Forex markets eye US inflation
The US dollar headed South in early New York trading as US bond yields fell once again. However, those losses were quickly recouped and most major currencies, along with the dollar index, finished the day barely changed. They remain almost unchanged in Asia, and currency markets are clearly on hold until tonight’s US data.
The dollar index finished unchanged at 90.13 overnight, edging higher to 90.17 this morning in directionless trade. Similarly, both the EUR/USD and GBP/USD are almost unchanged at 1.2170 and 1.4120 this morning. EUR/USD is trading in a wider 1.2100 to 1.2250 range this past fortnight, while GBP/USD has clear support and resistance at 1.4100 and 1.4250. In the bigger picture, only failure of 1.2100 and 1.4100 respectively undermine the longer-term bullish outlook for both currencies. Today’s ECB meeting is highly unlikely to impact either currency unless the ECB springs a major tapering surprise.
The PBOC Governor has boosted the yuan this morning after an almost unchanged PBOC USD/CNY fix. Among a plethora of comments, Governor Yi said CPI growth would ease back below 2.0%. He also hinted that the PBOC might loosen its grip on the Yuan via adjustments to the basket mechanism. However, his comments that the PBOC will keep the yuan stable at reasonable levels will limit the gains by the yuan. At 6.3850, the USD/CNY is at the lower end of its range for the week, and a test of 6.3500 is only likely to happen this week if a very weak US CPI number tonight prompts a US dollar sell-off.
It is noteworthy that US longer-dated yields have fallen to lows not seen since Q3 last year. With financial markets at multi-month highs, either the street think the inflation story is overdone, or there is a severe degree of complacency out there. US data over the past two months has not confirmed the story one way or the other. With that in mind, it will be interesting to see how the markets react to tonite’s inflation data.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes.
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
