The dollar is climbing to record highs after Powell’s comments on his optimism about the economy and his intention to continue raising interest rates

Traders bought Dollars as Fed Chair Jerome Powell maintained his upbeat assessment on the economy

The dollar is climbing to record highs after Powell’s comments on his optimism about the economy and his intention to continue raising interest rates

rising dollar

Traders bought Dollars as Fed Chair Jerome Powell maintained his upbeat assessment on the economy. Powell told the Senate committee that the Fed will continue to gradually raise interest rates “for now” while recognizing the risks of trade protectionism. The Dollar Index (USD/DXY) finished up 0.48% with broad-base gains. Wall Street stocks rallied.

Outlook: Powell’s testimony revealed few new insights and was really a rehash of the of the Fed’s June FOMC assessment. The Fed Chair stated in prepared remarks that “for now the best way forward was to keep gradually raising the Fed funds rate. The addition of the term ‘for now’ was new and unclear why it was added.

Trading View: The Dollar had been falling prior to Powell’s testimony and rallied vigorously as traders chose to focus on his upbeat assessment. The Greenback’s gains were broad-based with Sterling underperforming. Prime Minister Theresa May only just survived another revolt in Parliament resulting from her approach to Brexit.

The yield on the benchmark US Ten Year treasury stuck at 2.86%. The yield curve steepened with the US 2-year note climbing 2 basis points to 2.62%. Yields from other global nations were pretty much flat. Germany’s 10-year bund yield was down 2 basis points to 0.34%. The yield on the Japanese 10-year JGB was flat at 0.03%.

Without yield support, it’s difficult to see further substantial US Dollar gains. The Greenback saw modest rises against the Emerging Market currencies.

Powell continues his semi-annual testimony before the US House Financial Services Committee, this time with a Q&Asession to follow. There are some first-tier economic data releases out of the UK, Euro-area and the US later today.

USD/DXY – lifted by broad-based Dollar gains to close higher at 94.965, up 0.48%. The Dollar Index closed at its highest since late June following the Fed’s June FOMC meeting. USD/DXY traded to an overnight high of 95.064. Immediate resistance lies at 95.10 and then 95.50 which is strong. Immediate support can be found at 94.75 and then 94.50.  We have not broken out of the wider 94.00-95.50 range and without further yield support, it’s unlikely to break. Likely range today 94.70-95.20. Prefer to sell rallies.

USD/JPY – The Dollar rallied against the Yen to fresh 5-month highs before closing at 112.85, up 0.44%. USD/JPY traded to an overnight high of 112.923 on the combination of an overall stronger Greenback and a rise in risk appetite. The Dollar-Yen has immediate resistance at 113.10 and then 113.40. Immediate support can be found at 112.70 and then 112.50. With strong technical support the market will want to drive USD/JPY higher but without yield support it cannot be sustained. The differential between the US and Japanese 10-year yields did not move, yet the Dollar is almost 100 points higher. Which doesn’t quite add up to me. Look to sell rallies today with a likely range of 112.20-113.20.

USD/JPY

GBP/USD – Sterling initially lifted following the news that Prime Minister Theresa May narrowly won a vote on a Brexit trade bill before the British Parliament. Sterling jumped to 1.3270 from 1.3235 before plummeting to 1.3140 where it held prior to Powell’s testimony. GBP/USD fell further to an overnight low of 1.30682 before settling at 1.3115 at the New York close. At the end of the day the British Pound dropped 0.9% for yesterday’s worst performing currency. UK Wage growth released yesterday matched forecasts and augers well for an August BOE rate hike. On Brexit, more chaos lies ahead. Today we see the release of UK CPI, PPI, HPI data. Immediate support for the Pound lies at 1.3100 and then 1.3070. Immediate resistance can be found at 1.3140 and then 1.3270. Likely range today 1.3110-1.3180. Just trade the range shag on this one.

GBP/USD

AUD/USD – the Aussie once again failed at the 0.7740/50 resistance level, falling to an overnight low of 0.73759. AUD/USD closed at 0.7387. The Aussie has immediate support at 0.7360 and then 0.7340. Immediate resistance lies at 0.7400 and then 0.7420. Australian Employment data are due out tomorrow. Traders will turn their eyes on Powell’s second testimony later today seeking further clues to the Fed’s forward guidance. Likely range today 0.7365-0.7405. Prefer to buy dips from here.

AUD/USD

EUR/USD – The resistance at 1.1740/50 held well and the Euro succumbed to an overall stronger US Dollar. EUR/USD traded to an overnight low of 1.16495 before settling to close at 1.1662 in New York. EUR/USD has immediate support at 1.1650 (overnight lows) and then 1.1620. Immediate resistance can be found at 1.1700 and then 1.1720. Today sees the release of Eurozone Headline and Core CPI data. Likely range today 1.1650-1.1700. Look to trade this range.

EUR/USD

USD/ZAR – After strengthening on Monday, the rand was steady in early trade on Tuesday, as local markets awaited the release of the Consumer Price Index data on Wednesday and the repo rate decision by the SA Reserve bank on Thursday. The local currency opened at 13.22/$ and was trading at R13.23 to the greenback at 11:05.

USD/ZAR

Events and economic data releases today: UK Headline and Core CPI, PPI Input, RPI, House Price Index; Eurozone Final Headline and Core CPI; US Building Permits, Housing Starts; Federal Reserve Chair Jerome Powell semi-annual Monetary Policy Report before House Financial Services Committee.

 

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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.

 

HIGH-RISK WARNING:

Trading Forex (Foreign Exchange) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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