Market Drivers Aug 20, 2015

Post FOMC dollar selloff fades as commodity prices drop further
UK Retail Sales mixed
Nikkei -0.94% Europe -0.66%
Oil $40/bbl
Gold $1137/oz.

Europe and Asia:
GBP UK Retail Sales 0.1% vs. 0.4%

North America:
CAD Wholesale Sales 8:30

USD Weekly Jobless 08:30

USD Existing Homes 10:00

USD Philly Fed 10:00

It was a mixed bag of trade in the currency market today. Euro led the way in early European session rising above the 1.1150 level on further short covering after yesterday dovish FOMC minutes. Commodity currencies on the other hand continued to lag selling off against the buck as oil headed back towards the $40/bbl level. Meanwhile cable wobbled in the wake of a mixed UK Retail Sales report.

The euro was the primary beneficiary of the sell off against the dollar in the wake of yesterday release of FOMC minutes which suggested that a rate hike in September is unlikely. We have been arguing for days that the slowdown in global demand and the lack of any inflation pressures in US would make the Fed hold off on normalizing policy for now. It appears that this may be the case with many dollar bears pointing to the following passage from the minutes to bolster their case. The FOMC minutes revealed that, “The Committee concluded that, although it had seen further progress, the economic conditions warranting an increase in the target range for the federal funds rate had not yet been met.”

For now the Fed funds futures are signaling only a 38% chance of a September rate hike and that shift in sentiment is helping to underpin the rally in EUR/USD which looks ready to test the 1.1200 figure before the end of the week.

Commodity currencies however were not nearly as well bid and the Aussie actually tumbled below the 7300 handle as the decline in commodity prices continued to weigh on the unit. The pair has support at the 7250 level but will need to see commodity prices stabilize before it can stage any kind of rally.

Lastly in UK the Retail Sales picture came in mixed with headline number rising 0.1% versus 0.4% while ex fuel the numbers were more in line at 0.4% vs. 0.4%. On the bright side the prior months data was revised higher, but the net picture in the consumer front shows only a low and steady demand that is unlikely to convince BOE members that monetary policy needs to be tightened just yet. Cable was lower on the news but found support ahead of the 1.5600 figure.

In North America today the calendar has a smattering of second tier releases with Existing Homes and Philly Fed the most pressing. The market is looking for a small rise in Philly Fed data but given the sharp decline in Empire Manufacturing the prospect of a miss is high which could put more downward pressure on USD/JPY and test the 123.50 support.

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