“Alas, woe is me” Photo: Piqsels
August 20, 2020
- Weekly claims climb back over 1.0 million, Philly Fed misses forecast
- FOMC minutes sink stocks, rally US dollar
- US dollar dip seen as correction, not trend change
- Greenback consolidates gains in muted overnight markets
Weekly jobless claims were 1,106,000, an increase of 135,000 compared to last week. Analysts expected jobless claims to decline to 925,000. Philadelphia Fed Manufacturing Survey dropped to 17.2 compared to 24.1 previously. FX markets ignored the news.
Yesterday, FX and equity traders were looking for an excuse to book profits. The FOMC minutes served one on a platter. Analysts and pundits did not expect to glean much insight from the minutes, released yesterday afternoon. That meant even minor tweaks had major impacts, in the context of thin August markets with an overbought, US dollar.
The lack of an appetite for yield curve control (YCC, not to be confused with the Cornwall, Ontario airport code) sparked a wave of US dollar buying, sent global equities tumbling, and knocked gold prices lower. The minutes said about YCC, “Of those participants who discussed this option, most judged that yield caps and targets would likely provide only modest benefits in the current environment.” Traders were hoping to see support for this measure, which would keep US interest rates depressed.
The minutes also showed that Fed Staff economists downgraded their economic growth and employment forecasts.
They wrote “The projected rate of recovery in real GDP, and the pace of declines in the unemployment rate, over the second half of this year were expected to be somewhat less robust than in the previous forecast.”
EURUSD is trading just below the middle of its overnight 1.1813-1.1868 range as the single currency consolidates losses on the retreat below 1.1900. The drop is viewed as a correction in an overbought market, and while prices remain above 1.1780, EURUSD is a buy on dips.
GBPUSD took out the top of its overnight 1.3066-1.3118 range in NY trading and touched 1.3130, despite the FTSE 100 index dropping 1.10%. GBPUSD may be getting a bit of support from recent reports that the UK government expects the framework of a trade agreement with the EU in September. The intraday technicals are bullish above 1.3060 looking for a break above 1.3150 to extend gains to 1.3250.
USDJPY stagnated in a 105.89-106.20 range, consolidating gains made after touching 105.10 on Tuesday, but remain on the defensive due to soft US Treasury yields.
NZDUSD is the worst performing currency pair since yesterday’s open while AUDUSD is a close second. AUDUSD sellers emerged after it touched an eighteen-month peak yesterday, and they were further encouraged by the FOMC minutes. AUDUSD is further pressured by reports that the government will block China’s Mengniu Dairy’s $600 million takeover of Aussie dairy brands, which is expected to worsen China/Australia tensions.
USDCAD rebounded from the 1.3135 low yesterday and rallied to 1.3232 overnight, as prices tracked broad US dollar moves against the majors. Canada inflation data was weaker than expected.
CPI rose 0.1% y/y in July below the forecast for a 0.5% increase and keeps the “interest rates low for longer” them intact.
US weekly jobless claims are expected to improve modestly to 925,000 from 963,000 last week. In addition, the Philadelphia Fed Manufacturing Survey is due.
USDCAD Technicals: The intraday USDCAD technicals are bearish below 1.3230, a level which guards the longer term downtrend at 1.3320. As long as the latter level contains gains, the rally from 1.3135 is just a correction, not a trend change. For today, USDCAD support is at 1.3170 and 1.3130. Resistance is at 1.3230 and 1.3320. Today’s Range 1.3130-1.3230
Chart: USDCAD 4 hour
Source: Saxo Bank
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