Pound getting lower after BOE meeting and Dollar waiting for FOMC today
Sterling fell after the Bank of England voted 6 – 2 to maintain rates at record lows and lowered its growth and inflation forecasts. The Euro powered on and kept the Dollar under pressure against most of its peers.
Emerging Market currencies fell with the South African Rand losing 1.4% against the Dollar as the currency disconnect lingered.
Data releases yesterday were:
UK Services PMI: 53.8 against a forecast 53.6
US Weekly Jobless Claims: 240,000 from 245,000.
US ISM Non-Manufacturing PMI: 53.9 from previous 57.0
US Final Services PMI: 54.7 from previous 54.2
US Factory Orders: 3.0% against a forecast 2.9%
US Treasuries rose, leading global yields lower. The yield on the Ten Year US bond fell to 2.22% from 2.27%. The UK Ten Year gilt yield dropped 9 basis points to 1.15% (1.24%). The yield on the Japanese 10 year JGB was unchanged at 0.06%.
EUR/USD – extended gains to close at 1.1872 from 1.1857 yesterday
GBP/USD – dropped 0.6% to 1.3140 (1.3225 yesterday).
USD/JPY – closed down at 110.00 (110.75), down 0.66% on the lower US Ten year yield.
AUD/USD – bounced off its lows to finish mildly lower at 0.7948 from 0.7965.
Outlook: The Dollar’s weak trend persists as we head into today’s US Non-Farms Payrolls data. Events and Data releases today:
RBA Monetary Policy Statement (GMT 1.30 am, August 4/Local Time 11.30 am, August 4): This is the latest release from its May meeting which reviews economic and financial conditions
Australian July Retail Sales (same time as the RBA Monetary Policy Statement) – forecasts are for 0.2% rise from the previous 0.6% rise.
US Non- Farms Payrolls (Change), US Unemployment Rate, Average Hourly Earnings as well as Canadian Employment Change, Jobless Rate and US Trade Balance (GMT 12.30 pm, Aug 4/Local Time 10.30 pm, August 4)
rate and Wages: Markets are looking for a gain of between 180,000 to 185,000 jobs with the jobless rate at 4.3%. Wages growth is forecast to rise to 0.3% from 0.2%.
the median forecast is for a gain of between 10,000 to 11,700 jobs from 45,300 jobs. Canadian Unemployment rate: forecast 6.5% from 6.5%
USTrade Balance: the forecast is a drop in the deficit to -US$45.0 billion from June’s -US$46.5 billion.
Trading View: Traders chose to focus on the US ISM Non-Manufacturing PMI miss. This kept the Dollar under pressure. However, the currency disconnect lingers. The Euro, Japanese Yen and New Zealand Dollar rose while Sterling, Aussie, the South African Rand, and Mexican Peso fell against the Greenback. Dollar short positions are at multi-year highs. The Bank of England shifted to a more dovish stance after keeping rates at record lows. Earlier this week the RBA said that the currency’s strength would weigh on its growth and employment outlook. The risk is growing for a corrective Dollar reversal given the huge short exposure.
Will the US NFP be the catalyst? While many focus on the NFP figure itself, look out for revisions of the previous month’s NFP gains. The Wages number could also be a game changer. The US Trade picture is also of interest. The weaker US Dollar is definitely going to make for a small deficit.
EUR/USD – The Euro continues to power against the Dollar and other peers. So far ECB officials have been silent on the Single currency’s impressive gains. The Euro’s rise against the Pound has seen the EUR TWI, which is the weighted averages against 19 of its major partners climb to 99.38 from 96.92 in a month. This could spark some protest from Euro officialdom. Net speculative Euro longs are at multi-year highs. The risk for a short term correction continues to climb. EUR/USD has resistance at 1.1890/1.1900. There is short term support at 1.1820/30. Likely range until the US NFP 1.1820/1.1870. Look to sell rallies.
GBP/USD – The Bank of England cut it's domestic growth and inflation outlook. BOE Governor Mark Carney said that the Brexit uncertainty would weigh on business investment. Sterling slumped from 1.3260 to 1.31126 (overnight low) immediately after before settling at 1.3140. There is immediate resistance at 1.3170 and then at 1.3190. Short term support lies at 1.3110 and then at 1.3080/90. Likely range today 1.3070-1.3170.
USD/JPY – fell after the drop in the US Ten year yield to 2.22% from 2.27%. There was no movement in the Japanese Ten Year JGB rate at 0.06%. The latest CFTC/Reuters report saw speculators trim their net short Yen positions to – JPY 121,489 contracts from – JPY 126,919 contracts. There is short term support for USD/JPY at 109.85 (which is the overnight low). Resistance is found at 110.30 and 110.50. USD/JPY could play catch-up to the Euro given the narrowing of differentials between US and Japanese 10 year yields. Likely range 109.70 – 110.70.
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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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