The dollar is still suffering after yesterday’s meeting and the pound is climbing above 1.42 level
The Dollar Index (USD/DXY) finished with mild gains as Donald Trump bared his trade tariffs aimed at China. Fears of a Chinese reprisal crushed risk sentiment and saw the VIX Volatility Index jump almost 31%. The Yen, market’s safe haven choice, rallied 0.6 % against the Dollar. The Australian Dollar, proxy for Asian economic growth, slumped 1.02%. The Dow dropped almost 3%, leading global stocks lower.
Outlook: As China prepares a range of responses (they have vowed to hit back) markets will extend the broadly risk-off theme. Increasing concerns of a looming global trade war will dominate trading today. The Yen will maintain its strength with the BOJ ever vigilant. Asian economic growth is threatened by a US-China trade war with some Asian currencies at risk. The Aussie and Kiwi remain vulnerable.
Sterling rallied initially above 1.42 before sliding to 1.41 as the Bank of England voted 7-2 to maintain its bank rate at 0.5%. A unanimous vote of 9-0 was expected.
Trading View: The Dollar managed to get back most of its losses following the Fed’s decision yesterday except against the Yen. With the risk-off theme dominating the markets, bond prices rose and yields fell. The yield on the US Ten Year Treasury dropped 5 basis points to 2.83%. Global yields eased, matching the drop in US yields. Germany’s Ten-year yield lost 7 basis points. UK Ten Year Gilt yields were 9 basis points lower.
Meantime in data released yesterday, Australian Employment gained less than forecast while the Jobless rate increased. AUD/USD gradually lost ground before slumping on the Trump China tariff announcement. Euro area and Euro Zone manufacturing and services PMI data mostly missed forecasts, generally weaker.
UK retail sales beat expectations. While the Bank of England remainedholdon policymakers saw the path of interest rates higher. A May rate hike is still likely. Brexit remains a headwind.
The Dollar Index (USD/DXY) rallied to close up 0.16% at 89.85 (89.66 yesterday). USD/DXY traded to an overnight high of 89.96. Which keeps the immediate resistance at 90.00 and 90.20. Immediate support comes in at 89.60 and then 89.40 (overnight low 89.40). The Fed’s action and policy statement yesterday still puts them on a different path and pace from its global peers. Likely range today 89.65-90.15. Look to buy dips.
USD/JPY – with markets in risk-off mode, the Dollar grinded lower against the Yen to close at 105.45 (105.95 yesterday), down 0.57%. This morning as Sydney opened, USD/JPY drifted lower, breaking the recent three weeks low of 105.25. The Dollar currently sits at 104.90, lows not seen since November 2016. We can expect Japanese officials to voice their opposition to a break of 105.00 which was considered their line in the sand. USD/JPY looks vulnerable with the break of 105.00/20 with the next level of support at 104.40/50. Immediate resistance now lies at 105.40/50 and any upside moves from gaps created will find resistance here. The risk of a move lower to 100/102 is real with the speculative community still short of JPY bets. Expect a volatile trading day today with a likely range of 104.50-106.00. Keep those tin helmets on, be quick and nimble.
AUD/USD – slumped to an overnight low of 0.7687 before rallying to settle at 0.7705 at the NY close. The worse-than-expected Australian Employment report saw the AUD/USD drop from the 0.77880 level yesterday. The Aussie remains vulnerable in the current environment. Immediate support lies at 0.7680 and then 0.7650. Immediate resistance can be found at 0.7720 and then 0.7750. Likely to be a volatile one on this puppy too with today’s likely range 0.7670-0.7750. JTTRS (Just trade the range shag)
EUR/USD – pretty much sidelined given all the drama and action in global markets. However, the Euro area and Euro Zone Manufacturing and Services data were mostly lower than expected. This took away support from the Single currency and we are back at the pre-FOMC levels. EUR/USD has immediate support at 1.2300 and then 1.2280. Immediate resistance can be found at 1.2320 and 1.2350. Given the ECB’s resistance to the 1.2500 level now more obvious and the speculative community long of Euro bets, look to sell Euro rallies with today’s likely range 1.2270-1.2330.
GBP/USD – managed to trade above 1.42 to an overnight high of 1.4218 following upbeat UK retail sales which came out better than expected. Sterling closed at 1.4010 in New York. The Bank Of England kept its official rate at 0.5% but the MPC vote split of 2 dissenters who wanted to hike rates keep them on the path with a likely May rate hike. GBP/USD has immediate resistance at 1.4120 and 1.4150. Immediate support lies at 1.4080 (overnight low 1.40757). Likely range today 1.4080-1.4040.
USD/ZAR – USD/ZAR ,the rand continued to firm for a second day on Thursday morning, as markets considered it unlikely that Moody's will downgrade South Africa's sovereign credit rating.
At 10:00 on Thursday, the local currency was trading at R11.77 to the dollar, after opening at R11.83 to the green back. On Monday, the local unit traded as low as R12.09/$.
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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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