The Dollar is losing its upward trend and the Australian dollar is maintaining its gains at 0.7582
Risk sentiment was bruised as President Trump canceled his meeting with North Korea and announced plans to impose a 25% tariff on car imports. Markets took the latest news in stride. The US Dollar was generally weaker in subdued trading with the Yen extending gains. Stocks mostly reversed early losses. The yield on the US Ten Year bond slipped to 2.98%.
Outlook: Amidst a fall in risk sentiment, the Dollar’s topside momentum has slowed. Yesterday’s FOMC meeting disappointed hawks with the number of rate hikes for 2018 left in the balance. Price action suggests the market’s perception was more of dovish tilt to the latest FOMC minutes.
Trading View: Trading was subdued overnight as markets prepare for a long US weekend due to Monday’s Memorial Day observance. Expect more of the same today with further modest downside pressure on the Dollar. Today’s Riksbank Anniversary sees a trio of Central bank heads (Powell, Carney and Weidmann) speaking in Stockholm, Sweden.
US data released (Jobless Claims and Existing Home Sales) both missed forecasts. UK Retail Sales beat expectations while German Final GDP was spot on forecasts.
US yields dropped further with the Two-year yield down to 2.51% from 2.53% yesterday and 2.57% pre-FOMC. The US Dollar fell most against the Japanese Yen, Swiss Franc and Aussie. The Euro eked out a 0.1% gain while Sterling was flat.
Events and economic data releases today: Tokyo April Core CPI, German IFO Business Climate, UK Second Estimate of Q1 GDP and Q1 Preliminary Business Investment, US Headline and Core Durable Goods Orders (April) and University of Michigan Consumer Sentiment Federal Reserve Chairman Jerome Powell and Bank of England Governor Mark Carney are participating at a panel discussion on the future of central banking at the Riksbank Anniversary in Stockholm. Bundesbank President speaks later at the same conference.
The Dollar Index (USD/DXY) finished 0.19% weaker at 93.765 (94.006 yesterday). The overnight high traded this time was 93.988, just under the 94.00. While the Euro had mild gains, the 0.58% drop in USD/JPY weighed on the Index. (USD/JPY has 13.6%). USD/DXY has immediate resistance at 94.00 with the 94.20 level now formidable. Today sees US Headline and Core PPI for April. Look for more corrective action on the USD/DXY with a likely range of 93.50-94.00. Prefer to sell rallies.
EUR/USD – managed to hold the support under 1.1700 (overnight low 1.16908) on a generally softer US Dollar. Germany’s Q1 GDP for 2018 matched analyst’s expectations and took downward pressure away from the Single currency. ECB meeting minutes released yesterday showed that policymakers were confident that inflation would rise in the medium term but remain cautious. It all boils down to the data that lies ahead. Italy was quiet as the coalition seeks an economic minister. The Euro has immediate resistance at 1.1750 (overnight high) and then 1.1790. Immediate support can be found at 1.1700 and then 1.1680. The Euro has dropped a long way since we broke 1.2000 a little over two weeks ago. Expect some consolidation with a likely range today of 1.1700-1.1770.
AUD/USD – continued to gradually grind higher in true Aussie fashion amidst all the tweeting and shouting in the market place. AUD/USD rose to 0.75826 overnight before settling at 0.7580 in New York. The Aussie looks poised to try higher with immediate resistance at 0.7600 and then 0.7630. The weaker overall tone of the US Dollar has buoyed the Aussie and should continue to do so. Base metals were off their highs although Gold and Silver were higher. Likely range today in the Aussie is 0.7550-0.7610. Further Aussie recovery is possible however it’s difficult to get carried away above 0.76 cents. We would need to see further US Dollar weakness for this to happen. Its just trade the range shag on this one today.
USD/JPY – The Japanese Yen outperformed supported by a combination of lower US10-year yield and fragile risk sentiment. USD/JPY dropped to a low of 108.953 before settling around 109.25 in New York. USD/JPY opened at 110.05 yesterday and saw a steady decline throughout the day. There is immediate support at 109.00 and then 108.70. A clean break of 108.70 could see us back to the 107.70-108.00 area. The Dollar is likely to consolidate today with a likely range of 108.85-109.55. Look to trade this range.
GBP/USD – closed marginally higher at 1.3385 from 1.3365 yesterday. UK April Retail Sales rose twice what analysts had forecast. This was unable to shake-off Sterling’s shaky tone on persistent concerns regarding Brexit. The British Pound, like all the other Majors, is dependent on where the US Dollar is headed next. A corrective Dollar moves lower will see the Pound lift. BOE Governor Mark Carney speaks today at the Swedish Riksbank Anniversary Conference in Stockholm later today. Likely range 1.3360-1.3430.
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