- Forex today sent the greenback packing once again on the basis that markets are optimistic that there will be no contagion risks from Turkey’s currency crisis and that the US and China are embarking on a road map to find a solution to the trade dispute.
- Also, there is mileage in Trump’s dissatisfaction with the Fed’s policy of hiking interest rates.
The dollar dropped all the way back to 95.0790 from a high of 95.7520 which brings in the 94.80 support into the spotlight. Even the stock market rallied on the Trump comment milage as if figuring that the Fed will actually succumb to such rhetoric from the President – The Fed is independent and Trump has no say in the matter. However, there were some ideas doing the rounds that Trump can sell dollars into the market – but if history is anything to go buy, Central Bank attempts of the currency manipulation and going head-on with the market has been disastrous – no Central Bank of a nations administration is bigger than the market – go and ask Norman Lamont how that worked out for the BoE on 16 September 1992 – or better still, George Soros, he will tell you.
Meanwhile, Wall Street closed modestly higher, but the S&P 500 made a record high while investors see that the Fed might not need to be as hawkish and can take their foot off the gas where such concerns from Dallas Fed’s Kaplan (centrist, non-voter) over the yield curve and overseas events could play out as a case for a slower pace of hikes from the Fed. However, the case for Fed backing off current rate path extremely weak and the FOMC minutes are likely to vanish the hawkish stick. However, the stakes are now higher for Friday’s delivery from Chairman Powell at his Jackson Hole presentation.
Currency action
Meanwhile, Kaplan was aiding the risk-on feel and the euro took out the 1.15 handle, (sparking dollar feeding frenzy amongst the bears) and went onto close the North America session at 1.1571 having made a high of 1.1601. The euro sliced through the 21-D SMA like butter but the prospect of the 50-D SMA was one trade too soon. The dollar has proven its fragility below the 97 handle and longs are cautious on Trump and the market’s take on the outlook from here. As for cable, UK data was a booster again in the public finances beat ( £-2.872B vs £-2.300B expected), while Brexit headlines were more optimistic in the London session and headlines from the presser in NY. UK Brexit Minister Dominic Raab headed to Brussels today for the latest round of talks with his EU counterpart Barnier. Barnier came with, “We are not aiming for a ‘no deal’ scenario but we are prepared for it,” and Raab soothed nerves as well by saying, “Confident that we can reach a deal in October” – overall more positive although markets took it with a pinch of caution as well on the Barnier’s “we are prepared for it” caveat. GBP/USD was yet again firm into the NY close and ended the session at 1.2918, having traded within the North American range of between 1.2921-1.2812. As for the cross, EUR/GBP was higher by +0.06% to 0.8978 at the close of play having traded between Tuesday’s range of between 0.9002-0.8949. The yen was on the back foot until 110.54, until supply came through in the greenback and USD/JPY, dropped to 110.15 the NY low and settled around there too while the T-note yields are still supported by H&S top neckline – yields recovered most of the ground lost Monday, with the yield on the benchmark 10-year Treasury note recovering from 2.82% to 2.85%. As for the Aussie, eyes still remain on the EM trouble spots but the sell-off in the rally and what with the come back in the CNH, AUD/USD was up for the fourth day and made a high of 0.7381 closing at 0.7366. However, there are still risks of failure below the 0.74 handle as the CRB index looks fragile and is only modestly higher on an unimpressive correction over the neckline. The Kiwi was impressive and got a further lift through the 21-D SMA on the retail sales impressive and strong beat. It made an early Asina high of 0.6721.
Key notes from US session:
Wall Street ends the day modestly higher, S&P 500 eases off record highs
Key events ahead:
Guy Debelle is the Assistant Governor (Financial Markets) at the Reserve Bank of Australia will make a speech.
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