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Market watch - 19th June 2019

The Dollar pulled back a touch from its highs ahead of the FOMC monetary policy meeting announcement on tap for this afternoon while risk tolerance improved throughout yesterday as US equities closing higher in the afternoon and Japanese equities rallied overnight.  While the Federal Reserve Bank is not expected to cut rates today, market participants are betting that Powell and company are likely to open the door for a rate cut next month. The combination of lower central bank inflation expectations, the US-China trade war along with concerns over potential tariffs on EU autos, signs of a manufacturing recession and the increased possibility for a global economic slowdown are factors to spur a more dovish Fed at the moment.  In addition, President Donald Trump has continued to apply pressure on the FOMC to ease policy for some time.  US 10-year Treasury bond yields ticked up from their new 21-month low yesterday but remain lower as bond traders have priced in a cut sometime this year, and high probabilities for a rate cut next month specifically.  The Greenback pulled back from its highs yesterday but in very tight ranges overall. The Buck fell off its 15-day high versus the Euro from yesterday but EURUSD remains markedly lower on the week.  USDCAD dropped from a two-week peak yesterday morning to a five-day low today as Canadian CPI MoM was better than expected and WTI Crude Oil prices rallied to a nine-day high, while GBPUSD rose from its 3 January flash crash low from yesterday to its two-day peak today. The Greenback did mange to improve a bit from its 11-day low versus the Japanese Yen as risk appetite improved a bit, dropped a touch versus the Swiss Franc while USDCHF does remain well in striking distance of its 15-day high from yesterday, fell to its five-day low versus the Aussie Dollar on risk-on trading after AUDUSD was at a fresh 3 January low yesterday, hit a five-day low against the Kiwi overnight, and fell to its fresh 23-day low in its pairing with the Yuan as the focus is squarely on the Fed today.

The Loonie improved to its five-day best versus the Greenback this morning as the key CPI data for Canada was better than expected and WTI Crude Oil rallying to its nine-day high overnight while the Buck was sold to an extent ahead of the key Fed meeting in the US this afternoon. CPI MoM was released at +0.4% for both headline and core this morning compared to +0.1% forecast and 0.0% previous respectively.  The EURCAD rate fell to a 29-day low this morning whilst CADJPY rose to its five-day high also.  Traders will be watching the language from the Fed this afternoon in regard to future policy moves for guidance.

The Euro ticked up in very tight ranges with the Buck this morning, but EURUSD does remain in striking distance of its 15-day low yesterday,  the single currency fell to its 29-day low versus the Loonie on better than expected CPI for Canada along with higher oil prices, while EURGBP fell to a two-day low as the Pound got limited support from moderately positive UK inflation data released this morning.  Eurozone Current Account was below expectation at +20.9B compared to +23.2B forecast consensus after EU Trade Balance data missed yesterday at +15.3B versus +16.4B target.  The single currency is also under pressure due to apprehension of US tariffs on EU auto manufacturers coupled with the worse than expected ZEW Economic Sentiment figures both for Germany and the EU yesterday. In addition, ECB President Mario Draghi has used dovish language twice this week, and specifically conveyed he would ease policy further if necessary.

The Pound ticked up to its two-day best with the Greenback, Euro, and Loonie this morning after positive UK inflation data released today ahead of the key Bank of England (BoE) monetary policy meeting tomorrow morning.   While the headline CPI YoY figure was merely on target at +2.0% which is 0.1% worse than previous, the Core UK CPI YoY number was 0.1% better than consensus at +1.7% today, UK HPI YoY was 0.3% better than forecast at +1.4% this morning, the RPI YoY number was 0.1% better than anticipated at +3.0% actual, while PPI Output Mom was 0.1% better than expected at +0.3% as well. Only the PPI Input was off its mark at 0.0% compared to its +0.2% forecasted level but previous was revised up significantly to +1.9% from +1.1% as well. leading Tory Prime Minister candidate MP Boris Johnson got a step closer to winning the 40% of the vote in the second round of the leadership contest for the party.   While this brings some clarity it also could put the UK on the path to a ‘no deal’ Brexit as he is an outspoken Brexiteer.  Market participants will be eyeing the key BoE policy meeting  for tomorrow morning. 

The Dollar is trading at five-day lows versus both the Australian and New Zealand Dollars as risk tolerance improved overnight but AUDUSD and NZDUSD are close to key lows, while the Buck ticked up versus the Yen after USDJPY hit an 11-day low yesterday  on the same risk positive factors.  The USDCHF rate dipped a touch form its 15-day high yesterday on an uptick in EURUSD overnight.  The NZD Current Account number was better than expected at +0.68B compared to +0.16B forecast while Australian CB Leading Index MoM was a disappointing +0.1% compared to the upward revision to +0.4% previous.  The Japanese Trade Balance was better than expected last night at -0.61T versus -0.80T consensus.

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