The dollar is negatively affected by the decisions of Trump and Euro rises after the positive news about the formation of a government in Germany
The Dollar Index (USD/DXY) extended its fall for the second day running as market fears of a global trade war weighed on sentiment. The Yen rallied to over two-year highs on remarks by BOJ’s Kuroda that Japan’s central bank was thinking of ending QE ion 2019. Meantime the Euro rallied into Sunday’s Italian election where most analysts expect a political logjam. Wall Street stocks finished mixed. The yield on the Ten-Year US Treasury closed up 6 basis points to 2.86%.
“Cloudy with a chance of meatballs 2” is threatening to fall on the Dollar. Any countermeasures by other countries against the U.S. as a result of Trump’s tariffs, if enacted, will weigh on the Greenback. Putting a tariff on imports will increase the cost of foreign products, reducing demand and imports. Retaliation from other countries could ignite negative capital flows in the US which needs to finance it’s expanding twin deficits. The US has become a net debtor nation while among net creditors are Europe, Japan, China and Singapore.
The week ahead is heavy with events and economic data culminating with the US Payrolls on Friday.
Today starts off with Australian Building Approvals (February) and China’s Caixin Services PMI. European and UK Services PMI round up the day as Europe enters the markets.
The Dollar’s technical outlook has turned cloudy following Trump’s trade tariff tirade last week. The move higher in the US Ten year yield on Friday was not matched by those in the major countries. This had no marked impact on the
Greenback this time with the uncertain outlook to the technical picture.
In Germany, SPD members voted to form a coalition with Angela Merkel’s leading Conservative CDU/CSU party. A cabinet is expected to be put together this week. The Euro jumped 30 points in early Sydney this morning.
Meantime the latest CFTC/Reuters report (week ended 27 Feb) saw speculators maintaining their overall Dollar bearish bias. We take a look at the currency breakdown in the summaries below.
The Dollar Index (USD/DXY) slipped anew on Friday to close at 89.977 from 90.256, down 0.29%. Last week we saw the USD/DXY fail at the strong resistance level of 91.00. Sellers abounded at 90.90 and the Dollar Index started its fall just about the time Trump announced his tariffs. The Dollar Index closed just under 90.00 and looks poised to retreat further. Immediate support can be found at 89.80, then 89.60, and 89.40. Immediate resistance lies at 90.10/20 and then 90.40. Whether we trade back to 88.16 lows (seen on Feb 16) remains to be seen. Stay tuned …
EUR/USD – Once again the market seems to shake off all potential negative news from Europe, political and otherwise and buys Euros. Which is more a mirror of the bearishness toward the US Dollar and Donald Trump. In Germany, early news of SPD members voting in favor of forming a cabinet with Merkel’s ruling party saw a jump in the Euro from 1.2330 NY close to 1.2360 early this morning. While this has taken away the uncertainty of no government in Germany, this coalition still has a risk. The yield on Germany’s Ten-year Bund was up 1 basis point to 0.65% which failed to match the 6-basis point rally with its US counterpart. EUR/USD has immediate resistance at 1.2360 (this morning’s high) and then 1.2400. Immediate support lies at 1.2320 and then 1.2280. Look to sell rallies with today’s range likely 1.2270-1.2370.
USD/JPY – slumped to an almost two year low of 105.25 overnight on Kuroda’s comments. BOJ Governor Haruhiko Kuroda remarked that the Japanese central bank’s policy would be examined in April 2019 and that policy could normalize before their inflation target is reached. Traders saw this as hawkish and sold the USD/JPY aggressively. The Dollar recovered a bit to close at 105.75 in New York. Kuroda’s comments saw the yield on Japan’s Ten-year JGB climb 3 basis points to 0.06%. Still no match for the 6-basis point rise in its US counterpart. We can expect Kuroda to correct himself after Friday’s move of a stronger JPY and weaker Nikkei (stock market). The BOJ has its policy meeting this week on Friday. USD/JPY has immediate support at 105.50 and then 105.20. Immediate resistance lies at 106.00 and 106.20. Look to buy on dips with today’s likely range 105.40-106.40.
AUD/USD – closed marginally higher to 0.7765 (0.7760 Friday) on the generally weaker US Dollar. The Aussie hasn’t been able to take advantage of the Greenback’s fall. Immediate resistance can be found at 0.7780 and 0.7800. There is immediate support at 0.7740 and then 0.7720. The performance of the Aussie has been anemic to say the least. Today sees Australian February Building Approvals and China’s Caixin Services PMI data. So far economic data out of Australia and China have mostly missed expectations. Tomorrow the RBA has its interest rate policy meeting. At the end of the day, the Aussie will get its main direction from the US Dollar. Likely range today 0.7740-0.7800. JTRS (Just Trade the Range Shag) day again today.
GBP/USD – The GBP/USD lifted by the weaker US Dollar a better than forecast UK Construction PMI data on Friday. The British Pound closed at 1.3803 (1.3770 Friday). British Prime Minister May did not give away much in her speech on Friday. May acknowledged that the future for both the UK and EU will be different with less access to each other’s markets. Immediate support can be found at 1.3780 and then 1.3760. Likely range today 1.3720-1.3820. Look to sell rallies.
USD/ZAR – USD-ZAR Following a recent rally on the back of political developments, global factors have set the rand on a path of correction.
The rand opened at R11.79 on Thursday, after trading weaker since Tuesday. This followed the National Assembly's adoption of a motion for land expropriation without compensation, analysts from NKC Economics suggest.
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