Market Participants Turn Their Attention to Powell’s Testimony Over The Next Two Days
Tuesday 17 July, 2018
Daily Currency UpdateDespite an uptick, in retail sales and improvements in manufacturing indices, the US dollar fell through trade on Monday edging marginally lower as investors capitalized on recent gains and opted to take profit ahead of crucial Fed testimony. New Fed Chair Jerome Powell is set to testify for the first time before the U.S Senate Banking Committee today and the House of Representatives Financial Services Committee Wednesday. While it is highly anticipated that he will maintain a similar tone to that proffered in recent monetary policy statements, reiterating the Fed’s support of additional rate tightening. Current international trade hostilities have raised questions as to whether the FOMC will need to alter its path of monetary policy adjustment and investors will be keenly attuned to any note or nod to tariff tension and its impact on Domestic US growth.
Having dipped two tenths of a percent against a basket of major counterparts the Dollar closed lower for a second consecutive session, however while risk appetite remains mostly absent and the FOMC continues to be the only major central bank is a definitive tightening cycle it is unlikely we will see a significant downward correction in the short term.
Attentions now turn to Powell’s testimony while trade tensions continue to direct the ebb and flows of broader risk demand, influencing at the very least short-term ranges.
Key MoversGood session for the loonie, taking advantage of broad, although light, USD weakness. USDCAD closed below 1.3150, with the CAD strengthening around 0.20% to settle at 1.3136 versus the USD. The CAD was able to outperform the greenback despite declining WTI crude prices, on the other hand, the USD couldn’t outperform other major currencies despite a spike in US yields.
The primary catalyst of the loonie strength was the Existing Home sales data, which came much stronger than expected (4.1% in June versus 1.7% expected). The CAD rallied more than 0.30% on the news, with USDCAD dropping as far as 1.3113, first support for the pair. On the upside, short-term resistance is still sitting at 1.32
The Canadian economic calendar is light with just Manufacturing Shipments month over month for May which is at 1.4% well above the consensus of 0.5% and previous of -1.1%. The loonie has not been able to make gains on its currency counterparts after the data was released, as declining oil prices start to take their toll on the petrol currency.
EURUSD was able to break above 1.17 closing 0.20% up versus the USD at around 1.1711. Again, the Euro traded within a thin range between 1.1675 and 1.1725 on a low volume session ahead of Today's testimony to the Senate from FED Chairman Jerome Powell.
From the data front, we have Italian CPI and Industrial Orders later Tonight, a rather light agenda. From a technical perspective, support for the EURUSD sits at 1.16 while short-term resistance is seen around 1.1735, which is the 55-day moving average.
There were further nervous moments last night for Theresa May as she survived two votes on her Customs Bill after conceding to pro-Brexit demands to change its wording. Remainders and pro-EU Tories lashed out at the Prime Minister accusing her of ‘caving – in’ to demands and Defence Procurement minister Guto Bebb quit last night to vote against the government. The principal bone of contention was an amendment which prevents the UK from collecting taxes on behalf of the EU unless the favor is reciprocated.
There is no reprieve for Theresa May today as Parliament is set to debate on trade and there are many arguments to suggest that the PM is stuck between a rock and a hard place. There is a suggestion that she is showing resilience and critical levels of maneuverability in the Brexit journey. For now (at least) she remains as Prime Minister and the pound trades carefully around the 1.32 IB handle.
With all of this, there is still a raft of UK economic data this week, and it kicks off with wage growth figures, and while Mark Carney is testifying in front of the Treasury Select Committee, I am sure he will have one eye on his iPhone for the latest update.
The Australian Dollar remains relatively unchanged against the Greenback this morning, opening at 0.7420. Tightly range bound for much of the session, the Aussie oscillated between a low of 0.7409 and a high of 0.7440 before settling at today’s open. As with many of the Australian Dollars counterparts, momentum slowed for the Aussie as the economic calendar proved limited.
The Aussie initially strengthened against its US counterpart as Chinese economic data was reported on throughout the day. The Chinese figures ultimately proved mixed however with the year on year industrial production well below market estimates. Compounding the mixed result was a softening in commodity markets as the bitter tone continued into the new week. What started as a gentle ascent to start the week swiftly changed direction as Traders took the news poorly. Ultimately, however, the day was a minor footnote in an otherwise volatile global trading environment.
Traders now turn to the Central Banks for direction with the RBA, BOE, and Federal Reserve all slated for releases over the course of the day.
The New Zealand Dollar has steadied over the past twenty-four hours after initially opening the week at 0.6768 against the US Dollar. Despite the NZ services sector reading for June being lower at 52.8, it still showed a definite measure of expansion and had not demonstrated a level of contraction since 2010.
Little movements were seen to the end of domestic play before seeing an overnight high during the European session of 0.6790 and up 0.3% for the day.
Investors are focused this morning on the release of the latest New Zealand CPI reading whereby markets expect to see an annualized reading of 1.6% and 0.5% for the quarter. With inflation continuing to struggle below the RBNZ targets of 2%, any further weakness would hamper any expectations of future interest rate increases which is currently priced in at one hike by 2020.
- USD/CAD: 1.3114 - 1.3200 ▲
- EUR/USD: 1.1690 - 1.1744 ▼
- GBP/USD: 1.3155 - 1.3269 ▼
- AUD/USD: 0.7398 - 0.7438 ▼
- NZD/USD: 0.6754 - 0.6793 ▲