Daily Currency Update

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The United States Dollar Index is still trading towards a 10-week high


The United States Dollar Index tested highs at 96.67 on Monday. The index was gathering strength following fresh concerns around EUR from the German political scenario, where German Chancellor Merkel's governing coalition suffered heavy losses in a regional election in the state of Hesse on Sunday. The US Dollar rose towards a 10-week high on Monday as concerns about global growth continue. On top of that, the tariff negotiations between the United States and China have also lifted the dollar. The market has assumed that while the US economy will be hit by reduced trade, it will be hurt less than its trading partners.

In the economic calendar, the USD Personal Consumption Expenditure Core (YoY) September at 2.0% vs 2.0% reading, the USD Personal Income (September) at 0.2% vs 0.4% and the USD Personal Spending (September) at 0.4% vs 0.4% reading, are helping to keep the bid in the US Dollar, as long as there is a continuation of strong U.S. data.

We see US Dollar Index is well supported at the 96.29 level in the near term while topside moves are expected to meet resistance at the 96.80.

The USD/CAD continues giving up gains after the US core Personal Income and US Personal Spending numbers in the USA. Crude oil futures were slightly lower in the European morning session Monday as weaker global growth prospects hung over the market. There were concerns that could cap the bounce in the resource-linked Loonie.

The bigger drivers for CAD weakness these days continue being a lower oil and general global risk aversion. Tomorrow, Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins will appear for House of Commons Standing Committee on Finance in Ottawa at 15:30 ET.

Recent moves imply new technical levels to consider. On the downside, we see USD/CAD being relatively well supported at the 1.3070 level in the near term while topside moves are expected to meet resistance at the 1.3150.

The Euro continues having a bumpy ride against the Greenback. The EUR/USD has posted slight losses in the Monday session. Currently, the pair is trading at 1.1377, down 0.23% on the day. Italian politics continue to weigh on the euro with EUR/USD trading below the 1.14 handle. The EU Commissions latest economic forecasts are released tomorrow with a revision downwards of growth likely to be seen. The ongoing Italian budget dispute has hit the euro hard of late with the extra downward pressure exerted by credit agency Standard and Poor’s decision on Friday to lower its outlook for the country to negative from stable. The shared currency is unlikely to rise as long as the impasse continues and with PMI numbers showing a slowdown in output, the euro will likely be capped for the foreseeable future.

The Euro was marginally affected over the weekend. A key regional election in the German state of Hesse, which includes the population-heavy city of Frankfurt, saw Chancellor Angela Merkel's CDU/CSU coalition suffer extreme losses in voter confidence, narrowly escaping defeat and sending a warning shot across the bow of Merkel allies that the populace is growing tired of political in-fighting and disenfranchised with the lack of policy results. This affected the Euro negatively as well starting the week.

We continue to expect support to hold on moves approaching 1.1350, while now any upward push will likely meet resistance around 1.1425.

Sterling remains depressed this morning as Brexit sentiment continues to weigh on the pound. Chancellor of the Exchequer, Philip Hammond is due to deliver his budget this afternoon with speculation that an end to austerity will be indicated. Whatever Hammond says is unlikely to move the pound dramatically as its direction is currently dictated by Brexit related news. Looking ahead we have the Bank of England’s quarterly Inflation Report on Thursday with growth and CPI expectations likely to be the main talking points. GBP/USD continues to trade around the 1.28 handle.

We continue to expect support to hold on moves approaching 1.2800, while now any upward push will likely meet resistance around 1.2850.

The Australian Dollar was put under pressure on Friday. After opening at 0.7095 against the Greenback, the Aussie saw movements lower through the Asian trade following speculation that the People’s Bank of China had intervened in currency markets to support the Yuan. China is apparently prepared to use as much currency reserves as possible to ensure the Yuan does not fall through 7 yuan per dollar.

The United States Advanced GDP release pulled back to 3.5 percent in the third quarter from the previous reading of 4.2%, with markets disappointed by poor business investment levels to see the Greenback sold off by the weekend.

This morning the Aussie is moving lower, just below the US 71 cent handle. This week looks to be busy on the economic agenda with a focus on the release of Inflation figures domestically for the third quarter of 2018.

The New Zealand Dollar is stronger this morning when valued against the U.S. Dollar on the back of US Q3 GDP data report which focused on the poor reading for business investment raising some doubt about the sustainability of growth moving forward. US Q3 GDP for the three months to September came in at 3.5%, above the 3.3% expected.

On the data front this week in New Zealand it is very quiet with the only two releases scheduled Building Consents on Tuesday and ANZ Business Confidence on Friday. There are no scheduled releases in New Zealand today.

From a technical perspective, the NZD/USD pair is currently trading at 0.6530. We continue to expect support to hold on moves approaching 0.6500 while now any upward push will likely meet resistance around 0.6560.