No Love for the Buck as Gains Capped

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Market Drivers July 30, 2018
Dollar gains capped
GE CPI in line
Nikkei -0.74% Dax -0.23%
Oil $69/bbl
Gold $1221/oz.
Bitcoin $8180

Europe and Asia:
GE CPI 2.2% vs. 2.2%

North America:
No Data

It’s been a very quiet night of trade in FX with week’s open offering little in terms of fresh news and many market participants already away on summer holidays.

The week ahead, however, with three central bank meetings on the docket, promises to be the final burst of activity before the markets hit true summer doldrums in August.

This week the market will hear from BOJ, the Fed and the BOE with BOE likely creating the most volatility as traders will see how the UK central bank will try to balance its desire to return to normalization with the looming prospect of no deal Brexit that could wreak economic havoc across multiple industries. There is a small possibility that the BOE could decide to hold off given the uncertainty ahead, but having essentially guided the market to rate hike, policymakers may choose to hold a stiff upper lip and tighten policy as promised, though forward guidance is very much likely to indicate that any further rate hikes will be contingent on progress in Brexit talks.

As to BOJ and Fed, the two G-3 central banks are expected to stay the course, with BOJ remaining accommodative while the Fed continues to gradually tighten rates. That should leave USDJPY relatively steady until the end of the week when the market gets a look at NFP.

Meanwhile, today’s trade brought nothing but chop as majors essentially traded in 20 pip ranges with USDJPY pivoting around 111.00 cable around 1.3100 and euro around 1.1650. With no US data on the docket ahead trading could remain quiet for the rest of the day, although the dollar rally seen last week appears to have run into some resistance for now and markets may be unwilling to push the buck higher until they are unequivocally convinced that US data will keep the Fed steadily hawkish for the rest of the year,

One surprising development in early morning European trade is that the greenback is getting no help on the yield front. The benchmark 10-year rates are nearing 2.98% but the dollar bid is absent. Still if yields probe the key 3.00% level as the day proceeds the buck is likely to have a delayed reaction with USDJPY making a run for 111.50 in US afternoon.

Boris Schlossberg
Managing Director

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