The pound is falling below 1.43 after the bad economic data report
The Dollar Index (USD/DXY) lifted off its lows aided by disappointing European data while US Housing and Industrial Production beat forecasts. Sterling dropped from its post-Brexit highs as wages fell below expectations. German investor confidence in April deteriorated further which weighed on the Euro. Only the Canadian Dollar rose against its US counterpart buoyed by a rise in manufacturing sales.
Outlook: US economic indicators continue to outperform those in Europe. The strengthening US economy is lifting corporate profits which drove Wall Street to further gains overnight. German investors economic expectations pulled back more severely than expected. Lower wage increases in the UK in spite of a 43year low unemployment rate (4.2%) cast doubts on a BOE rate hike in May.
Yet the Dollar has rallied only marginally. The trade war anxiety is preventing a stronger corrective move back up for the Dollar.
Trading View: While stocks rallied, the yield on the US Ten year treasury closed flat at 2.83%. The two-year yield though was up one basis point to 2.39%, the highest since 2008. Fed speakers Williams (centrist), Evans (dove) and Harker (hawk) all expect the US central bank to gradually raise rates in the next two years.
The Dollar is attempting to form a base and has all the right reasons to rally given the fundamental and technical backdrop. The price action suggests that range trading is set to continue. The catalyst for a move north in the Greenback will likely come from the market’s positioning. We highlighted yesterday that a Reuters report on a wider Dollar positioning saw net bearish bets to the largest since August 2011. For today, the ranges are still very much intact.
The Dollar Index (USD/DXY) – consolidated to close mildly up at 89.50 (89.43 yesterday). The Dollar Index traded to an overnight low of 89.229 where strong support exists. Immediate support lies at 89.40. USD/DXY has immediate resistance at 89.70 (overnight high 89.666) and then 90.00. Likely range today 89.45-85. Look to buy dips.
EUR/USD – slipped off highs to close lower by 0.12% at 1.2375 (1.2385 yesterday). EUR/USD traded to a high of 1.24138 before the big miss on German investor confidence pulled it lower. The Euro fell to an overnight low of 1.2336 before rallying at the New York close. Immediate support can be found at 1.2350 and then 1.2330. Immediate resistance lies at 1.2390 and then 1.2410. Tonight sees the release of Euro Zone Final and Core CPI for March, with both expected to match that of the previous month. Net speculative Euro long bets increased in the latest CFTC report and remain at multi-year highs. European data continue to underperform since the start of this year. Look to sell any rallies in the Euro with today’s likely range 1.2310-1.2390.
GBP/USD – Sterling has been the best performing currency so far this year. Optimism towards Brexit from a transition deal between the EU and UK as well as expectations of a BOE rate hike next month have lifted the Pound off its doldrums. Yesterday saw Sterling trade to a post-Brexit high of 1.4376 before dropping on the miss in UK Wage data. The UK economy has lost momentum towards the end of Q1 2018. Market positioning has seen an increase in long GBP bets to the largest since July 2014. Tonight sees the release of UK Headline and Core Inflation as well as Retail Inflation numbers. GBP/USD has immediate resistance at 1.4310 and then 1.4330. Immediate support can be found at 1.4280 (overnight low 1.4283) and then 1.4250. Likely range today 1.4270-1.4320. Look to sell rallies.
USD/CAD – was the only currency pair to fall last night. Canadian Manufacturing sales beat forecasts while Oil prices stayed firm. USD/CAD closed at 1.2550 (1.2565 yesterday). The Bank of Canada is not expected to change its overnight rate of 1.25%. However, BOC Governor Stephen Poloz will set the tone for any future rate increases in his press conference following the meeting. The Canadian economy hasn’t lived p to expectations since the last BOC policy meeting in January. While the outlook has improved for NAFTA negotiations, the broader US-China trade spat is a headwind for Canada. USD/CAD has immediate support at 1.2520 (overnight low 1.2527) and then 1.2500. Immediate resistance can be found at 1.2580 and 1.2600. Look to buy dips with today’s likely range 1.2530-1.2600.
USD/JPY – little-changed, closed at 107.02 (10712 yesterday). President Trump and Japanese Prime Minister Shinzo Abe meet today and tomorrow on trade. USD/JPY has immediate support at 116.80 (overnight low 116.88) and then at 1126.50. Immediate resistance lies at 117.20 and then 117.50. The yield on Japan’s two-year bond yield was flat is currently at -0.16%. US two year bond yields are just short of 2.4%. The interest rate differential continues to widen particularly in the shorter term. Look to buy dips in today’s likely range 116.85-117.25
USD/ZAR – Market analysts expect the rand to remain range bound on Tuesday, with little local economic data set to be published.
The rand gained 10c against the dollar in early trade but had again weakened to trade at its opening price against the greenback just before noon.
At 12:41 the local currency was trading at R12.03/$ after opening at R12.05/$
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