The USD showed signs of life last night but failed to convincingly reverse its downtrend. The Fed left rates unchanged as expected, however, the statement was slightly more hawkish than the prior meeting, citing increased inflation expectations, solid employment, spending, and investment. The DXY pushed higher off its lows and tested upside resistance, but failed to breakthrough key levels. The first rate hike of the year is now firmly on the cards, with the March rate hike odds sitting at 99%, and the market now pricing in close to 3 hikes this year.
US ADP employment figures also had a strong beat, coming in at 234k vs 186k expected, giving the market a hint that Friday’s Non-Farm Payrolls may also surprise to the upside and give the greenback the catalyst to break the downside trend which has been etched in the record books as its worst-performing January since 1987. For now, we remain cautious in the outlook of the dollar until we see convincing signs of a reversal against the Euro.
US Stocks managed to narrowly snap their losing streak which was due for a breather after the Dow’s best January since 1997. Profit takers will be happy to sit on the sidelines as traders become wary of a larger correction. Doubts were fueled by an interview with ex-Fed Chair Alan Greenspan on Bloomberg TV who called a “stock market bubble”. The US markets could easily retreat back to support levels 2-3% lower before continuing on its bull run, which has now hit an unprecedented 15-month winning streak.
The Aussie Dollar came under some pressure yesterday after a slight CPI miss of 0.6% vs 0.7 expected. We saw the AUD drop some 50 pips back to the bottom of a well-formed channel, and expectations of an RBA rate hike this year all but fade.
Looking forward today we have Australian Building approvals which will shed some light on the Australian housing market. The print is expected to come in at -7.9% after a strong beat of 11.7% last month. We have a fairly quiet rest of the Asian session with the only tier 1 data coming in the European session in the form of UK Manufacturing PMI data expected at 56.5 which continues to push higher despite Brexit woes.
Traders will also be keeping an eye on newswires out of Washington with the debate over whether to release a possibly damming Foreign Intelligence Surveillance Memo which could lead to the sacking of Robert Meuller who is heading the Russia Probe. This could slow, if not, derail the investigation which could be seen as good news for the Trump camp. Either way, expect more uncertainty and Dollar volatility if this report is released.
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