Dollar Falls while Euro Surges on Expected Inflation
- 11 September 2017
Fundamental Outlook The Dollar falls amid resignation of Vice Chairman of Federal Reserve. Jobless claims increase to 2-1/2 high signaling slow recovery in job market. European Central Bank holds policy unchanged while President Draghi emphasizes on inflation growth. U.K. faces slowdown in housing output.
The U.S. factory orders fell 3.3 percent in July and worst since December 2014. Trade deficits narrowed to USD43.7 billion in July and better than consensus.
The U.S. Institute of Supply Management says the services index expanded to 55.3 in August against 53.9 in July. Another report on weekly claims for jobless benefits rose to 298,000 for the week ended 2 September.
The U.S. Congress has passed a bill to provide USD8 billion aid to relief Hurricane Harvey and extend debt limit till 15 December. The deal was proposed by Democrats and approved by President Trump despite many objections by GOP senators.
Vice Chairman of Federal Reserve Stanley Fischer resigns due to personal reasons ahead of his term supposedly to end in June 2018. Dollar fell after the news and spiked Gold prices higher to 1-year high record.
China’s Caixin services index rose to 52.7 in August and maintained good growth in past 3 months. Trade surplus shrank in August at USD42 billion gains and lowest in past 3 months.
Japan’s final GDP rose 0.6 percent in Q2 ended June. Current surplus rose JPY2.03 trillion in July and highest in past 5 months.
German factory orders slid 0.7 percent in July after revised 0.9 percent in June. Industrial production stayed flat in July and below positive expectation. In Eurozone, revised GDP grew 0.6 percent in Q2 ended June.
European Central Bank remains unchanged in monetary policy. ECB President says that necessary stimulus will be added if needed but remains dovish on timeline to initiate tapering. Instead, Draghi focuses his speech on inflation growth that trigger a rise in Euro currency.
U.K. services index reported by Markit stayed strong at 53.2 in August without much change from previous month. Manufacturing production grew 0.5 percent in July and best record in past 7 months. Construction output slid 0.9 percent against minus 0.1 percent in June, indicating waning confidence in housing demand,
Technical Forecast USD/JPY has broken below 108.20 level as Dollar falls. This week, we reckon the trend will continue to fall till 105.20 if it could not recover above 108.50. Market has turned into bearish sentiment as traders seek safe haven in Yen after defiance of North Korea.
EUR/USD climbed last week after Draghi’s speech refrained from stating the details on tapering. This week, market may ascend further as traders take flight out of Dollar into Euro. Support lies at 1.1950 in case of drawdown while bullish trend might reach up to 1.2250 target.
GBP/USD surged last week mainly due to weakening Dollar. Market has climbed above 1.3000 benchmark and heads up to 1.3200 without correction. This week, there could be a resistance emerging at 1.3250 region while support rises at 1.3000 level. Piercing above 1.3250 resistance may drive up to 1.3400 area.
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DAR Wong is a registered fund manager in Singapore with 27 years of global trading experiences. You may reach him at firstname.lastname@example.org