.4
Bank Of England Inflation Report, MPC Official Bank Rate and Bank Rate Votes (GMT 11 am, Aug 3 /Local Time 9 pm, Aug 3) – The Bank of England is not expected to change its official bank rate currently at 0.25%. The bank rate vote is expected to be 2 -0 -6… two in favor of higher rates while 6 preferring to keep rates unchanged.
Trading View: The Dollar’s move down has been dominated by Euro bullishness. Yesterday there were no concrete factors to drive the Single Currency higher. The expectations are for a more hawkish ECB and a dovish leaning Federal Reserve. As the Dollar slips further, the currency divide is starting to grow. Market positioning in some currencies remains at extremes. As we highlighted yesterday, traders need to be aware of these warning signals.
EUR/USD – surged ahead to trade to 1.19102, the highest level since January 2015. In the stock markets, European exporters have taken a hit. Earnings from US multinationals continue to climb on the weakness in the Dollar. It wasn’t too long ago when this situation was the reverse and US multinationals were screaming that the US Dollar was too strong. FX traders will be wise to start recognising this. EUR/USD has immediate resistance at 1.1870 and then at 1.1900. There is short term support at 1.1820 and then 1.1780. Continue to favor selling rallies.
EUR/CHF – rallied further to 1.1512 from 1.1385 yesterday. The chart highlights the unprecedented move down in the EUR/CHF cross when the SNB abandoned the EUR/CHF peg, the base of which was 1.2000. We have rallied from 0.96/0.97 where we settled briefly all the way up to this morning’s 1.1510. The SNB must be happy with this, and they still have some EUR/CHF to go.
GBP/USD – rallied to 1.32512 overnight and 11 month highs. Traders shrugged off the weak UK Construction PMI data. GBP/USD has resistance at 1.3240 and then at 1.3280. Support is found at 1.3210 and 1.3180. Traders will scrutinise the BOE’s MPC rate vote which is now forecast to be at 2-0-6 against the previous 3-0-5. In the last meeting, 3 out of 8 policy makers voted to hike rates straight away. One of those voters, Kristin Forbes has departed. She has been replaced by Silvana Tenreyro who, from her past as a rate setter, appears more dovish.
AUD/USD – The Aussie managed to rally off its lows to end little-changed at 0.7955. The overnight high traded was 0.7993, just short of 0.80 cents. Metals prices consolidated and finished flat. Today sees Australian Trade Balance data which could impact the Aussie. In the last report, exports rose 9%. The AUD/USD then was around 0.75 cents. A drop in the Exports data would see more pressure on the Aussie. Likely range today 0.7920-0.7970. Look to sell rallies.
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***Information contained in this news letter 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 being made available as per the events occurring in the financial markets.
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