The Dollar is rebounding against currencies, Gold dropping to 1290 after reaching the 1305 level
Bond yields in the US rose after Fed Chair Janet Yellen said that consumer prices will accelerate after a period of surprising softness. This lifted the Dollar Index (USD/DXY), a measure of the value of the US Dollar against a basket of foreign currencies, higher. Sterling recorded its first fall in a week on speculation that Brexit talks were breaking down. The Euro slipped further following the Austrian election results while Spain gave Catalan leaders until Thursday to drop their independence campaign.
Chinese CPI was in line with expectations while PPI was higher, up 6.9% (forecast: 6.3%).
The Euro Zone Seasonally Adjusted Trade Surplus fell short of expectations at +EUR 16.1 billion (expected +EUR 23.3 billion).
Canadian Foreign Securities Purchases fell to CAD 9.85 billion from the previous CAD 23.97 billion.
US Empire State Manufacturing Index rose to 30.2, higher than the expected 20.3 and previous 24.4.
New Zealand’s Q3 CPI rose to 0.5% against a forecast of 0.4%. Annualised Q3 CPI rose to 1.9% against a forecast of 1.8%.
The yield on the US Ten Year Treasury ended higher, up 3 basis points to 2.30%. Germany’s Ten Year Bund yield closed down 3 basis points at 0.37%.
Wall Street stocks closed at fresh records. The DOW rose 0.37%, while the S&P 500 was up 0.11%.
USD/DXY – rallies to close up 0.18% at 93.307 (93.055 yesterday)
EUR/USD – slips further to 1.1790 from yesterday’s opening of 1.1822
GBP/USD – falls to end at 1.3245 (1.3287 yesterday)
USD/JPY – higher to 112.20 at the close from 111.85 yesterday
AUD/USD – lower, finishes at 0.7848 (0.7888 yesterday).
Outlook: The rise in US yields was not mirrored by the rest of the globe. In fact, German, UK, Australian, and New Zealand yields fell. This will keep a bid under the US Dollar, whose rally was also broad-based. The pick of Donald Trump for the Federal Reserve head will be closely watched. Latest reports suggested that Trump was impressed with Stanford economist John Taylor, who is a candidate and is considered more hawkish than Yellen.
Events and economic data due out today:
The RBA releases the minutes of its last meeting: (GMT 12.30 am, Oct 7/Local Time 11.30 am, Oct 7)
UK Annual and Core CPI, PPI Input, Annual RPI, House Price Index: (GMT 8.30 am, Oct7/Local Time 7.30 pm, Oct 7): forecast for Annual CPI: 3.0% from 2.9%; forecast for Annual Core CPI: 2.7% from 2.7%; forecast for Monthly PPI Input: 1.2% from 1.6%; forecast for Annual RPI: 4.0% from 3.9%; forecast for HPI: 5.4% from 5.1%
German ZEW Economic Sentiment Index: (GMT 9 am, Oct7, Local Time 8 pm, Oct 7): forecast 20.3 from 17.0
Euro Zone ZEW Economic Sentiment Index: (GMT 9 am, Oct 7/Local Time 8 pm, Oct 7): forecast: 34.2 from 31.7
Euro Zone Final and Core CPI (Annualised) (GMT 10 am, Oct 7/Local Time 9 pm, Oct 7); forecast Final CPI: 1.5% from 1.5%; forecast for Core CPI 1.1% from 1.1%
BOE Governor Mark Carney due to testify to the Treasury Select Committee in London (GMT 10.15 am, Oct 7/Local Time 9.15 pm, Oct 7)
US Capacity Utilisation Rate and Industrial Production:(GMT 1.15 pm, Oct 7/Local Time 12.15 am, Oct 8): forecast for Capacity Utilisation Rate: 76.2% from 76.1%; forecast for Industrial Production: 0.4% from -0.9%
Trading View: The Dollar will consolidate its gains ahead of a plethora of economic data releases this week. In the US, Donald Trump reiterated that he expects reforms to tax policy will be completed by year end. Markets will continue to monitor this development. Political developments in Europe, particularly in Spain, as well as Brexit negotiations, will keep traders on their toes.
EUR/USD – traded to an overnight low of 1.1780 which will provide immediate support for today. Further support can be found at 1.1760 and then 1.1740. Immediate resistance can be found at 1.1800 and then 1.1820. Euro Zone Final and Core CPI data are due out later on today. Technically, the Euro looks poised to have another look at the strong support at 1.1680. On the political front, Spain has given Catalan President Puigdemont until Thursday to drop his independence campaign. The gap between the US and German Ten year yields widened yesterday. Likely range 1.1760-1.1810. Look to sell rallies.
USD/JPY – ground higher as US yields climbed to 2.30%. The yield on the Japanese Ten Year JGB was unchanged at 0.05%. USD/JPY traded to an overnight high of 112.29. There is immediate resistance at 112.30. Immediate support can be found at 112.00 and at 111.80. USD/JPY will continue to mirror the moves in the US Ten year yield. Likely range 111.90-112.40.
GBP/USD – UK Inflation numbers are released later on today. Annual CPI is the most crucial data and is forecast to have risen to 3.0% from the previous 2.9%. A lower CPI of say 2.8% will see more immediate pressure on the Pound. The political uncertainty of the Brexit negotiations will keep Sterling under pressure and limit its topside. GBP/USD closed at 1.3245. Immediate resistance lies at 1.3280. Immediate support can be found at 1.3230 (overnight low was 1.32248). Likely range today 1.3220-1.3270. Prefer to sell rallies.
AUD/USD – lower on the back of broad-based US Dollar strength. Base metal prices rose. Copper closed up 3.4% to it’s highest close in 3 years. The RBA releases the minutes of it’s September policy meeting later today. While metals are strong and provide the Aussie with some support, it’s the US Dollar that will determine where the currency goes. Australian Ten Year bond rates fell 4 basis points to 2.75%. Speculators are still long of Aussie. AUD/USD has immediate resistance at 0.7880/90. The overnight high was 0.7890. Immediate support lies at 0.7840 and 0.7820. Likely range 0.7820-0.7870. Sell rallies.
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