The dollar enhances its strength and markets are closely watching the FOMC meeting tomorrow
The US Dollar finished mostly higher, with particular currencies bearing the brunt and falling further. Risk appetite strengthened as the US seeks a peaceful solution with North Korea but is prepared to use military force if necessary. Sterling and the Yen extended their slide against the Greenback, while the Euro was little-changed. The Australian Dollar led Resource currencies lower. Emerging Market currencies slumped, led by the South African Rand which fell 1.12%.
Bank Of England Governor Mark Carney in his speech at Washington DC said that any coming interest rate rises would be limited and gradual.
Euro Zone Final CPI (Annual) rose 1.5% exactly as forecast and previous 1.5%.
Euro Zone Core CPI (Annual): printed 1.2% same as forecast 1.2% and previous 1.2%.
Global stocks extended their rally. The US Dow recorded a fresh record high, closing up 0.28%.
The yield on the benchmark US Ten Year Treasury rose 3 basis points to 2.23%. The Japanese Ten year JGB yield finished flat at 0.01%. Germany’s Ten year Bund yield rose to 0.45% (0.43% yesterday).
USD/DXY – closed slightly higher at 92.016 (91.845 yesterday), up 0.17%
EUR/USD – ended at 1.1957, little-changed from 1.1949 yesterday.
USD/JPY – finished higher at 111.55 (110.85 yesterday)
GBP/USD – slipped to close down at 1.3502 from 1.3590 yesterday.
AUD/USD – lower, ends at 0.7965 (0.8003 yesterday)
NZD/USD – falls to 0.7265 from 0.7295 yesterday.
Outlook: The Dollar’s rally was pretty much broad-based with only the Euro up slightly against the Greenback. Sterling slipped lower on a combination of a less hawkish Mark Carney as well as uncertainty over current Brexit negotiations. The Yen extended its slide on renewed risk appetite and a higher US Ten year yield. Last week the People’s Bank Of China signaled to the markets that it did not want to see further Yuan strength. The offshore Chinese Yuan, or USD/CNH soared to close at 6.5740 from 6.55 yesterday and 6.4800 last week. Last night Bank of Canada’s Deputy Governor Timothy Lane said the BOC would monitor how the economy responds to a stronger Canadian Dollar and higher rates.
Often it is currency weakness that can lead to further Dollar strength.
Today’s event and economic data releases:
RBA Monetary Policy Meeting Minutes: (GMT 1.30 am, Sept 19/Local Time 11.30 am, Sept 19)
German and Euro Zone ZEW Economic Sentiment Index: (GMT 9 am, Sept 19/Local Time 7 pm, Sept 19): German ZEW Economic Index forecast: 12.5 from previous10.0;
Euro Zone ZEW Economic Sentiment Index: 32.4 from previous 29.3
US August Building Permits, Housing Starts and Current Account: (GMT 12.30 pm, Sept 19, Local Time 10.30 pm, Sept 19): forecast for Building Permits: 1.22 million from previous 1.23 million; forecast for Housing Starts: 1.17 million from previous 1.16 million
US Current Account forecast: -USD 115 billion from previous -USD 117 billion.
Trading View: The Dollar’s rise against the Yen, Resource and Emerging Market currencies were for various reasons. The result is still the same, and this gives the Greenback the needed support for further gains. Today the Bank of Canada expressed discomfort with the strengthening currency. We heard from Chinese central bank a few weeks ago. The RBA has already expressed its displeasure on Aussie strength. And long speculative US Dollar positioning has yet to see a decent correction.
Will this week’s FOMC meeting be the catalyst ? The Fed is expected to begin shrinking it’s balance sheet.
Much of the Dollar’s weakness has also been the result of the political uncertainty due to Trump and his administration. This now seems to have run it’s course. Markets seem to be less stressed with Trump. The Dollar, yields and stocks all rose yesterday. The political uncertainty may shift overseas. Germany’s parliamentary elections are this weekend (Sept 24). New Zealand goes to the polls on Sept 23.
EUR/USD – managed to hold above 1.19 with the low recorded at 1.1915. EUR/USD bounced to 1.19694 highs before settling lower to 1.1958. The Single Currency is consolidating but the highs are coming lower. German Ten Year yields basically much the rise of their US counterpart. EUR/USD has immediate resistance at 1.1970 with support at 1.1910. Expect more consolidation with today’s likely range 1.1910-70.
USD/JPY – continues to grind higher toward the strong resistance level of 112.10. The Dollar closed at 111.55 after testing a high at 111.66. Resistance can be found at 111.70 and then 112.10. Immediate support lies at 111.00 and then 110.85. The moves in the US Ten Year will drive this currency pair. Political uncertainty may also affect the Yen if Prime Minister Shinzo Abe calls for a snap election any time soon. Likely range today 111.10-70.
GBP/USD – Sterling had a choppy session initially trading to 1.36185 highs before slumping to 1.3465 lows on Carney’s comments, which were less hawkish than markets had expected. Current Brexit negotiations and a Conservative Party Conference could weigh on the Pound. GBP/USD has immediate resistance at 1.3540 and then at 1.3580. Immediate support lies at 1.3500 and 1.3470. Likely range today 1.3490-1.3540.
AUD/USD – The RBA releases its most recent meeting minutes later today. AUD/USD fell under the weight of a stronger US Dollar against both Resource and Emerging Market currencies. Often in the past these factors, particularly if Asian currencies are involved, have driven the Aussie lower. AUD/USD has immediate resistance at 0.7990/0.8000. Current support can be found at 0.7940 (overnight low). Strong support lies at the 0.7880 level. The BOC comments on the Canadian Dollar reminded traders of the RBA’s own concerns on Aussie strength. Any repeat of this in today’s RBA meeting minutes release could push the Australian Dollar lower. Likely range today 0.7920-0.7990.
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