Dollar Dives on Fed Doves

The US dollar was under pressure during the week prior to the July 26 Federal Open Market Committee meeting because most market participants did not expect the Fed to give any fresh new insight.

They got that part right.  The FOMC left interest rates unchanged, hinted at September for the start of balance sheet normalization, and very modestly downgraded the inflation outlook.

US dollar sellers came out of the woodwork and the dollar closed with losses across the board.  The selling continued overnight although profit taking was clear in some currency pairs.

EURUSD bounced off resistance at 1.1770 and appears to be consolidating the move inside a 1.1690-1.1770 band.  Traders are concerned that the Fed is hitting the brakes on interest rate hikes, just as the ECB is stepping on the gas.

GBPUSD rallied from Wednesdays 1.3005 low to 1.3157 in Europe and it hasn’t retreat much from the top.  Sterling got an added lift from the prospect of a friendlier tone to the Brexit negotiations after the chancellor called for a post-Brexit transition period.

USDJPY dropped from pre-FOMC level of 112.16 to 110.80.  Prices moved higher during the European session and USDJPY is trading in New York at 111.40.

The antipodean currencies reached levels last seen in fourteen months ago.  Kiwi rallied to 0.7556 from 0.7425. Fonterra issued a statement suggesting an upward revision to prices, added to the demand.  AUDUSD jumped from 0.7915, prior to the FOMC statement to 0.8064, afterwards, supported by better than expected Import/Export data.

USDCAD broke below major support in the 1.2450-65 area yesterday after the Fed’s statement and reached 1.2416 before the end of the day.  It did not extend those losses overnight but instead bounced around inside a 1.2416-1.2456 range.  Friday’s May GDP data (forecast 0.2%) could send USDCAD to 1.2350 if it is better than expected.  The rally in oil prices has contributed to the USDCAD selling pressure.

WTI oil prices have risen from $45.36 on Monday to $48.91 today.  Yesterday, the EIA announced a larger than forecast drop in US weekly crude inventories which spurred buying, supported by the broad US dollar weakness.

Durable Goods Orders is the major US economic data release today.  It is a volatile series but an upward surprise to the forecasted rise of 0.3 percent could spark a period of profit taking as the US dollar consolidates its recent losses.

 

FX Ranges for major currency pairs

 

Close Open High Low
26-Jul-17 27-Jul-17
EURUSD 1.1721 1.1719 1.1653 1.1613
USDJPY 111.24 111.41 112.07 111.78
GBPUSD 1.3106 1.3143 1.3041 1.3001
USDCHF 0.9518 0.9593 0.9585 0.9522
AUDUSD 0.7989 0.8014 0.7940 0.7879
NZDUSD 0.7502 0.7525 0.7434 0.7411
USDCAD 1.2452 1.2439 1.2516 1.2506
GOLD 1260.23 1261.60 1264.77 1259.96
WTI 48.70 48.87 48.91 48.55

 

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