The dollar is booming upside and Euro is slipping and Gold is falling to 1313
The Dollar resumed its rally on an upbeat assessment of the US economy by Fed Chair Jerome Powell. Testifying before the US Congress, the new Fed Chair said economic growth was strong and that he supported gradual monetary policy normalization. In his prepared text, Powell said he anticipates that medium-term inflation could be picking up speed.
The yield on the benchmark US Ten Year Treasury spiked up five basis points to 2.91%.
The Dollar rallied on market speculation that the Fed will be looking to raise rates at a fast pace in the medium term. Which tells me four rate hikes from the Fed, rather than the three planned.
The US Conference Board’s Consumer Confidence Index for February beat estimates. This added further support for the Fed’s assessment of the economy and the US Dollar.
Economic data releases today start with New Zealand’s ANZ Business Confidence Index (February), China February Manufacturing and Non-manufacturing PMI in Asia. Europe sees UK Consumer Confidence for February, Euro Zone February Flash Headline and Core CPI, and the US Preliminary Q4 2017 GDP for today.
The Aussie, Kiwi, Canadian Dollar and Emerging Market currencies (South African Rand, Singapore Dollar) had the biggest falls against the US Dollar. This augers well for more broad-based US Dollar gains. The rise in the US Ten Year Yield saw a slump in commodities. Gold and silver fell over 1% while Brent Crude Oil was down 1.5%. Copper dropped over 1% and led most base metals lower.
In his testimony, Powell said that “some of the headwinds the US economy has faced in previous years have turned into tailwinds”. The bond market then pushed the US Ten year yield back to 2.92% after touching 2.86% earlier this week. It is now back on track to challenge 2.95%-3.00%. T A break of this would see another leg of Dollar strength. The likelihood of 4 Fed rate hikes this year is strong.
The Dollar Index (USD/DXY) traded to an overnight high of 90.50 before settling to close at 90.37, up 0.55%. Immediate resistance now sits at 90.50, a break of which could see 91.00. Immediate support is now found at 90.10 and 90.00. Look to buy dips between 89.80-90.00.
EUR/USD – fell to immediate support at 1.2220 (overnight low was 1.2221) before settling to close around 1.2235. The close support level remains at 1.2220, a break of which should see 1.2200 and 1.2190. A clean break of these levels could see 1.2070. Immediate resistance can be found at 1.2250 and then 1.2270. Keep in mind that we have the Italian election this weekend. German’s Social Democrats are also holding their poll to determine if they will form a coalition with Angela Merkel’s Conservatives. Likely range today 1.2200-1.2260. Look to sell rallies.
AUD/USD – slip sliding away, hit hard by the double whammy of a strong US Dollar and weak commodities. Copper prices fell by over 1 %, leading most base metals lower. AUD/USD slumped to a low of 0.7794 overnight before settling at 0.7798 at the New York close. This morning the Aussie is under further pressure, trading at 0.7787. The Aussie has immediate support now at 0.7780 and then 0.7750. A clean break of 0.7750 could see 0.7700 and then 0.7650. Today sees the release of Chinese Manufacturing and non-manufacturing PMI’s (February) which could be clouded by the Lunar New Year holidays. Likely range today 0.7770-0.7820. Look to sell rallies.
GBP/USD – closed down at 1.3915 from 1.3965 yesterday on broad-based US Dollar strength. Brexit dramas also weighed on the Pound. UK Foreign Secretary Boris Johnson was at it again, saying the UK will not be subject to the European Court of Justice rulings. Under the divorce agreement, the EU is expected to demand the UK remain under the ECJ rulings indefinitely post-Brexit. For Sterling, when it rains it pours. GBP/USD has immediate support at 1.3900 and 1.3880. This morning the British Pound opens at 1.3906. Immediate resistance can be found at 1.3930 and 1.3960. Would look to sell rallies, ideally around 1.3940 with today’s likely range 1.3890-1.3940.
USD/JPY – jumped to an overnight high of 107.68 before settling at 107.40 at the NY close. This morning we see USD/JPY trading around 107.37. The USD/JPY has been slow to rally given the fall in stocks and related risk aversion. However, with the US Ten Year yield climbing towards 2.95% the Dollar should accelerate quicker soon. The yield on the Japanese Ten Year JGB actually closed down one basis point to 0.03% Immediate resistance lies at 107.50 and then 107.80. Immediate support can be found at 107.00 and 106.90. Look to buy dips, ideally to 106.90 with today’s likely range 106.90-107.90.
USD/ZAR – The pair went up yesterday at R11.77 to the US dollar, President Cyril Ramaphosa announced his first changes to the national executive, as he had promised to do in his State of the Nation Address earlier this month.
Malusi Gigaba has been shifted back to the home affairs portfolio from finance, to make way for respected former Finance Minister Nhlanhla Nene
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