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The US dollar gains in a counter-trend price action despite weaker fundamentals

By OFX

The US dollar index increased around 0.4 percent, which is probably a counter-trend reaction of the US dollar. This increase happened despite the economic data pointing downward. Investor sentiment is turning negative. Furthermore, Kansas City Fed President Esther George said in a speech yesterday that the central bank could "take a pause" on raising interest rates and "reassess" its policies. This was a surprise given that this particular member of the Fed's rate-setting committee has historically been hawkish.

Fifty-two percent of investors said they expect global profits to deteriorate. This is the most since 2008, according to Bank of America-Merrill Lynch's monthly survey of fund managers.

On top of that, U.S. manufacturing activity dropped in December by the most since October 2008. Additionally, the New York Empire State Manufacturing index slumped to 3.9 versus 10.0 read.

 

 

 

The USD/CAD pair is struggling to find a direction despite a bounce in the US dollar index. This divergence is showing some strength in the Loonie or that the Loonie’s December sell-off was likely not deserved. On top of that, crude oil WTI is weaker this morning but it is not affecting the Loonie so far. From a technical analysis perspective good entry levels to buy the Canadian dollar and sell the US dollar are 1.3303, 1.3321, 1.3337 and to buy the USD/CAD are 1.3226, 1.3209, and 1.3180. There is no Canadian data release today.

This morning the Loonie might be affected by crude oil during the day which was slipping into negative territory as European equities moved lower.

On a different note, relations between China and Canada took a turn for the worst after a Chinese court sentenced a Canadian man to death for attempting to smuggle drugs out of China. The verdict hastily handed down on Robert Schellenberg comes against the backdrop of Canada’s arrest in December of Meng Wanzhou, a top executive of Chinese technology giant Huawei at the request of the US.

Regarding Brexit, aside from the main talking point from the Eurozone yesterday there were comments from European Central Bank chief, Mario Draghi, that the bloc was not heading for a recession. Its current slowdown, however, would be here for the time being. The ongoing trade tensions between the US and China have rippled around the world with waning demand from the world’s second-biggest economy hitting European exporters. There is little data for the rest of the week, so Brexit news will likely dominate the headlines across the channel.

The EUR/USD pair is trading at 1.1390, which is a 0.21 percent decrease this morning.

It was a tumultuous day in Westminster yesterday as Prime Minister Theresa May’s Brexit withdrawal plan was put to the sword by MPs in a much anticipated and once delayed vote in the House of Commons. Defeat for the bill was pretty much guaranteed, however, the margin of defeat was believed to be what would have the most significant impact on Sterling crosses. In the end, Theresa May’s motion was crushed 432-202, which was the most massive defeat in government history, surpassing Labour minority leader Ramsay MacDonald’s 1924 166 vote loss. Pessimistic estimates saw a loss of 200 as possible, however, the 230 shown was far more significant than anyone had expected.

The GBP/USD is trading at 1.2850 at the time of writing.

The pair AUD/USD was trading in a narrow range. It has now broken the range this morning and it is trading at 0.7174 at the time of this writing. Some fresh developments regarding the US/China trade dispute are likely needed to push the Aussie dollar higher or lower, as there is little concrete news coming from the recent talks between the two countries.

Like the other commodity currencies, the Kiwi is little moved this week with only external factors likely to push the Kiwi on the back of a quiet domestic docket this week. The NZD/USD is trading at 0.6770, a 0.6500 percent decrease.