Dollar Bounces Off Lows, Steadies; Spotlight on a Dovish Leaning Fed

Summary: The Dollar Index (USD/DXY), a useful gauge of the Greenback’s value against a basket of foreign currencies bounced off two-year lows to 93.762 (93.654 yesterday) after falling to 93.493. The Euro, which takes roughly 60% of the Dollar Index’s weight retreated 0.45% to close at 1.1718 after trading to 1.1781 on Monday, the highest since September 2018. Against the Japanese Yen, the Dollar dipped further to 105.10 (105.35 yesterday) after trading to an overnight and early March low at 104.96. Sterling outperformed, climbing 0.30% to finish at 1.2933 from 1.2880 yesterday and a March 11 high at 1.2952. The UK Confederation of British Industry’s Realised Sales Index, a diffusion index based on surveyed retailers and wholesalers in July climbed to +4 beating expectations of -27 and a previous -37. The Australian Dollar was little changed at 0.7158 (0.7150) ahead of today’s release of Australia’s Q2 CPI report. Emerging Market currencies fell back against the Dollar. The USD/CNH (Offshore US Dollar-Chinese Yuan) rose to 7.0100 from 6.9990 yesterday.
Wall Street stocks dipped after US House Speaker Nancy Pelosi said that the ruling Republicans and the opposition Democrats were still far from reaching any deal on an aid package. The DOW finished 0.86% lower to 26,395 (26,625) while the S&P 500 was 0.66% lower to 3,222 (3,242). The yield on the benchmark US 10-year treasury slipped 4 basis points to 0.58%.
Other data released saw Spain’s Unemployment rate climb to 15.3% in July from June’s 14.4%, but bettering forecasts at 16.6%. US Richmond Manufacturing Index rose to 10 from the previous 0, beating expectations of 5. US Conference Board Consumer Confidence Index slipped in July to 92.6 from 98.3 and forecasts at 94.0.
The Federal Reserve extended their USD 2 trillion plus lending program to December from its initial expiry date in September.

On the Lookout: Today’s economic reports kick off with Australia’s Q2 Headline and Trimmed Mean CPI data. Headline CPI is expected to slump to -2.0% from Q1’s 0.3% while the Trimmed Mean inflation (which is what the RBA monitors) is forecast to dip to 0.1% from 0.5%. Switzerland releases its Credit Suisse Economic Expectations. The UK follows next with Mortgage Approvals and Net Lending to Individuals (July). The US rounds up the day’s data releases with its Goods Trade Balance, Preliminary Wholesale Inventories, and Pending Home Sales. The FOMC announcement, rate decision and Press Conference (4 am Thursday, Sydney) round up the day’s reports and events.
Fed Chair Jerome Powell is widely expected to keep monetary policy accommodative for the foreseeable future. With the coronavirus cases still rising, the US central bank will maintain that rates will stay near zero through to 2022.

Trading Perspective: While the Dollar Index managed to bounce off two-year lows, market sentiment remains decidedly bearish. The Greenback has dropped extensively in the lead-up to the Fed decision. And with traders widely anticipating a dovish FOMC, there could be little net movement. Given the extremely short US Dollar market positioning, any disappointments are likely to lead to a stronger Greenback rebound. We look at a few currencies below.
The coronavirus spread continues to hamper the US economic recovery. While Europe and other parts of the world are looking more encouraging on this front, total global Covid-19 infections are back up again. The total global coronavirus cases count is approaching the 17 million mark (16.871 million). We look at a few currencies below.

EUR/USD – Retreats from Sept 2018 Highs, Corrective Forces in Play

The Euro retreated to 1.1718 in late New York after trading to 1.1781 on Monday, September 2018 highs. A bounce back in the US Dollar pushed the widely overbought Euro to an overnight low at 1.1699 before closing a touch higher. Last night was the first time in weeks that the shared currency did not reach new cycle highs. There are no major European economic reports scheduled for today and the Euro will take its lead from any US Dollar moves today.

EURUSD Daily IG DailyFX Chart - 29 July 2020
EURUSD Daily IG DailyFX Chart – 29 July 2020

EUR/USD has immediate support at 1.1700 followed by 1.1670 and 1.1640. Immediate resistance can be found at 1.1740 and 1.1770. Major resistance lies at the 1.1800 level. The sharp Euro up move is in danger of a reversal with speculative market positioning currently long of the shared currency at early 2018 highs. Keep an eye out for a rise in the second wave of Covid-19 in several European countries. A continuous upsurge will be the catalyst for a Euro correction lower.
Look for a likely range of 1.1640-1.1740, prefer to sell rallies.

AUD/USD – Hovering around mid-0.7100; Spotlight on Australia’s CPI

The Australian Dollar rallied back above its overnight lows at 0.71129 to finish the New York session at 0.7160, modestly up from yesterday’s 0.7150. After trading to April 2019 highs at 0.7183 last week, the Aussie remains supported above the 0.7050 level. Despite a bounce in the US Dollar against most of its rivals, the sentiment toward the Greenback remains negative. Which is keeping the Aussie Battler buoyant near recent highs.

AUDUSD Daily Chart - IG DailyFX - 29 July 2020
AUDUSD Daily Chart – IG DailyFX – 29 July 2020

Today’s Australian Business Insider reports that Victoria recorded 384 coronavirus cases on Tuesday with six deaths, four of them from aged care facilities. New South Wales, the country’s largest state recorded 14 new cases with the popular Potts Point area of Sydney emerging as a possible hotspot.
Traders will keep a wary eye out on further developments on this front.

Australia’s Q2 Headline CPI is expected to slump to -2.0% from Q1’s +0.3%. The RBA’s preferred Trimmed Mean CPI is forecast to drop to +0.1% from +0.5%. Any falls larger than what is expected will see an Aussie pullback. An upbeat report could see a test of the 0.7200-10 resistance level. If the numbers come out as forecast, the Aussie will likely drift lower unless there is a dramatic fall in the Greenback.

AUD/USD has immediate resistance today at 0.7180 followed by 0.7210. Immediate support can be found at 0.7110 followed by 0.7080. Look for a likely trading range between 0.7080-0.7180 today, with the preference to sell into rallies.

USD/JPY – Quietly Slip sliding Away, BOJ Quietly on The Lookout

The Dollar slid further against the Japanese Yen to finish in late New York at 105.10 (105.38 yesterday) after trading to an early March low at 104.956. USD/JPY reversed late last week and has played catch-up with the Dollar’s fall against the other currencies. The BOJ is watching current levels from the sidelines with bearish sentiment growing on the USD/JPY pair. Any large downside moves could see BOJ officials intervene verbally. Overnight the Dollar rallied against most Asian and EM currencies and the combination of a strong Yen and weak Asians will be of concern to BOJ officials should this trend continue.

USDJPY H1 Chart - IG Daily FX - 29 July 2020
USDJPY H1 Chart – IG Daily FX – 29 July 2020

USD/JPY has immediate support at 104.90 followed by 104.60. Immediate resistance can be found at 105.40 and 105.70 (overnight high traded was 105.686). Look for a likely trading range of 104.90-105.90. Prefer to buy dips.