The dollar is continuing its uptrend after the economy’s assessment of strength and Pound is waiting BOE decision on raising interest rate today
The Dollar held on to its gains as the Fed left rates unchanged. In its statement, the FOMC raised its outlook on the US economy from “solid” to “strong”. This puts the US central bank on track to hike rates next month. The yield on the US 10-year bond jumped to 3.01%, its highest in 10 weeks. Trade war fears resurfaced. President Trump proposed to raise tariffs on US$200 billion of Chinese goods. Wall Street stocks ended flat.
Outlook: In markets that had a little bit of everything, bonds trumped all. Global yields rose in tandem with those in the US. The yield on the Japanese 10-year JGB soared 6 basis points to 0.12%. UK 10-year Gilt yields ended at 1.38% from 1.33% even as markets anticipate a “dovish” BOE rate hike today. The yield on Germany’s 10-year Bund rose 3 basis points to 0.47%. Rates are headed higher folks. Manufacturing PMI’s released yesterday missed forecasts in Germany, the UK, Canada and the US.
Trading View: The Dollar Index (USD/DXY) finished with modest gains, up 0.11% to 94.660 (94.50 yesterday). The Greenback continues to struggle to make much headway despite a hawkish Fed. The rise in other global yields will likely keep the recent trading ranges for currencies intact. The US yield curve steepened. The US 2-year bond yield slipped 4 basis points to 2.63%.
The reaction to Trump’s latest tariff proposals which are meant to get China to negotiate (and fold) have had muted market reaction. The “Don” of tariffs proposed raising them to 25% from 10% on US$ 200 billion of Chinese imports. Let’s see where Asia take it.
USD/DXY – The Dollar Index traded to an overnight high of 94.71 before edging lower to 94.66 at the close. Immediate resistance lies at the 94.70/80 level with further resistance at 95.00. The Dollar Index should remain support until tomorrow’s US Payrolls release. Likely range today 94.30-94.80. Look to trade this range.
USD/JPY – slipped to close modestly lower at 111.73 from 111.88 yesterday. While the US 10-year yield rose to 3.01%, Japanese JGB yields rose further, up 6 basis points to 0.12%. Trade war fears dented risk appetite and added further pressure on the Greenback. USD/JPY edged lower in early Asia to its current 111.64. Overnight high traded was 112.150. Immediate resistance today lies at 112.00 and then 112.20. Immediate support can be found at 111.40/50. The overnight low was at 110.390. These current factors will keep a top to the Dollar-Yen and Cross Yen. We can expect a further drift lower in USD/JPY with today’s likely range 111.10-112.10
EUR/USD – slipped 0.24% to close at 1.1660 from 1.1698 yesterday. Overnight high traded in the Euro was 1.16987. Immediate resistance today lies at 1.1680 and then 1.1700. Immediate support can be found at 1.1650 and then 1.1630. German 10-year Bund yields were up 3 basis points to 0.47%. Germany’s Manufacturing PMI’s slowed, missing expectations. Look for a drift lower in the Euro against the Greenback with a likely range of 1.1630-1.1700. Prefer to sell rallies with the spec community still long of Euros.
AUD/USD – slipped lower to close at 0.7403, down 0.20% from yesterday. Copper and other base metal prices slumped. Zinc prices fell 2.7%, while copper’s drop was 2.0%. AUD/USD traded to an overnight high of 0.74290. Immediate resistance on the day lies between 0.7420/0.7430. Immediate support can be found at 0.7380. The overnight low traded was 0.7389. Australian Trade balance is due out today. Look to trade a likely range of 0.7370-0.7430. Just trade the range shag, there are 60 pips to squeeze in that range.
GBP/USD – finished little-changed at 1.3126 (1.3128 yesterday). The BOE is expected to raise its Official Bank Rate to 0.75% from 0.50% later today. Traders will focus on the MPC official votes which are expected to be 7(hike), 0(cut), 2(no change). Some have the vote at 8 to 1 in favor of an increase. An 8-1 vote after a 0.25% hike should push the Pound higher initially.
However, uncertainty over Brexit negotiations will keep the Bank of England from raising any further. The rhetoric from BOE Governor Mark Carney will be scrutinized at his Press Conference following the meeting. If there is no rate hike later, it will be like the rug was pulled under Sterling. GBP/USD traded to a high of 1.3144 overnight. Immediate resistance can be found at 1.3150 and then 1.3180. Immediate support lies at 1.3090-1.3100 and then 1.3060. Likely range until the BOE, 1.3080-1.3150. Tin hats on, be prepared to go on either side.
Events and economic data releases later: Australian Trade Balance; Swiss Retail Sales and Manufacturing PMI; Eurozone July PPI; UK BOE Inflation Report, BOE Official Bank Rate, BOE MPC Official Bank Votes, BOE Monetary Policy Summary, UK Asset Purchase Facility, BOE Governor Mark Carney Press Conference.
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