The pound crosses the 1.34 level after the BoE meeting and markets are wary of North Korea’s recklessness
Sterling jumped, finishing past the 1.3400 level on hawkish remarks by Bank Of England head Mark Carney. The BOE kept rates unchanged with a 7-2 vote. Carney said that they may have to raise interest rates in the “coming months” to get inflation back to 2%. The US Dollar Index (USD/DXY) settled lower at 92.13 (92.41 yesterday) in spite of a rise in the CPI data.
Late breaking news: Japan’s NHK reports that North Korea may have launched a missile over Hokkaido.
Australian Employment in August rose by 54,200 against an expected rise of 17,500.
Australian Jobless Rate: 5.6% against forecast 5.6%
China’s August Industrial Production missed with a print of 6.0% against a forecast of 6.6%
China August Retail Sales: 10.1% against forecast 10.5% and previous 10.4%
China Fixed Asset Investment: 7.8% against forecast 8.2%
Swiss National Bank left its key CHF Libor rate unchanged at -0.75%, which was expected
Bank Of England Official Bank Rate: unchanged at 0.25% (0.25% expected)
BOE MPC Vote: 7 (no change) 0 (cut) 2 (hike) as expected
BOE Asset Purchase Facility: GBP 435 billion against forecast GBP 435 billion
US Headline CPI for August: 0.4% against forecast 0.3% and previous 0.1%. The annual Inflation rate rose to 1.9%.
US Core CPI for August (excluding food/energy): 0.2% against forecast 0.2% and previous 0.1%. Core Annual Inflation rate rose to 1.7%
US Weekly Jobless Claims: 284,000 against forecast 303,000, and previous 298,000
Global stocks closed mixed. The US DOW was up 0.2% to a fresh record close while the S&P 500 and Nasdaq settled lower.
The yield on the US Ten Year treasury closed at 2.18% (2.19% yesterday). The UK 10 year Gilt yield jumped 9 basis points to 1.23%. Germany’s Ten Year Bund yield finished flat at 0.41%
USD/DXY – slipped lower to 92.131 from 92.412, down 0.3%
EUR/USD – drifted too close at 1.1910 (1.1885 yesterday)
GBP/USD – soared to close at 1.3400 from 1.3210 yesterday.
USD/JPY – little-changed, close at 110.43 (110.50)
AUD/USD – settles at 0.7995, up from 0.7985 yesterday.
Outlook: While Sterling jumped against the US Dollar, the Pound had an equally strong rally against the Euro. EUR/GBP slumped 1.25% to 0.8885 (0.9000 yesterday). The jump in GBP/USD is more a product of Sterling strength than US Dollar weakness. Mark Carney said that in order to get inflation back to the 2% target rate, the BOE may have to do some adjustments in the coming months. Much of the UK’s inflation rise has been the result of a weaker Pound. Market positioning was a big factor in the move.
The Dollar settled lower after a big move yesterday and will consolidate ahead of more key data and the Fed FOMC meeting next week.
Today’s economic and event data:
Euro Zone Trade Balance: (GMT 10 am, Sept 15/Local Time 7 pm, Sept 15): forecast surplus: EUR 20.1 billion from previous EUR 22.3 billion
US Empire State Manufacturing Index, US Headline Retail Sales, US Core Retail Sales : (GMT 12.30 pm, Sept 15/Local Time 10.15 pm, Sept 15): forecast Empire State Manufacturing Index: 18.2 to 19.0 from previous 25.2; forecast Headline Retail Sales: 0.1% from previous 0.6%; Core (ex-autos) Retail Sales: 0.5% from 0.5%
US Capacity Utilisation and Industrial Production: (GMT 1.15 pm,sept 15?Local Time 11.15 pm, Sept 15): forecast: 76.8 from 76.7%; Industrial Production forecast: 0.1% from 0.2%.
Trading View: The US Dollar should drift a little lower within established ranges for today. The Greenback may still be in the process of forming a base. The US Fed is expected to announce the unwinding of US$ 3.7 trillion of bonds with a decision to sell some of those bonds. Janet Yellen will be extra careful not to repeat her predecessor’s “taper tantrum”. This will determine the next move in US yields and thus the Dollar.
North Korea will be a factor given their preference to test fire missiles as weekends approach.
As I write this, Japan’s NHK reports that a North Korean missile may have been launched over Hokkaido. This will ensure a choppy Friday trade.
EUR/USD – held the good support at 1.1840 and managed to close above 1.1900 (1.1910). There is immediate resistance at 1.1920/30 (overnight high was 1.1922). The Euro has strong resistance at 1.1950 and then at 1.1980. We could be in for a 1.1840-1.1940 range today.
GBP/USD – closed just around 1.3400 with an overnight high at 1.3404. Strong resistance can be found at 1.3420. Sterling should drift a little lower from here, filling the gap from its strong rise. Immediate support lies at 1.3340 and then at 1.3310. Likely range today 1.3340-1.3410.
USD/JPY – slumped to 110.00 from 110.45 immediately following the NHK North Korean news. The Dollar should initially trade back to 109.80/90 immediate support level. Immediate resistance now lies at 110.30/40 (which was last night’s lows). Expect a volatile USD/JPY trading day today with a likely range of 109.50-110.50 likely.
AUD/USD – had a volatile trading session after strong Australian Jobs data was offset by weaker Chinese Industrial production and retail sales. AUD/USD has immediate resistance at 0.8020 and then 0.8050. Immediate support can be found at 0.7970 and 0.7950. The latest North Korean news out of Japan will keep a topside to the Aussie. Likely range 0.7950-0.8020.
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