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Euro rose to its highest level after delaying vote on health-care replacement in USA

Volatility returned to the markets with a vengeance which saw the Euro climb while stocks, bonds and the Dollar Index fell. ECB President Mario Draghi told a central bank forum that inflation in the Euro region would not remain low. Fed Chairperson Janet Yellen said that the US economy is strong enough for the Fed to continue tightening rates gradually.

The IMFcutit’s forecast for US economic growth citing political uncertainty as one of the reasons.

 

US Republican senators chose to withdraw a controversial health bill. This is a setback for the Trump agenda and may derail his plans to cut taxes.

 

US Conference Board Consumer Confidence rose to 118.9 against a forecast rise of 116.10.

 

Wall Streets stocks slumped. The DOW finished 0.46% down while the S&P 500 fell 0.75%.

 

The Dollar’s recent up trend has turned around due to the Euro’s strength. The Dollar Index (USD/DXY) dropped to a strong support level of 96.40/50. These were the November lows that traded immediately after the US election results. Expect the supports between 96.00/96.50 to hold.

Thecurrencydivide is set to continue. And it’s difficult to see more broad-based Dollar weakness even with the current Euro strength. Traders will be watching influential central bank speakers in the panel discussion. Volatility is set to continue with more choppy trading ahead.

 

EUR/USD – The market is bulled up on the Euro and wants to take it higher. The only problem is that they are already long. There is immediate resistance at 1.1350 with 1.1400 the next hurdle. Near term support lies at 1.1190. Draghi also said that a substantial degree of monetary policy accommodation is still needed for underlying inflation pressures to build up. Traders ignored this because the sentiment toward the Euro is decidedly bullish. What will Mario say next?

USD/JPY – hit its highest level in a month trading to an overnight high of 112.47. The rise in the US Ten Year bond yield to 2.21% pushed USD/JPY higher. BOJ Governor Haruhiko Kuroda gets his opportunity to speak later at the ECB central bank forum in the panel discussion. There is immediate resistance at 112.50. Good support now lies at 111.90 and then 111.60. The Dollar Yen looks poised to retest 113.00. Likely range 111.80-112.80.

AUD/USD – The Aussie struggled to break above 0.7620 (overnight high of 0.7624). AUD/USD closed flat at 0.7582 in spite of higher industrial metals. AUD/USD has immediate support at 0.7560 with resistance at 0.7620. The yield differential between Ten Year Aussie and US bonds narrowed. Australian Ten Year yields finished at 2.35% (2.37% yesterday). US Ten Year yields finished at 2.21% (2.14% yesterday). It’s no surprise that AUD/USD isn’t higher this morning. Likely range 0.7540-0.7610.

GBP/USD – rose to close at 1.2821 from 1.2721 yesterday. Sterling rose on the back of a weaker US Dollar and a short market. There is immediate resistance at 1.2860 while support is found at 1.2770. The market has shrugged off Brexit uncertainty and instead focussed on the likelihood of higher UK rates. Likely range today 1.2770-1.2870.

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