Japanese Yen is falling strongly against the Dollar and the markets awaiting today’s FOMC meeting and interest rate decision
The Yen finished as worst performing currency, falling 0.71% against the US Dollar. The Bank of Japan added more flexibility to its massive stimulus program but made no move towards withdrawing accommodation. The yield on Japan’s 10-year JGB fell to 0.05% from 0.09%. Bloomberg reported that trade talks between China and the US could restart this week. Wall Street stocks, the Yuan, risk and EM currencies rose.
Outlook: Next-up, the FOMC. Markets are expecting no change from the Fed at the conclusion of its meeting later today. Policy makers will likely say that further tightening is needed due to a strong labor market and solid economic activity. Data released yesterday saw consumer confidence and manufacturing in the Chicago area beat forecasts. Traders will be watching for any increased concern from the Fed on trade uncertainty.
Trading View: Ahead of the FOMC, the Greenback should remain supported. US bond yields finished mixed. The US 10-year yield slipped one basis point to 2.96%. Other global 10-year yields ended flat apart from Japan. The US two-year bond yield rose to 2.67% from 2.66%. The US 2-year spread over Germany and the UK are the biggest they have been since 2007.
Fed fund futures are pricing an 80% chance of a September rate hike. The USFed is the only central bank for policy tightening. The BOJ told us they are going to keep rates low for an extended time. The ECB has pledged to keep their rates low at least until the summer of 2019. While the Bank of England is widely expected to raise rates tomorrow, there is little chance of further increases.
Market positioning remains a headwind for further significant Dollar gains. We highlighted that the speculative community raised their bullish Dollar bets to the largest position since January 2017.
USD/DXY – The Dollar Index rose 0.18% to close at 94.498 (94.374 yesterday). Much of the gains came from the weak JPY (13.6% weight) and modestly lower Euro (57.6% weight). The Dollar Index traded to an overnight high of 94.57. Immediate resistance lies at 94.60, followed by 94.80 and then 95.00. Immediate support can be found at 94.30/94.20. The overnight low traded was 94.164. We should see a further grind higher into the FOMC with the 95.00 difficult to break. Likely range today 94.30-94.80. Look to trade this range.
USD/JPY – soared to close 0.71% higher at 111.87 (111.07) following the BOJ’s decision to keep their rates low. Haruhiko Kuroda and his colleagues added more flexibility to their massive stimulus program, which gives them room to move in the longer term. USD/JPY traded to an overnight high of 111.956. Immediate resistance lies at 112.00 and then 112.30. Immediate support can be found at 111.70 and then 111.40. Expect some pullback today initially to the 111.40 level before another push higher with 112.00 stiff resistance. Likely range today 111.30-112.30. Prefer to sell rallies.
EUR/USD – finished little-changed at 1.1698 (1.1704 yesterday). EUR/USD traded to an overnight high of 1.17459 before edging lower. Immediate resistance can be found at 1.1720 and then 1.1750. Immediate support lies at 1.1680/90. The overnight low was 1.1689. Euro-area data released yesterday was mixed. Eurozone CPI beat forecasts while the Flash Q2 GDP disappointed expectations. The US 2 year spread over Germany is close to a record. Look to sell rallies with today’s likely range 1.16700-1.1740.
AUD/USD – managed to gain 0.21% on an increase in market risk appetite and a mixed US Dollar overall. The USD/CNH dropped on the Bloomberg report of a possible resumption of China-US trade talks. This buoyed the Aussie which closed at 0.7432 (0.7402 yesterday). AUD/USD traded to an overnight high of 0.74407. Immediate resistance can be found at 0.7440/50. The next resistance level is at 0.7480 and then 0.7500 (strong). Immediate support lies at 0.7400 and then 0.7380. The Aussie continues to trade within a wider 0.7330-0.7480 range. Nothing wrong with trading around that. Which today is likely 0.7400-60.
GBP/USD – finished flat at 1.3130 after trading between 1.30897 (overnight low) and 1.31725 (overnight high). Ahead of the FOMC tonight and BOE tomorrow we should see more of the same. Brexit will continue to weigh on the Pound, limiting its upside. Market positioning, on the other hand will be supportive. Immediate resistance lies at 1.3150 and then 1.3170. Immediate support can be found at 1.3100 and then 1.3080. Look to trade between 1.3080-1.3180 today. Preference is to buy dips.
USD/ZAR– The rand (USD/ZAR) abruptly lost 16c to the dollar in late trade on Tuesday, after ANC President Cyril Ramaphosa announced his party wanted to amend the constitution to clarify the conditions under which expropriation of land without compensation would take place.
Ramaphosa, speaking in his capacity as the head of the ruling party, was giving an economic update at the conclusion of a two-day ANC lekgotla on Tuesday evening. The local currency was trading at R13.10 before Ramaphosa spoke and had weakened to R13.26 at 22:53.
Events and economic data releases today: Japan Final Manufacturing PMI (July); China Caixin Manufacturing PMI for July; German Markit Manufacturing PMI; Euro Zone Markit Manufacturing PMI; UK Markit Manufacturing PMI; US ADP Employment Change, Markit Manufacturing PMI, ISM Manufacturing PMI (all for July), Fed FOMC Interest Rate Decision and Policy Statement; Canada Markit Manufacturing PMI.
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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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