USD Trading Outlook
US inflation data missed forecast with CPI coming at 0.4% vs 0.5% estimated. Unemployment claims and Philly Fed Manufacturing Index were both positive, Philly Fed printing highest index this year at 15.2 vs 8.1 estimated. The conviction of USD bulls are being tested with USD trading weak after strong NFP and retail sales earlier in the month vs more dovish than expected FOMC.
With no significant data release today, tug of war headlines between Greece and its creditors will dominate price action. Here are the dates to watch:
• Today 19 June: Greece has coupon payment to the ECB for EUR58m
• Wednesday 24 June: regular ECB review of Emergency Liquidity Assistance (ELA)
• Thursday 25 June and Friday 26 June: European Summit – last chance for political deal on Greece
• Tuesday 30 June: deadline for EUR1.6bn to IMF
• Monday 20 July: deadline for EUR 3.5bn to ECB
NASDAQ and Russell 2000 indices closed at record highs (NASDAQ above dot com bubble high) with market finding support from expectation that rates will stay lower for longer.
Trading Quote of the Day: "The next trade is the most important trade of your life" - Marty Schwartz
The much anticipated FOMC meeting and Yellen’s press conference were disappointing for USD bulls. Yellen commented that the pace of jobs gain has improved but tightening would be gradual in line with upcoming data. The median projection is for two rate hikes this year.
The projections for Fed Funds Rate and GDP were downgraded from the March FOMC figures, specifically 2016 FFR to 1.625% from 1.875%, and 2015 GDP to 1.8-2.0% from 2.3-2.7%. This gave reason for the market to sell US dollar while US equities firmed.
The USD will continue to be data dependent. US inflation data and Philly Fed Manufacturing Index are to be closely watched today.
GBP has outperformed other currencies, while NZD has been offered heavily past month. GBPNZD is up 19% since late April, the largest movement in FX during this period.
Precious metals maintain their recent tight ranges, with Gold at 1186, Silver at 16.10.
Trading Quote of the Day: "The important point is no decision has been made by the committee about what the right timing is of an increase. It will depend on unfolding data in the months ahead. But certainly an increase this year is possible; we could certainly see data that would justify that" – Janet Yellen, US Fed Chair
Markets are mixed today due to the release of monetary policy decisions in the U.S. and Europe, whilst concerns over Greece are not helping support confidence and risk taking.
After 56 FED meetings where the interest rate has not risen (or 7,5 years), global investors are awaiting the outcome of today’s meetings as well as the European Central Bank's policy review later in the day. The Fed isn't expected to take any action on interest rates, with consensus for a rate hike pushed to September, but the language used in the statement, as well as comments by Fed Chairwoman Janet Yellen during the subsequent news conference, will be very important.
Meanwhile, the ECB could announce a change to Emergency Liquidity Assistance to Greece. Talks between the country and its international creditors remain stuck in deadlock as Athens faces a $1.8 billion repayment to the International Monetary Fund by the end of June.
Data wise, besides the FED decision and the news conference, which is by far the most important news of the day, the financial calendar will feature lots of news from the UK and EU in the European session, so volatility at least for today, should be taken for a granted.
Quote of the Day: “A satisfied customer is the best business strategy of all” – Michael LeBoeuf
Increased market concern over a Greek exit did not help volatility over the Asian session today. USD remains steady as market participants await the most important FED meeting of the year so far, tomorrow at 18:00 GMT.
AUDUSD struggled to hold on to its gains in the Asian session after the RBA minutes showed RBA is concerned regarding the strength in the AUD. NZDUSD continues to be under pressure as investors await the FOMC rate decision after RBNZ surprised markets by announcing a rate cut last week.
USD: A strong employment report last month as well as an increase in wages have raised speculation that the FED will raise interest rates for the first time after 56 meetings (or 7 years) as early as September. This has kept investors hanging from the lips of FED chairwoman Janet Yellen, who is scheduled to speak and give clues about future monetary policy right after the FED rates announcement at 18:30 GMT.
However, a hawkish statement is far from guaranteed and it is for this reason most fund managers and traders are reluctant to take big bets prior to the above risk event.
As far as Greece is concerned, if saved from an exit the EURO might rise, but if not the EURO will possibly slide. For now the most probable range remains 1.10 to 1.15.
Heading into the European session, the financial calendar offers CPI readings for May as well as a bundle of data at 08:30GMT for the UK. US housing starts at 12:30GMT is the most important data event into the US session.
Trading quote of the day: "Only when the tide goes out do you discover who's been swimming naked" Warren Buffet
Euro and stocks slide mildly as Greece again dominates headlines. This time talks collapsed after just 45 minutes since Greece rejected any additional reforms in pension funds and VAT increases. Additionally, Merkel also talked down the EUR as she mentioned that a weak currency helps the region’s economy through exports. This week, the US FED will release its monetary policy and statement. Although a rate hike is highly unlikely this time, investors will focus on any clue on upcoming moves.
Monday will also feature ECB president Mario Draghi testifying before the European Parliament and comments that might move the market are very likely.
A busy week also for the UK, which will release its CPI and retail sales data. Meanwhile the GBPUSD jumped to the upside until facing resistance at 1.5600. Sentiment remains very positive for the Pound and additional advances cannot be ruled out in the medium to long term.
The USD/JPY pair has retraced sharply last week, after posting a fresh multi-year high of 125.85 earlier this month on the back of a strong US Nonfarm Payroll report in May.
Data wise there is not a lot coming out of Europe today, but the US session will bring the release of manufacturing and industrial production readings.
Trading Quote of the Day: “In trading, its not about how much you make, but how much you don’t lose” - Bernard Baruch
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