Slow News day leaves currencies in Limbo
April 6th: Highlights
- Positive ADP report bodes well for tomorrow
- Fed likely to trim balance sheet later in the year
- China to stand firm over economy criticism
Bullish Fed. Minutes fail to spark action
The foreign exchange market is a curious beast. Some days a little news will dive currencies through support or resistance lines and on others news that should lead to a move simply pass by unnoticed!
Yesterday could be characterized by the latter. The Fed released the minutes of its last meeting at which it hiked rates. Admittedly, the hike was the least surprising piece of news for a very long time. Since traders are on the lookout for the next hike (slated for June!) there was never going to be any clue in the minutes.
Their feelings were correct although there was one piece of dollar positive news which went pretty much unheeded. The Fed is going to start reducing the size of its balance sheet later in the year. This means starting to sell off the Treasury Bonds it bought during the financial crisis to add liquidity and stimulus to the market.
The dollar index remained in positive territory, rising to 100.85 following an upbeat ADP Report. This is the precursor of the employment report which shows how many jobs were gained or lost in the private sector. Those who like to correlate the data concluded this was signal of a 225k number tomorrow.
The JPY continues to be strong against the dollar. The day’s ranges have been narrow but it has closed lower every day this week falling from a high of 112.21 to be last trading at 110.50.
Sentiment has clearly changed and the greenback is not a “buy on dips”, it is a “sell on rallies”. This is the jargon the market uses to describe a negative market sentiment.
Sterling in doldrums
On a daily basis, the pound is very well supported against the dollar at 1.2430 but importer sales are now ranged from 1.2480 to 1.2520. It last traded at 1.2450.
It’s clear that since the pound was clearly a sell following the Brexit vote almost right up until the triggering of article 50, it should be due for a correction of such a precipitous fall. However, since a number of large corporate customers haven’t completed their dollar purchases, any rally will be short lived until those orders are filled.
Trump – Xi Summit unlikely to achieve positive result
Xi will tell Trump that anything he wants to agree will need to be referred to the ruling council, This amounts to about 200 individuals. Contrast that with 600+ MPs in a country of eighty million like the U.K. It only takes 200 to control a country of 1.3 billion!
The topics for discussion are led by the Chinese economy and North Korea. The Koreans were nice enough to mark Trumps visit to China by firing a ballistic missile into the sea! This brought about a complete range of schoolboy threats from the U.S. keen to show it’s still the leader of the free world.
Euro awaits political impetus
The single currency has traded in a 55 point range all week centred around 1.0650. This follows a fall from a high of 1.0910 the previous week. It has tried and failed to breach the 1.1000 level on numerous occasions but, in a comparable manner to sterling, importer orders are ranged for a break of the resistance.
It is expected that the French election will bring some excitement back. Having said that, if the result is as predicted this could be a very long quarter for those looking for volatility in the foreign exchange market.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”