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Forex today was contained where traders sit back and try to assess, and  second  guess, where the next threat will come from, with respect to trade wars. For the most part, ignored data and quickly move don from the FOMC clearly signalling an imminent rate hike.  

The Federal Reserve kept rates steady, as widely expected, and appears to be on track to hike next month.  

Key notes  from the statement (nothing on trade tariffs):

  • The unemployment rate has ‘stayed low’ versus ‘declined’.
  • 12-month inflation ‘remains near’ 2% versus ‘moved close to’ 2%.
  • Monetary policy stance remains accommodative.
  • Job gains have been strong in recent months with the unemployment rate staying low.
  • No changes in guidance or balance of risks.
  • Household spending has ‘grown strongly’ versus  spending ‘has picked up’ previously.
  • Economic activity has been rising at a ‘strong’ rate versus ‘solid’ rate.

The dollar was higher within  the day’s range of between  94.4910-94.7100 and was helped along by the  Atlanta Fed tracker for Q3 moving up to 5%. Similarly, the ADP report was a strong one. The report  was the best reading since March and a solid prelude for  nonfarm payrolls  on Friday where nearly every industry posted strong gains and small business hiring picked up. Also,  while the US July ISM manufacturing index missed expectations on the headline, coming in at  58.1 vs 59.4 expected, the employment aspect of the report did beat expectations, arriving at 56.5 vs 56.0 prior.  

As for rates, the  US 10yr yields climbed 2-3bp to above 3.00% for the first time since  13 June and the    2yr yields put up an extra 1bp to 2.68%. The Fed funds futures rose a touch on the Fed and was pricing a September rate rise as at least 80% chance.

Currency action

As for the euro, it dropped around  30 pips to 1.1660. However,  risk  was soured on the trade tariff headlines and the yen perked up, taking down EUR/JPY and EUR/USD followed, dipping below the 1.1660 level to the daily cloud base. There was a slight relief as US yields pulled back a touch and EUR/USD closed the day off at 1.1659 from a pop to 1.1665. Sterling was climbing at the start of European trade to a high of 1.3144 from 1.3094 Asian lows. However, it met supply and dropped to 1.3104 prior to the FOMC announcement. It got a slight boost on the Fed’s hold and pre BoE tonight where a one-and-done 25bp hike is expected. The pound ended the North America session at 1.3125.   As for the cross,  EUR/GBP ended NY trade at   0.8890 and down -0.2%, where the BoE hike is extended vs the steady ECB, offering the bias in the pound’s favour in the absence of Brexit noise, for now.   However,    Brexit risk returns later this week as PM May is set to meet with French President Macron on Friday. U.K.-EU negotiations are set to resume in mid-August. USD/JPY lost the footing from the  Bank of Japan’s decision and bled from above 112   the figure, (61.8% of late July dive at 112.19),  in London  to  as low as 111.40 in North American trade. Risk-off vibes were supporting the yen on the back of fresh trade war noise, but the overnight dive in JGB’s was the foundation for the slide on the BoJ’s steepening. All eyes will now turn to the nonfarm payrolls on Friday and the bulls have the bias while above the  110.63 55-DMA targetting the 113.20-30 key resistance area.  

As for commodities, prices weighed on commodity-FX as did the bleeding in the CNH. The CRB was testing neckline support with a top in place in the H&S and copper was consolidating the lows of the end of month supply. The Aussie  started off on the wrong foot but managed to drift higher into the Fed from a low of 0.7389 to a post-Fed 0.7407 high, closing at 0.7403. Markets now await trade data, but the bias in the price is bearish with RSI falling away and the 10-D SMA a  likely  anchor on rallies.

Key notes from US session:

Wall Street closes mixed as renewed trade concerns offset rebound in tech

Key events ahead in Asia:

Analysts at Westpac look to the next events where they explained that Australia should report a 6th consecutive monthly trade surplus in June (11:30amSyd/9:30am Sing/HK). “Westpac looks for a rise in the surplus from A$0.8bn to $1.1bn, led by higher prices and volumes of coal shipments, producing a 0.8% rise in export values. We see imports about flat. Consensus is $0.9bn.”