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FOMC Minutes Will Give Markets Their Next Direction on Greenback's

By OFX

After over 2 percent points of gains from all North American indices yesterday, equities this morning are pointing to a lower open. Somewhat of a correction from recent market declines, Federal Reserve interest rate tightening and global trade tensions have been the primary catalysts and a significant concern for investors as the sell-off has been steep since last week. President Trump continues badgering the Fed saying they are his “biggest threat” as he feels the Fed is tightening to fast. Today we have the Fed FOMC minutes released at 2 pm. Market participants will be looking for any clues as to how much further the Fed will push interest rates higher before they pause.

Second-tier data this morning from the US will show building permits, and housing starts figures out before the bell. Followed by crude oil inventories and the most significant event risk of the day at 2 pm with the release of the Fed FOMC minutes of the last meeting.

The US Dollar Currency Index (DXY) held steady overnight as equities surged higher to rebound strongly across the globe. Both the Dow Jones Industrial (Up 2.2%) and S&P 500 (Up 2.15%) enjoyed a rally on wall street on buoyant earnings reports from blue-chip companies. The implied US market opening today is lower.

The Canadian Dollar holds it gains against the worlds reserve currency and remains under the psychological 1.3000 handle. The USD/CAD pair moved within a tight 25-pip range during the overnight trading sessions between levels of 1.2954 and 1.2979.

A report released from the Statistics of Canada showed that foreign investment in Canadian securities slowed to $2.8 billion in August, the lowest monthly investment since the beginning of the year. This may or may not be a factor in the BoC rate decision next week where it is widely expected that the Canadian central bank will raise rates by a quarter of one percent to 1.75% from the currentl1.5%.

Today sees the release of Canadian Manufacturing Sales, a leading indicator to the state of the economic health of the country and is widely watched by market participants. The fundamental released better than forecasts of -0.6% at -0.4% yet well below the previous months reading of 2.5%. On the technical side of the USDCAD trade, we see support at 1.2945 and resistance remains at the 1.2987.

The EUR/USD touched a fresh weekly high in overnight trading, breaking above the 1.1600 level. Once again, however, the Euro failed to hold its gains and opens this morning at 1.1529. Mostly supported by US Dollar weakness, the Euro couldn’t find the momentum domestically to maintain its gains as softer data releases and a mixed Brexit conspired to dampen the EUR/USD currency pair.

Better market sentiment buoyed the Euro as the US Dollar weakened across the board. Well supported initially from the declines in its counterpart, Fiber turned to the German ZEW survey for some domestic motivation. Ultimately the study showed a sharp deterioration in business sentiment in Germany which didn’t help the Euro’s fortunes. The Union also released its trade balance figures for August with showed a seasonally adjusted gain of €16.6B, a definite increase when compared to July’s reading but already widely expected.

Moving into Wednesday, the Euro looks to its September CPI reading which all came in line with expectations. Eurozone construction output YoY for August increased 2.5% while monthly a decrease of -0.5% was seen. Market participants will look for news from the EU economic summit for further direction in the euro.

Today sees the latest meeting between EU leaders in Brussels today with the chances we will get an agreement over a future trading arrangement between the bloc and the UK looking slim at best. As recently as last week it sounded like today's get-together was going to provide the breakthrough needed to enable a severance deal to be confirmed at a specially arranged summit next month. EU chief negotiator stated last week that an agreement was “80-85% done” however how to avoid a hard Irish border has once again been the sticking point between the two sides. Market expectations are that there will be a deal however it’s looking more likely it will drag on until December.

There was positive data from the UK as wages were seen to rise at their fastest pace in nearly ten years. Office for National Statistics data showed that in the three months to August wages rose at 3.1% y/y with wages including bonuses increasing 2.7% both above the 2.5% level of inflation for the same period. GBP/USD pushed through 1.32 on the news, however, ran out of steam around 1.3230 as Brexit concerns rapidly returned to investors’ minds. Today saw UK CPI lower at 2.41% with a slight fall from the 2.6% expected. GBP/USD currently trades at 1.3112.

The Australian Dollar is slightly stronger this morning when valued against the Greenback. US equities notched their best day since March yesterday, as strong earnings reports helped boost stocks on Wall Street following a sell-off earlier in the week and last.

On the data front yesterday, the Reserve Bank of Australia (RBA) released its Monetary Policy Meeting Minutes which showed that policymakers are still concerned about tightening lending standards. The central bank maintained the cash rate at a record low of 1.5% and seemed unlikely that such rate will be changed until at least 2020. Looking ahead this week and all eyes will be on Thursday’s jobless rate and NAB Quarterly Business Confidence.

From a technical perspective, the AUD/USD pair is currently trading at 0.7120. We continue to expect support to hold on moves approaching 0.7110 while now any upward push will likely meet resistance around 0.7180.

The New Zealand Dollar maintained its gains in overnight trading as stronger-than-expected CPI data pushed the Kiwi higher. Opening this morning at 0.6565, the New Zealand Dollar looks well supporting moving into Wednesday.

The NZD initially rose 0.7% immediately after the Q3 CPI data showed that inflation was on the rise. Core measures of inflation were relatively steady, averaging 1.8% but non-tradeable inflation was up 0.2%. The CPI reading adds to the GDP posting from last month and will give the RBNZ food for thought. While a rate hike is still unlikely, it does add a positive bias to the RBNZ’s thinking. The Kiwi took the news positively but faded after the initial move higher, settling just below the 0.6590 mark.

There will be no key data releases due out today with the Kiwi looking for direction from off-shore forces.