Will FOMC Boost the Dollar

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Market Drivers January 31, 2018
End of month flows create two-way trade
FOMC on tap
Nikkei -0.83% Dax 0.38%
Oil $64/bbl
Gold $1342/oz.
Bitcoin $99000

Europe and Asia:
AUD AU CPI 0.6% vs.0.7%
EUR Retail Sales -1.9% vs. 2.8%
EUR Unemployment -25K vs. -17K

North America:
USD ADP 8:15
CAD GDP 8:30
USD Pending Homes 10:00
USD FOMC 14:00

The currency markets were much more subdued today as traders processed President Trump’s state of the union speech, seesawed on end of the month flows and looked ahead to the FOMC statement later in North American session trade.

The eco calendar was more active today with CPI data in Australia driving AUDUSD down by more than 40 pips after it printed cooler than expected at 0.6% vs. 0.7% eyed. The trimmed mean also missed at 0.4% vs. 0.5% eyed and Private Sector Net Credit also expanded at a lower rate at 4.8% vs. 5.2% eyed. All of this suggests that RBA is likely to remain stationary well into the year. Barring any further anti-dollar flows the AUDUSD should see a correction from the .8100 -.8000 levels over the next several weeks as markets begin to price in the more muted inflation regime.

In UK cable took a tumble after reports that EU rejected the city of London’s post-Brexit deal for financial services with the pair swiftly dropping 50 pips on the news. The announcement is hardly a surprise since fin sector is the crown jewel of the UK economy and the EU is unlikely to grant it any special post Brexit status. Cable looks to have topped at the 1,4300 figure and is trying to consolidate ahead of the 1.4000 level which it tested yesterday. Although the pair saw a vicious short covering rally, the failure of cable today suggests that Brexit woes will continue to weigh on the unit and could putl it for a retest of 1.4000 by week’s end.

In North America today, all eyes will be on ADP at 8:15 NY time as the market will get the first true read of labor demand ahead of Friday’s NFP report. The market is looking for a pullback to 185K from 250K the month prior but any reading below 150K could dent the dollar and put in question the Fed’s rate hike path.

Later in the day traders will get the FOMC statement for January which is likely to reaffirm many of the familiar themes of the past few months. Most market observers expect very little new information of come from the communique, but if the Fed simply reiterates its hike path of 3 rate increases this year, that may be viewed as positive and could propel USDCAD through the 109.00 level as the day proceeds.

Boris Schlossberg
Managing Director

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