The dollar is stabilizing in anticipation of the Federal Open Market Committee meeting today
The Dollar built on its gains made this week further supported by a rise in US bond yields. The US Treasury began to offload up to US$ 250 billion in new debt which pushed yields to 4 years high. A fall in German economic sentiment for February weighed on the Euro. Sterling slipped ahead of today’s crucial wages data. Wall Street stocks slumped with the Dow closing down 1.10%.
The Dollar has started to respond to the widening differentials in bond yields. With more debt auctions to come from the US Treasury, yields should climb further and take the Greenback up with it this time. Traders will also turn their eyes to economic data out today and the Federal Reserve’s January policy meeting minutes which was Janet Yellen’s last as Chair.
Markets will return to full swing with the US back yesterday while China and other Asian centers come back today from the Chinese New Year celebrations.
Economic data releases later today include Australia’s Q4 Wage Price Index, French, German and Euro Zone Manufacturing PMI’s, UK Wages and Unemployment, and US Existing Home Sales, Flash Manufacturing and Services data.
Will this week’s Dollar gains be another dead cat bounce or are we at the start of a more significant recovery and rally? Traders have been expecting other major central banks to gradually tighten monetary policy. Which has resulted in US Dollar selling as yield differentials start to narrow. The bond sell-off had a one week break but with more US debt to be issued we could see a restart. That could shake out a lot of the market’s short US Dollar bets and push the Greenback higher.
The Dollar’s gains were broad-based with the USD/Emerging Market pairs all rallying. Today sees China back from the Lunar New Year holidays. It would be interesting to see where they fix the USD/CNY today.
USD/DXY – The Dollar Index rallied 0.56% to close at 89.689 (89.188 yesterday). The overnight low was 89.217 which should now be a strong support level. Immediate support lies at 89.40 and then 89.20. Immediate resistance can be found at 89.80 and then 90.00. Likely range today 89.50-90.00.
EUR/USD – The EUR/USD dropped 0.5% against the stronger US Dollar to close at 1.2340 (1.2410 yesterday). German ZEW Economic sentiment fell in February from the previous month. Next week German politics becomes a focus as Angela Merkel awaits the result of a poll from their prospective coalition partner the SPD party. The vote is on whether the SPD would go ahead and join Merkel in governing the country. The result is still uncertain even if Merkel is confident of the SPD’s support. Immediate support in the EUR/USD lies at 1.2320 (which was the overnight low). Further support lies at 1.2285. Immediate resistance can be found at 1.2380 and 1.2400. Likely range today 1.2320-1.2370. Look to sell rallies.
USD/JPY – rallied to an overnight high of 107.377 before settling to close at 107.30. The USD/JPY is the currency pair most affected by a move in the US ten-year yield. That correlation was thrown out the window recently as Japan’s economy showed signs of growth and the US Dollar fell against its Rivals. USD/JPY fell from 108.75 to a low on Friday night of 105.55. Japan Inc then proceeded to protest the speed and extent of the Yen rise. USD/JPY has immediate resistance at 107.40 (overnight high was 107.377). The next resistance level lies at 107.80 and then 108.00. Immediate support can be found at 107.00 and then 106.80. Likely range today 106.85-107.55. Prefer to buy dips.
GBP/USD – slumped to an overnight low of 1.3931 before rallying to close at 1.3990 (1.4007 yesterday). The Pound has rallied slightly over 3% against the US Dollar this year. Much of Sterling’s gain was on a weaker US Dollar, optimism on Brexit negotiations, and a rise in UK interest rates as early as May. BOE Governor Mark Carney has said that he would prefer a rise in UK rates around that time. Much would depend on the upcoming data which starts with the UK jobs report and real wage growth. GBP/USD has immediate support at 1.3960 and then 1.3940. Immediate resistance lies at 1.4000 and 1.4000. Likely range 1.3940-1.4020. Look to sell rallies.
AUD/USD – slip sliding away.. closed down 0.36% to 0.7880 (0.7913 yesterday). The Aussie traded to a high of 0.7934 last night before succumbing to the overall strong US Dollar. Last night Copper led base metal prices lower. This should continue to keep a lid on the Aussie with immediate resistance at 0.7900 and then 0.7930. Immediate support can be found at the current 0.7880, followed by 0.7850. Further US Dollar strength could see further losses for the Aussie to 0.7860 and 0.7840. Likely range today 0.7860-0.7910. Look to sell rallies.
USD/ZAR – South Africa’s currency reached a three-year high after Cyril Ramaphosa was making what is called the swear as head of state on February 15, fueling optimism among investors that management of the economy will improve.
By 07:20 on Wednesday morning, ahead of National Budget to be delivered later in the day, the rand was trading 0.41% weaker at R11.77 against the US dollar from its overnight close.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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