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US Initial Jobless Claims Fall to Levels not seen since 1969

By OFX

The US Dollar Index (DXY) see-sawed yesterday moving from highs 94.73 to lows of 94.32, reports of emerging markets taking the lead with JPMorgan's Emerging Market Local Government Bond exchange-traded fund received $169 million in inflows on Tuesday, the highest inflow since June 2017 kept the lid of any moves back up towards the 95 handle.

US housing starts rose in August more than markets has expected which was boosted by a jump in multifamily construction. This is a positive sign for the housing market which has underperformed the broader economy amid rising interest rates for home loans. Housing starts rose 9.2 percent to a seasonally adjusted annual rate of 1.282 million units in August, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected an annual rate of 1.235 million units. Meanwhile, the number Privately-owned housing units authorized by building permits in August fell 5.7 percent to a rate of 1.229 million units.

US Treasury yields moved higher as did crude oil to USD 71.34 a barrel has since retraced to 70.84. Gold also moved higher and currently sitting at 1206/oz. US fundamentals this morning was sound with the Initial Jobless Claims printing their lowest level since 1969. Manufacturing activity in the Philadelphia region printed well above the previous of 11.9 and consensus of 17.0 at a whopping 22.9. Existing home sales figures will be released at 10 am EST, expectations are for a 5.34M print.

The Canadian Dollar rallied to a 3-week high against the greenback overnight as markets have grown optimistic that a new deal to renew the NAFTA trade pact would be reached before the deadline of October 1. With the CAD gaining 0.4% on the day, the USD/CAD was pushed down to 1.2903 (0.7750 US cents) and also managed to touch lows of 1.2885 overnight – its lowest level since August 28th.

The Loonie was also aided by the continuation of recent strength in the price of oil as crude futures finished the day 1.8% higher due to supply uncertainty out of Iran. Market participants continue to be focused on this Friday’s CPI, and retail sales numbers due out of the domestic economy while in the interim the USD/CAD is likely to continue to take its cues from commodity prices, risk sentiment and US economic data.

The 1.2900 handle remains a crucial level of downside support before 1.2861which also happens to be the 200 day moving average for the USD/CAD pair, with any topside moves likely to meet with resistance at 1.2945 and 1.2987.

The Euro is slightly weaker than the Greenback on the back of the latest trade war developments. The Greenback lost ground against most major rivals but those considered safe-havens. US President Donald Trump is announcing yesterday that tariffs on Chinese goods worth $200B will come into effect next September 24. The EUR/USD pair hit a 24-hour high of 1.1723 before settling again below the 1.1700 figure.

On the data front, there are no scheduled releases today.

From a technical perspective, the EUR/USD pair is currently trading at 1.1668. We continue to expect support to hold on moves approaching 1.1660 while now any upward push will likely meet resistance around 1.1730.

In the UK, we saw the release of inflation figures which surprised to the upside. CPI rose from 2.5% to 2.7% in August and core inflation was also above expectations at 2.1%. The larger-than-expected pickup could reflect some one-off factors but is likely above the Bank of England’s forecasts which now placed the BoE under the spotlight. The Bank of England (BoE) has already raised its interest rate twice inside of the last year, to 0.75%, to combat rising levels of inflation and return the consumer price index to the 2% target.

The GBP/USD has continued to rally on the back of the news reaching a three-month high of 1.3283. Volatility persists as headlines in the UK suggested that Prime Minister May is to reject the EU’s offer on the Irish border. An official from PM May’s office confirmed that the UK couldn’t accept any Brexit offer from the EU that treats Northern Ireland as a separate customs territory. The pair is currently changing hands at 1.3280 ignoring any backlash from the EU.

On the technical front, we see initial support at 1.3210 followed by 1.3170, on the upside resistance lies at 1.3300 and 1.3333.

The Australian Dollar continued its good run into Thursday, forcing its way slightly higher against its US counterpart to open this morning at 0.7260. The impetus for the movement was mostly derived from off-shore as the risk-on sentiment continued. The Greenback softened across the board after the trade tariffs were announced, supporting the Aussie in its recovery.

The Aussie was also helped along by the release of an internal RBA report, outlining that the AUD Trade-weighted Index (TWI) could rise in a general trade war as Australia may prove to be more resilient to changing global trade flows.

Commodity markets also saw the AUD well bought during Wednesday as the risk sentiment shifted. Metal markets ground their way higher which also saw demand for the Aussie increase. China also remains dedicated to opening up their local markets and improve trade with key countries.

The New Zealand Dollar is stronger this morning when valued against the U.S. Dollar as the Kiwi continues to show signs of recovery. Overnight, the NZD reached a fresh high for the month of 0.6673. Yesterday New Zealand’s current account balance was a $2.7 billion deficit in the June 2018 quarter, $484 million smaller than the March 2018 quarter deficit. The annual current account deficit increased to $9.5 billion for the year ended June 2018 (3.3% of GDP), up from the $7.1 billion deficit for the June 2017 year (2.6% of GDP).

On the data front today in New Zealand's quarterly Gross Domestic Product (GDP) release at 8.45am (AEST) printed at 1.0% well above the consensus of 0.8%. After slowing to a more than one-year low of 0.5% quarter-on-quarter in the first three months, the Kiwi jumped higher against it trading peers on the release.

From a technical perspective, the NZD/USD pair is currently trading at 0.6674. We continue to expect support to hold on moves approaching 0.6630 while now any upward push will likely meet resistance around 0.6700.