Fed Chair Powell, US initial jobless claims and risk-off sentiment saw stock markets decline and US dollar crosses move off their daily extremes.
Using the currency heat-map on Youtrading.com it is clear to see that the money markets shifted out of the Swiss franc this morning and more towards the US dollar. The Chinese yuan ended the London session with the largest strength with the US dollar coming in second place.
It has been a packed risk-off day in the markets, starting off with the Chinese GDP and FDI readings for June. The softer Chinese data set the tone for traders to be moving into safe-haven currencies and reducing exposure to higher risk assets, though Chinese Industrial Output year-on-year did come in above the consensus estimates but still below the previous reading.
The UK data for average earnings came in as expected and higher than the previous month which would have been a good start for the UK if the UK jobless rate hadn’t increased. The Bank of England Monetary Policy Committee members Saunders and Ramsden both noted that growth and inflation were exceeding the BOE’s forecasts and that it may be appropriate to expect a reduction in stimulus measures. The MPC is likely to debate an early end to the £150 billion bond purchase program, in a similar fashion to that of the RBNZ and BOC this week.
“If activity and inflation indicators remain in line with recent trends and downside risks to growth and inflation do not rise significantly -- and these conditions are important,” Saunders said. “Then it may become appropriate fairly soon to withdraw some of the current monetary stimuli.”
At the London close cable had dropped back into yesterday’s range after once again finding too much resistance just below 1.3900 around the daily 20 ema. A break below yesterday’s low on continued US dollar strength would be super bearish.
This US session was always going to be dominated by the US Jobless Claims figure and the second day of testimony from Fed Chair Powell to Congress. To add to the central banker's headline trading, Fed Evans comments were around inflation picking up stronger than expected,
The US Initial Jobless Claims for the week was down to 370k which is great for 2021 but still nearly double pre-pandemic levels. The US Philly Fed Business Index missed expectations.
There was no talk of reducing asset purchases in either the MBS or Treasuries, but Chair Powell did state that the purchases of Treasuries are holding interest rates down. He went on to say that the policy members hadn’t decided on how best to reduce the balance sheet.
Words like stock markets and frothy are not expected to be heard from Fed Chair Powell but he explained that the accommodative monetary policy is also allowing the non-bank sector to take greater risks. But he still feels monetary policy remains appropriate.
The US dollar is catching a bid again having fond supper at the lows and price action from earlier this week. In the morning video, I commented on how well defined this uptrend is but we still need to achieve escape velocity and get our nose above $93.50.
The USDCAD is benefitting from the appreciation in the US dollar, plus OPEC sticking with the 2021 world oil demand forecast.
The USDCAD is looking very likely to finish today at a high and above the daily 200 ema. If the momentum is sustainable the 1.3000 level looks like the most obvious TP1.