Euro rebounding and traders are waiting for today’s FOMC meeting
The Dollar Index (USD/DXY) reversed its gains made yesterday against a basket of currencies, ending down 0.17% (89.176). Global Treasury yields continued to climb higher. The yield on the benchmark US Ten Year note climbed to 2.72%, the highest since April 2014. Sterling, the Euro, Yen and other Majors rose against the Greenback. The Aussie and EM currencies were little-changed. Wall Street stocks extended losses with the Dow skidding 1.4%.
Traders await the Federal Reserve’s policy meeting announcement, both later today. Trump took credit for US economic improvements while continuing his efforts to bring down trade barriers. No changes are expected from the Fed which would be Janet Yellen’s last meeting.
The Aussie Dollar faces a busy day today. Australian Q4 Headline and Trimmed Mean CPI data have released this morning.
Following the Dollar’s advance yesterday, a pullback was inevitable given the nature of the events that lie ahead. The Dollar Index is on track to finish January down around 3.4% after declining for 6 straight weeks. Yet during that period the yield on the US Ten Year Treasury has gone from 2.41% (end of December) to 2.72% today.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman Investment bank in New York and a well-know political writer observed yesterday that while rate differentials were not the main driver last year, that does not mean that they should be disregarded. He is absolutely right. At the end of the day in the FX markets, yield differentials matter.
The yield on the Ten Year US Treasury closed up 3 basis points at 2.72%, it’s highest since April 2014. Other global rates rose to a lesser degree. A long overdue Dollar correction is at hand and this may be the driver.
The Dollar Index (USD/DXY) closed mildly lower at 89.176 from 89.314 yesterday. Immediate resistance lies at 89.30 (yesterday’s close) and 89.60 (overnight high was 89.637. The price action suggests that the Dollar Index may be forming a base around 89.00. Likely range today 89.00-89.60. Buy dips.
EUR/USD – held the strong support at 1.2330/40 (overnight low 1.2335) and then rallied to close at 1.2400. Immediate resistance for the Euro lies at 1.2420 and then 1.2450. Immediate support can be found at 1.2370 and 1.2330. Yesterday’s data out of Europe was mixed. Germany’s Preliminary CPI data missed expectations while the Euro Zone’s flash GDP was as expected. The yield on Germany’s Ten year Bund closed down one basis point to 0.68%. Today’s likely range 1.2340-1.2410. Sell rallies.
GBP/USD – had the largest rise among the Majors after falling below 1.40 briefly to test 1.3980. Sterling closed up 0.56% to 1.4155 (1.4078 yesterday). BOE Governor Mark Carney said in his speech yesterday that a tightening in the labor market could see wages rise. This would help the bank move to a more conventional role of bringing down inflation. GBP/USD closed at 1.4155. Immediate resistance lies at 1.4170 and then 1.4190. Immediate support can be found at 1.4120 and 1.4080. The political uncertainty of Brexit remains a headwind for the Pound. Likely range today 1.4100-1.4180. Look to sell rallies.
AUD/USD – closed mildly lower against the US Dollar at 0.8085 (0.8100 yesterday). The Aussie fell to an overnight low of 0.8042 on the back of a stronger US Dollar. AUD/USD then rallied to close the NY session at 0.8085. Likely range today 0.8040-0.8110.
USD/JPY – closed lower at 108.77 from 108.94 yesterday. While the US Ten year yield climbed 3 basis points (2.72%), global stocks fell and risk premium increased. Japan’s Retail Sales jumped to beat expectations while the Unemployment rate had a slight rise to 2.8% (2.7%). Immediate resistance lies at 109.00 and 109.20. Immediate support can be found at 108.60 and 108.40. Likely range today 108.50-109.20. Trade the range.
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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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