The dollar is pulling back ahead of the FOMC meeting and the Euro rose
The US Dollar eased anew ahead of key central bank policy meetings which start today. Global bond yields rose while technical stocks extended their rout pulling down Wall Street. The Dollar Index (USD/DXY) finished 0.30% lower at 94.374. USD/JPY was little-changed as the BOJ meets on policy today. The British Pound rose on expectations of a BOE rate hike (Thursday). EUR/USD finished above 1.1700.
Outlook: The yield on the US 10-year bond rose 2 basis points to 2.97%. Japan’s 10-year JGB yield finished flat at 0.09%. The yield on UK’s 10-year gilt was up to 1.34% from 1.28%. The focus turns to the key central bank meetings with the BOJ leading off today. The Fed meeting tomorrow is seen as a non-event. The Bank of England is expected to raise interest rates by 0.25% on Thursday. Key data releases for Japan, China, the Euro-area, and the US are due today.
Trading View: The US Dollar was already on the defensive yesterday after stellar USD Q2 GDP data failed to meet expectations. Traders doubted that the US could replicate the 4.1% growth in the next 2 quarters. Overnight, the Greenback also eased against the Emerging Market currencies.
Yesterday’s price action in the USD/JPY point to nervousness ahead of the Bank of Japan meeting results. Reuters reported last week that the BOJ will consider making changes to its massive stimulus program. Japan’s central bank may allow greater swings in interest rates which could see a change in the yield target for the 10-year Japanese Government Bond (JGB), as well as lowering inflation forecasts. There is no fixed time for the BOJ announcement although it is normally in the early Japanese afternoon.
Rate hike expectations and an overall weaker US Dollar lifted the Pound. However, Brexit dangers remain.
USD/DXY – The Dollar Index extended its losses to close at 94.374 from 94.6669 yesterday. USD.DXY traded to an overnight high of 94.756 before easing to its close. Immediate resistance on the day lies at 94.50 and then 94.75. The 95.00 remains key resistance. Overnight low traded for the Dollar Index was 94.26. Immediate support can be found between 94.20/30, followed by 94.00. Today’s likely range is 94.10-94.60. Look to sell rallies.
USD/JPY – finished little-changed at 111.07 from yesterday’s 111.03. USD/JPY traded to an overnight high of 111.164. The overnight low traded was 110.890. This was the narrowest trading range in over two weeks, highlighting a bit of market nervousness. Traders will be looking for tweaks in BOJ Haruhiko Kuroda’s announcement of the BOJ policy stance. Should the BOJ implement a higher yield target for the 10-year JGB’s, USD/JPY would plummet. Smaller adjustments to its annual JGB purchase target would see little move on the currency. Market positioning remains short JPY/long USD. the risk lies in the downside of USD/JPY should the BOJ make some changes, albeit small. Immediate resistance today lies at 111.20 and then 111.50. Immediate support can be found at 110.80 and then 110.60. Likely range today 110.30-111.30. Prefer to sell rallies.
EUR/USD – the Euro rose 0.46% against the Greenback to finish above 1.1700 at 1.1705. EUR/USD traded to an overnight high of 1.17188. Immediate resistance lies at 1.1720 and then 1.1750. Immediate support can be found at 1.1680 and then 1.1655. Today sees the release of some key Euro-area inflation data. The Euro will take its cue from the moves on the US Dollar although a more hawkish BOJ outcome could see the EUR/JPY cross edge lower. Likely range today 1.1660-1.1730. Prefer to sell rallies.
GBP/USD – ended up 0.35% to 1.3131 from 1.3103 yesterday. Sterling benefits from the expectation that the BOE will hike interest rates 0.25% to 0.75% in their policy meeting on Thursday. UK June inflation rose to 2.4% annualised which is above the BOE’s 2% target. The focus will fall on the MPC’s official bank rate votes. In the last meeting, it was 3 (in favour of rate hike), 0 (rate cut) 6 (no change). After the BOE raise rates, the number is expected to be 8-0-1, with one dissenter. A unanimous 9-0-0 vote would buoy the Pound while more dissenters would pressurize Sterling. Brexit negotiations to leave the European Union remain a risk further down the road. GBP/USD traded to a high of 1.3152. Immediate resistance lies at 1.3150 and then 1.3180, followed by 1.3200. Immediate support can be found at 1.3100, 1.3070 and 1.3050. Market positioning saw a large rise in net speculative GBP shorts to the biggest number since September 2017. Likely range today 1.3080-1.3180. Prefer to buy dips.
AUD/USD – finished flat at 0.7405 from 0.7405 yesterday. The generally weaker US Dollar and stronger Emerging Market currencies should be supportive of the Aussie. The fall in resource stocks in New York (after market) will keep a lid on the Aussie topside. Australian Building Approvals are due today as well as key Chinese PMI data. AUD/USD has immediate resistance at 0.7415/20 and then 0.7450. Immediate support can be found at 0.7385 and then 0.7355. Likely range today is 0.7385-0.7435. Prefer to buy dips.
Events and economic data releases today: New Zealand ANZ Business Confidence Index;
Australian Building Approvals for July; Japanese Unemployment Rate, Preliminary Industrial Production, BOJ Outlook Report, Policy Rate Meeting, Monetary Policy Statement and Press Conference; China July Manufacturing and Non-manufacturing PMI; German Retail Sales; Spanish Flash Q2 GDP; Euro-Zone Flash Headline and Core CPI, Preliminary Flash Q2 GDP, Unemployment Rate; Canadian GDP; US Core PCE Price Index, Employment Cost Index, Personal Spending, Conference Board Consumer Confidence Index. Chicago PMI.
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