The pound is climbing to a two-week high after Trump’s criticism of the Federal Reserve’s policy
The British Pound rallied 0.8% to its highest finish in 2 weeks as the Dollar’s reversal extended following Donald Trump’s criticism of the Federal Reserve policies. A Reuters study based on central bank studies found London has maintained its lead as the world’s top global foreign exchange trading center in the 2 years following its decision to leave the EU. The Dollar Index (USD/DXY) ended down 0.52% (95.229) for its third day of losses.
Outlook: Following President Trump’s criticism of the Fed, markets will keep a close eye on today’s FOMC Meeting Minutes and Friday’s Jackson Hole conference. Fed Chair Jerome Powell is scheduled to speak on monetary policy. Markets have begun to look at the outlook for interest rates next year. Dallas Fed President Robert Kaplan saw 3 or 4 rates (2 more in 2018 and 2 in 2019) increases likely before the Fed turns to neutral. The FOMC has indicated as many as 6 more hikes ahead.
Trading View: The Dollar should see some consolidation following its losses since Friday.
The yield on the US 10-year bond climbed one basis point to 2.83%. Global yields were all higher. Germany’s 10-year Bund yield was up 3 basis points to 0.33%. The UK 10-year Gilt yield edged up to 1.27% from 1.22% yesterday.
Data released yesterday saw an improvement in UK Public Sector Net Borrowing in the latest month over the previous one. There were no other major data releases.
Trump faces political pressure as two of his former aides admitted wrongdoing in federal courts. Wall Street reversed its gains to close mainly flat as the political drama unfolded. This may have an impact on risk appetite.
The New Zealand Dollar jumped above 0.67 cents, adding to overnight gains just now as NZ Q2 Headline and Core Retail Sales far exceeded expectations. NZD/USD rose to 0.6721 after it’s NY close of 0.6695 and 0.6647 yesterday.
USD/DXY – The Dollar Index fell to 95.079 overnight lows before settling to close at 95.229 in New York, down 0.52%. No doubt, Trump’s criticism of Fed policies and comments on Chinese and European currency manipulation weighed on the Greenback. At the end of the day market positioning was overextended and the reversal was bound to occur. Immediate and strong support lies at 95.00 followed by 94.70. Immediate resistance can be found at 95.50 and then 95.80. Look for consolidation today between 95.10-95.50. Prefer to trade this range.
GBP/USD – rose to 1.2907 at the New York close, the best finish for Sterling in 2 weeks. The Reuters report which saw the UK keep its lead in the global trading business since it voted to leave the EU buoyed the Pound. Expectations were that leaving the EU would cripple London’s position in finance, resulting in a mass departure of businesses and jobs. Forex trading attracts businesses despite the low margins. Global trading volumes continue to climb as uncertainty and the Donald factor create volatility. At the end of the day, market positioning in Sterling is overextended. GBP/USD traded to an overnight high of 1.29246. Immediate resistance lies at 1.2925 followed by 1.2970/80. Major resistance can be found at the 1.30 psychological level. Immediate support lies at 1.2870 and 1.2840. Brexit will continue to be a headwind for the Pound. Likely range today 1.2850-1.2950. Look to trade this range.
EUR/USD – The Euro came back with a vengeance, rallying 0.68% to 1.1574 at the close (1.1482 yesterday). The overall weaker Dollar combined with higher German yields boosted the Single currency. Tomorrow sees Euro area Manufacturing and Services PMI as well as the ECB Meeting Minutes Report. EUR/USD traded to an overnight high of 1.16012. Immediate resistance lies at 1.1600, followed by 1.1630. Immediate support can be found at 1.1540 and then 1.1500. Look for a likely trading range today of 1.1540-1.1640. Prefer to sell rallies above 1.1600.
AUD/USD – The Aussie managed modest gains compared to the other Major currencies despite higher metals and Emerging Market currencies. While RBA Governor Phillip Lowe said the next move for interest rates was likely up and not down, he was referring to recent home loan borrowers who have never experienced a rate rise. The Aussie closed at 0.7367, up 0.36%. The overnight high traded was 0.7382 which remains immediate resistance for today. The next resistance level is at 0.7400. Immediate support can be found at 0.7340 and then 0.7310. RBA Assistant Governor Guy Depelle speaks later this morning in Brisbane in a speech entitled “Low inflation”. The speculative community is still short of Aussie bets, which are at their largest since November 2015. Look for a likely trading range of 0.7310-0.7390 with the preference to buy dips.
NZD/USD – The Kiwi finished at 0.6695 in New York, up 0.67% (0.6647 yesterday). New Zealand’s Q2 Retail Sales data beat forecasts by a wide margin with Core Sales climbing 1.4% against a forecast of 0.8% and previous 0.6%. The NZD has been under pressure ever since the RBNZ said that interest rates would remain “expansionary” following their monetary policy meeting on August 8. Improved risk sentiment, a generally weaker US Dollar, higher commodities and market positioning have all given the Bird its wings back. This morning’s high was 0.67213. Immediate resistance lies at 0.6720 followed by 0.6750. Immediate support can be bound at 0.6690 and then 0.6660. Look to trade a likely range of 0.6680-0.6730 today. Just trade the range shag on this one.
Events and economic data releases today: Australia Q2 Construction Work Done; RBA Assistant Governor De Belle speaks at a business conference in Brisbane; Canada June Headline and Core Retail Sales; US July Existing Home Sales; Fed FOMC Meeting Minutes.
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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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