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Thursday 29 September 2016

Daily Market Update: Dollar Bulls Feeling Pleased?

Darren Thornberry

Published 27/10/2015 | 10:05

The US Dollar
The US Dollar

Dollar bulls have a spring in their step at the moment after the dovish ECB press conference last Thursday.

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There are strong expectations that the ECB will deliver further monetary easing in December which could keep the Euro under pressure. If the U.S. services-sector expansion continues and there are further gains for global equity markets, a Fed December move may still be on the cards meaning further USD strength is realistic.

That said, recent employment reports from the U.S. have been weak with the FED stating, for some time now, that they are in a ‘wait and see’ mode before raising rates. This confirms to most of us that the FED feel the economy hasn’t made enough progress yet to absorb a rate rise, so a December hike, in any shape or form, is far from a done deal. Although a less meaningful indicator, new home sales in the U.S. for September came in weaker than expected yesterday with 468k new homes being reported versus 549k expected. With U.S. Durable Goods Orders projected to contract 1.5% in September later today, developments pointing to weaker consumption may dampen this bullish dollar sentiment. One thing for sure is that there will be even more focus on the 6th of November and the next employment report from the U.S. How many times have we said that this year!

Eur/Usd did briefly break the $1.10 level yesterday but the soft home sales figures in the U.S. helped Euro holders a little and the pair rebounded to trade around $1.1040 for most of the day. It’s currently trading a little higher as I type. Eur/GBP has been moving lower over recent days and traded most of yesterday under £0.72. The German IFO business climate did aid the Euro a little though, coming in at 108.2 vs 107.8 expected for October. The pair battled back to £0.72 by the end of the day which is pretty much where it is this morning. GBP/USD range traded for most of the day yesterday between $1.5330 and $1.5360 with brief moments slightly outside that range.

In terms of today and for the rest of the week, there a few things to watch; The FOMC holds its October meeting in the U.S, a two day event starting today, but unlike the September meeting where sentiment was quite mixed over a hike, the likelihood of an FOMC move, on this occasion, are quite low. As mentioned earlier, Durable Good Orders are out at lunchtime and are expected to contract around 1.5%. In the U.K. this morning, figures are expected to show a slowdown in 3Q GDP growth to 0.5%/0.6% from a previous 0.7% last quarter. This week is a quiet enough week for the Euro Area in terms of Economic Data but we get CPI numbers out on Friday which will get a lot of attention. We also get the outcome of Japan’s decision to implement fresh easing themselves by the end of the week which will also be closely monitored around the globe.

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