The dollar stabilizes after FOMC and the pound rises ahead of the meeting of the Bank of England

The Dollar ended mostly up against its Rivals as the Federal Reserve kept rates on hold as expected.

The dollar stabilizes after FOMC and the pound rises ahead of the meeting of the Bank of England

Dollar stabilizes after FOMC

The Dollar ended mostly up against its Rivals as the Federal Reserve kept rates on hold as expected. The FOMC upgraded their assessment of the US economy in their statement, consistent with a December rate hike. Markets looked ahead to President Trump’s announcement of the next Fed Chair, with Jerome Powell as his likely pick. Most US economic data was upbeat which supported the Greenback. The Euro slipped after rallying earlier in the day. The Dollar climbed back above 114 against the Japanese Yen.
US Non-Farm ADP Employment saw a gain of 235,000 jobs, higher than the 202,000 expected.
US ISM Manufacturing PMI slipped to 58.7 from 60.8 while Construction Spending rose 0.3% from 0.1%.
In other economic data, China’s Caixin Manufacturing PMI printed at 51.0, the same as forecast.
UK’s Manufacturing PMI slipped to 54.3 from 55.0.

Wall Street stocks were mostly up with the DOW advancing 0.25% to 23,430.

The yield on the US Ten Year Treasury rose to 2.37% from 2.36%. Japan’s Ten Year JGB yield slipped one basis point to 0.05%. The UK’s Ten Year Gilt yielded 1.34% from 1.33% yesterday.

USD/DXY – rises to 94.784 from 94.555 yesterday.
EUR/USD – slips to 1.1622 at the close (1.1651 yesterday)
USD/JPY – climbs to 114.15 from 113.68.
GBP/USD – eases to 1.3245 (1.3285). The Bank of England is expected to raise rates at
it’s meeting later on today
AUD/USD – higher, closes at 0.7675 from 0.7657 yesterday. Metals were mostly up with Nickel prices surging to their highest since 2015.

 

Outlook: The Dollar was edging lower into the Fed meeting and rallied after the FOMC was on track for a December rate hike. Gains were modest as the market now looks ahead to Trump’s announcement of his pick for the top Fed job. Several reports point to Jerome Powell, a Republican and former Treasury official who has supported Yellen’s policy of gradual rate increases. Tax reform is still a catalyst and markets eagerly await the release of a Republican-led tax soon. Expectations are building for a strong US Payrolls number on Friday. Outside of the US, the Bank of England is widely expected to raise its Official Bank Rate to 0.5% from 0.25%. The BOE will also publish its quarterly inflation report.

Events and economic data releases today:

Australian October Trade Balance and Building Approvals: (GMT 12.30 am, Nov 2/Local Time 11.30 am, Oct 2): forecast for the Trade Balance: Surplus of +AUD 1.42 billion from previous +AUD 989 million with previous Exports up 1%, while previous Imports were 0%; forecast for Building Approvals: -0.9% from 0.4%
German Unemployment Rate: (GMT 9 am, Nov 2/Local Time 8 pm, Nov 2): forecast: 5.6% from 5.6%
Euro Zone October Markit PMI: (GMT 9 am, Nov 2/Local Time 8 pm, Nov 2): forecast: 58.6 from 58.6
UK October Construction PMI: (GMT 9.30 am, Nov 2/Local Time 8.30 pm, Nov 2): forecast: 48.0 from 48.1
Bank of England Official Bank Rate, MPC Official Bank Rate Votes, Monetary Policy Summary, BOE Inflation Report: (GMT 12 pm, Nov2/Local Time 11 pm, Nov 2): forecast for Official Bank Rate: increase to 0.5% from 0.25%; forecast for MPC Official Bank Rate Votes: 6-0-3 from 2-0-7 (Increase, Decrease, Hold)
BOE Governor Mark Carney speech following Official Bank Rate: (GMT 12.30 pm, Nov 2/Local Time 11.30 pm, Nov 2)

 

Trading View: The market now shifts it’s focus to the Bank of England’s meeting. We can expect a volatile ride for the Pound. A rate hike of 0.25% is widely expected and almost fully priced. The impact on Sterling will lie with the Bank of England’s economic projections and their future path of policy. A few weeks ago, the ECB delivered a dovish taper and the BOE could deliver a dovish hike. Sterling would then be pounded, but at the end of the day, the broader US Dollar direction will prevail.

GBP/USD – traded to an overnight high of 1.3320 before easing back to 1.3245 at the close following the FOMC meeting. Immediate resistance can be found at 1.3320 and then at 1.3360. Sterling has immediate support at 1.3210 and then at 1.3190. The latest CFTC/Reuters report saw a turn from a net small long speculative position to that of a short one. Which is pretty much square. Brexit will still remain a headwind for the Pound as will the broader Dollar direction. Likely range ahead of the BOE today 1.3210-1.3310. Would look to sell rallies as the US Dollar continues to build a medium-term base.

GBP/USD

EUR/USD – pretty much sidelined with a relatively narrow range yesterday between 1.1606 and 1.1657. The Euro has immediate resistance at 1.1660 and then at 1.1680. Support can be found at 1.1600/10. Given the broader US Dollar strength and current speculative long positioning, the risk is still lower for the Euro. Likely range today 1.1595-1.1645. Sell rallies.

EUR/USD
 

USD/JPY – Once again the yield differential between US and Japanese ten years widened and the Dollar climbed to 114.279 overnight highs. Immediate resistance for USD/JPY is at 114.30 and then at 114.50. There is immediate support found at 113.90 and 113.70. Likely range today 113.90-114.40.

USD/JPY
 

AUD/USD – The Aussie managed to rally against the US Dollar on the back of a rebound in metal prices. Nickel, copper and silver prices were all higher. The Aussie was also supported by the Kiwi which rose on yesterday’s stellar jobs report. NZD/USD rose to 0.6930 from 0.6845 before settling lower to 0.6885 in New York. AUD/USD traded to an overnight high of 0.7696 from 0.7656 yesterday, settling at 0.7675 currently. Today sees the release of Australian trade data and building approvals. Retail Sales will be reported tomorrow. AUD/USD has immediate resistance at 0.7700. Immediate support can be found at 0.7640. Given the broader US Dollar strength, as well as a long speculative Aussie market, AUD/USD remains a sell on rallies. Likely range today 0.7650-0.7700.
 

AUD/USD

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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.

 

HIGH RISK WARNING:

Trading Foreign Exchange (Forex) and Contracts for Differences (CFD’s) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin.

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