Summary: A measure of the US Dollar’s value against a basket of foreign currencies ended little-changed amid market expectations of a “patient” and more accommodative Fed. The Dollar Index (USD/DXY) steadied to close at 96.507 (96.498). Markets expect the US central bank to keep its Fed Funds (benchmark) interest rate at 2.5% and stick to its “patient” approach to monetary policy.
The Fed’s 2-day meeting concludes on Wednesday (early Thursday am Sydney). The Euro rose to a 2-week peak at 1.13591 before easing to 1.1338. USD/JPY slipped to 111.39 (111.52). Sterling slumped below 1.3200 (1.3185) after the British Parliament’s Speaker of the House John Bercow blocked a third vote on Theresa May’s Brexit deal. Bercow said that May would need to bring a fundamentally different proposal for another vote. The Pound recovered to close at 1.3255, down 0.22% from 1.3295 yesterday.
Meantime the Commitment of Traders CFTC report (week ended 12 March) saw speculative US Dollar longs hit 9-week highs. In the currency breakdown, Saxo Bank reported that Euro shorts remained at multi-year highs.
Wall Street stocks added to yesterday’s gains. The DOW rose 0.23% to 25,905. while the S&P 500 added 0.36% to 2,832 (2,825). The benchmark US 10-year Bond yield steadied to 2.60% (2.59%).
– EUR/USD – the Euro rallied to 1.13591, fresh 2-week highs and a strong resistance level before easing to 1.1340 at the close. Net speculative Euro shorts remain at multi-year highs which will give the Euro a bid in this environment.
– GBP/USD – The Pound remained the most volatile currency in the planet, slumping to a low of 1.31849 after trading to a high of 1.3300. Uncertainty will continue to dog the Pound after the blocking of a vote on Theresa May’s Brexit proposal. Sterling closed at 1.3252 and looks poised for more choppy trade with time running out for Theresa May.
– USD/JPY – The Dollar slipped against the Yen to 111.40 from 111.52 on expectations of a more dovish Fed outcome.
On the Lookout: The Brexit can was been kicked further down the road yet once again. Theresa May can only put her Brexit deal for a vote if she makes some substantial and fundamental changes. This is not possible without further meetings with EU leaders. Inevitably this means more delays. While a NO-Deal Brexit has been ruled out, further delays means more uncertainty. The British Pound will remain the most volatile currency in the planet for now. Next up, the Fed meeting. Traders will focus on any announcements from the FOMC regarding the trimming of its massive balance sheet and future interest rate forecasts.
Data releases were few yesterday. Japan’s trade surplus beat forecasts while Industrial Production underwhelmed. The Eurozone’s trade balance was pretty much as forecast. US NAHB Housing Index was steady at 62, matching February’s relatively high level.
Today sees the RBA’s latest Monetary Policy meeting minutes and Q4 House Price Index. Europe data follows with Swiss and Italian Trade balance and German ZEW Economic Sentiment Index. The UK releases its latest Employment data; Claimant Count Change, Average Earnings Index, and Unemployment rate. The US rounds off todays reports with February Factory Orders.
Trading Perspective: The Dollar Index (USD/DXY) steadied at 96.50 after trading to an overnight and 3-week low of 96.376. US bond yields also steadied. Both the 2 and 10-year yields climbed one basis point overnight.
Saxo Bank reported that the latest Commitment of Traders/CFTC report for the week ended March 12 saw speculative net US Dollar longs hit 9-week highs. In 6 (EUR, JPY, GBP, AUD, CAD, CHF) out of the 7 major IMM currencies, speculators were short against the US Dollar. Only in the New Zealand Dollar (NZD) were the specs long, ie short USD. This will continue to have a big impact on the Dollar moving forward. In the current environment of a “patient” Fed and a slowing US economy, market positioning will prevent any meaningful Dollar gains. The risk for the Greenback is still lower. First up, some consolidation.
1. EUR/USD – After hitting fresh 3-week highs and strong resistance at 1.13591, the Euro slipped back to settle at 1.1336. Expect further pullback today to the 1.1320 level where initial support lies. The next support level comes in at 1.1300. Immediate resistance lies at the 1.1360 and 1.1390 level. A clean break of 1.1360 could see us back up at 1.1420. For today expect a likely trade between 1.1315-1.1355. Would look to buy dips to 1.1300/20 given the market is still short of Euro bets.
2. GBP/USD – The British Pound will remain volatile, at the mercy of Brexit. The Brexit can was kicked further down the road once again which only prolongs the uncertainty. The loophole which blocked the Brexit vote in Parliament was due to a convention that dates back centuries. Sterling slumped to 1.3285 on the new before rallying to settle at 1.3252. Immediate resistance lies at 1.3300 with immediate support found at 1.3200. Its no accident that we settle right smack in the middle this morning. The latest COT/CFTC report saw net speculative GBP shorts increase modestly to -GBP 36,969 contracts. This should be supportive of Sterling, which could still see a crash to 1.3000 if tonight’s UK Employment report is bad. Tin helmets on, prepare for more choppy trade. Today, likely 1.3185-1.3285.
3. USD/JPY – The Dollar will continue to slip lower ahead of the Fed meeting. The Dollar has immediate support at 111.30 (overnight low) followed by 111.00. Immediate resistance lies at 111.60 (overnight high 111.629) and 111.90. The COT report saw an increase in JPY shorts to -JPY 58,731 contracts from -JPY 51,300. Look to sell rallies in a likely 111.10-60 range.
4. AUD/USD – The Aussie jumped to 0.71197 overnight and 3-week highs before settling at 0.7102 at the New York close. The RBA will continue to emphasize the importance of the Labour and housing markets. Which highlights Thursday’s Australian Employment report. Immediate resistance is strong at 0.7120 with 0.7150 the next resistance level. Immediate support can be found at 0.7080 (overnight low 0.70782). The latest COT/CFTC report was net speculative Aussie shorts increased to -AUD 43,699 from the previous weeks -AUD 40,700. Look to buy dips in a likely range today of 0.7070-0.7120 range.