Dollar Edges Lower into Key Fed, BOE Meetings, US Payrolls

Summary: The Dollar edged lower against its G10 rivals as traders await the Fed and Bank of England meetings and a data dump culminating with US Payrolls this week. Trading was contained in tight ranges as Japan began its Golden Week holiday. China has its Labour break which starts on Wednesday until Friday. The Euro extended its climb off 23-month lows to 1.1185 from 1.1150 yesterday. Sterling continued to benefit from the weaker Greenback, closing marginally higher at 1.2933 (1.2915). The Australian Dollar rallied further above key 0.70 cent support to 0.7055 from 0.7040. Ahead of two key central bank meetings traders trimmed their long Dollar positions. The latest Commitment of Traders/CFTC report (week ended April 23) saw an increase in net total long US Dollar bets. Emerging Market currencies were mixed to lower against the Greenback. Global bond yields climbed while stocks slipped. US 10-year treasuries closed 3 basis points higher at 2.53%. Germany’s 10-year Bund finished at 0.00% from -0.02% yesterday.

• EUR/USD – The Euro edged further away from key support at 1.11 and rallied 0.38% to 1.1185 as Spain’s governing Socialist Party won the country’s election. However, they would need support from smaller parties to stay in power.
• GBP/USD – Sterling remained steady, climbing to 1.2947 overnight highs before settling at 1.2935. The Guardian reported news of a possible compromise in Brexit talks between the Tory and Labour parties. The Bank of England is expected to keep interest rates unchanged at the conclusion of its meeting on Thursday.
• AUD/USD – The Aussie extended its rally against the generally weaker US Dollar, climbing to 0.70608 overnight highs before settling at 0.7055. The Aussie will take its cue from Chinese data releases today.
• USD/JPY – The Dollar finished little-changed against the Yen as Japan began its Golden Week holiday. USD/JPY closed at 111.65 (111.63 yesterday). Overnight low traded was 111.54.

On the Lookout: A host of manufacturing surveys begin with China today. Chinese Manufacturing and Non-manufacturing PMI’s start the data dump. New Zealand’s ANZ Business Confidence Index follows shortly. Euro area data starts Germany’s Gfk Consumer Confidence Climate report. German Preliminary CPI, Unemployment Change follow. Spain releases its Flash Q1 GDP and Annual CPI. The Eurozone sees its Preliminary Flash Q1 and Jobless Rate for April. Canada reports its April GDP. US Shiller House Price Index, Chicago PMI and Conference Board Consumer Confidence report round up today’s busy data feed.
Brexit developments will also on the radar of traders today. Reports of possible compromise between the ruling Conservatives and opposition Labour Parties supported the British currency.

Trading Perspective: While the currencies continued to trade in relatively tight ranges, US Dollar support weakens. In a week where liquidity may be at a premium due to holidays in Japan and China, market positioning will have a bigger impact. The latest Commitment of Traders/CFTC report last week saw an increase in total net speculative US Dollar long positions to US$ 37.21 billion, the biggest since December 2015. There were net increases in Euro, Yen and Aussie shorts. Sterling bets reversed from +GBP 900 contracts to -GBP 1,800. Expect further adjustments to be made ahead of this week’s 2 key central bank meetings and the US jobs data on Friday.

1. EUR/USD – The Single currency climbed to 1.11868 overnight highs, where it basically closed. Euro area data releases start today while key manufacturing surveys are due on Thursday. Both the Euro area and UK celebrate their Labour Day holiday tomorrow. The COT/CFTC report saw an increase in net Euro short bets to -EUR 105,400 from -EUR 98,000 last week. Net total Euro shorts are at multi-year highs. EUR/USD has immediate resistance at 1.1200 followed by 1.1240. Immediate support can be found at 1.1160. followed by 1.1120. Look for the Euro to trade in a range between 1.1155-1.1195 today with the preference to buy on dips.
2. USD/JPY – the Dollar was largely was confined to a narrow 36-point range with the Japanese holiday yesterday. Expect more of the same today. The COT report saw an increase in net speculative JPY short bets to -JPY 94,400 contracts from the previous weeks -JPY 87,100. USD/JPY has immediate resistance at 112.00 (overnight high 111.90). The next resistance lies at 112.30. Immediate support can be found at 111.50 followed by 111.20. Look for a likely range today of 111.50-90. Look to sell rallies.

1. GBP/USD – Sterling steadied ahead of the Bank of England’s policy meeting this week. The BOE are expected to keep its rates and policy unchanged with no rate hikes until 2020. Brexit negotiations between the key UK parties will be closely monitored. The latest COT report saw a reverse in GBP net positioning from +GBP 900 contracts to -GBP 1,800. Immediate resistance can be found at 1.2950 (overnight high 1.29469) followed by 1.2980. Immediate support can be found at 1.2900 followed by 1.2860. Look for a likely trading range of 1.2910-1.2960.
2. AUD/USD – The Aussie continued its climb off the psychological 0.70 cent area to 0.70608 overnight highs. AUD/USD closed at 0.7055. The latest COT report saw an increase in net Aussie short bets to -AUD 50,400 contracts from the previous week’s -AUD 46,900. Immediate resistance can be found at 0.7070 followed by 0.7100. Immediate support lies at 0.7040 and 0.7020. Look to buy dips with a likely trading range today of 0.7040-0.7080.

Happy trading all.