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Dollar recovered some strength and gold fails to break through the level of 1300

An improvement in risk sentiment saw a rebound in global stocks and the US Dollar. The Dollar Index (USD/DXY) rallied to finish 0.42% higher. Treasuries dropped and yields climbed back up. Markets chose to focus on Trump’s efforts to reform tax legislation which look to be gaining ground. Political tensions eased somewhat. Weaker than expected German and Euro Zone ZEW Business and sentiment index data weighed on the Euro.

 

German ZEW Economic Sentiment Diffusion Index: 29.3 against forecast 34.2 and previous 35.6

Euro Zone ZEW Economic Sentiment Diffusion Index: 10.0 vs forecast 14.8 and previous 17.5

Canadian Headline Retail Sales: 0.1% against forecast 0.2%, previous, downward revised to 0.5%

Canadian Core Retail Sales: 0.7% against forecast 0.0% and previous -0.1%

US House Price Index: 0.1% against a forecast 0.2%

 

Wall Street led global stocks higher. The US S&P 500 rebounded 1.03% while the DOW climbed 200 points.

 

The yield on the benchmark US Ten Year Treasury rose 3 basis points to 2.21%. Germany’s Ten Year Bund yield closed flat at 0.4%. The Ten Year Japanese JGB yield was up 1 basis point at 0.03%.

 

USD/DXY – rallied to end at 93.494 (93.091 yesterday)

EUR/USD – closed lower at 1.1762 from 1.1815 yesterday.

USD/JPY – better risk tone saw the Dollar rally 0.52% to 109.60 at the close (109.00 yesterday).

GBP/USD – fell to close at 1.2820 (1.2897 yesterday),near it’s June 2017 lows.

 

AUD/USD – slipped from highs to finish at 0.7912 from yesterday’s 0.7942

USD/CAD – finished little-changed at 1.2563 (1.2558 yesterday)

 

Outlook: The Dollar’s rebound rally was the result of traders adjusting positions into this week’s Jackson Hole event. Speculators continued to add to their short US Dollar positions since late June. Market positioning in favour of some currencies against the US Dollar remains overstretched. The risk is for further corrective adjustments.

 

Today’s event and economic data releases are:

ECB President Mario Draghi speaks at a meeting on Economic Sciences in Lindau, Germany (GMT 7 am, Aug 23/Local Time 5 pm, Aug 23) Traders will scrutinise Draghi’s speech for any clues to his upcoming Jackson Hole address on Friday.

French, German and Euro Zone Markit Flash Manufacturing and Services PMI Data (GMT 7 to 8 am, Aug 23/Local Time 5 to 6 pm, Aug 23) Traders want to see if the manufacturing PMI’s of the two leading economies in Europe and the Euro Zone have pulled back as a result of the stronger currency.

In June, Euro Zone Manufacturing PMI pulled back to 56.6 from 57.4 as a result of the strong Euro.

German Markit Flash Manufacturing PMI is forecast at 57.7 from the previous 58.1 while German Services PMI is forecast at 53.4 from 53.7

Euro Zone Markit Flash Manufacturing PMI is forecast at 56.3 in July from 56.6 in June.

US Markit Flash Manufacturing and Services PMI: (GMT 1.45 pm, Aug 23/Local Time 11.45 pm, Aug 23) Manufacturing PMI is forecast at 53.4 from 53.3 while Services PMI is expected at 55.0 from 54.7

US July New Home Sales (GMT 2 pm, Aug 23/Local Time 12 am, Aug 24) forecast at 612,000 units from the previous 610,000 units

 

Trading View: The Dollar has settled into a range as markets prepare for this week’s key event. The Jackson Hole global central banker’s annual conference has, in the past, provided for some volatile FX movements. It’s difficult to see the Dollar breakout of its recently established short term range just yet.

 

EUR/USD – The Euro fell back to close down 0.42% at 1.1762 after testing an intraday high of 1.1824. German and Euro Zone economic sentiment data was weaker than forecast. Lately, European economic data has missed forecasts and a further continuation of this pattern will undermine the Single Currency. Speculative Euro long positions remain at multi year highs even with the reduction from the latest CFTC report. While the Euro slipped against the US Dollar, it continued its rise against the Pound. EUR/GBP rose to 0.9175 from 0.9155 yesterday. What this tells us is that the Euro is still being bought, against Sterling this time. Which makes it vulnerable to any corrective pullbacks. EUR/USD has immediate resistance at 1.1780 and then at 1.1800. There is short term support at 1.1740 (overnight low was 1.1745). Euro Zone, German and French Markit manufacturing data are out later on data. Markets will look into this set of data to see whether the strong Euro continues to impact competitiveness. Likely range today, 1.1740-1.1790. Sell into any rallies.

 

GBP/USD – Sterling has been sidelined in the current see saw trading environment. However, it continues to fall due to sinking sentiment. The uncertain UK economic outlook has quashed expectations of a Bank of England rate hike. GBP/USD slumped to its June lows to 1.2811 last night. The Pound lost against the Euro as well with the EUR/GBP cross trading to highs not seen since September 2016. GBP/USD has immediate support at 1.2810 while resistance can be found at 1.2860. Likely range today 1.2810-1.2850.

 

USD/JPY – Improved risk sentiment saw USD/JPY bounce to finish up 0.52 % to 109.60. The overnight low traded was 108.85. This level continues to offer strong support. USD/JPY looks to be trading in a wider short term range of 108.80-110.30 for now. There is immediate resistance in the USD/JPY at 109.70. Short term support can be found at 109.20. Likely range today, 109.30-109.90.

 

AUD/USD – The Aussie slipped lower after it failed to trade above 0.7950. Metal prices are still strong and this should support the Australian Dollar to a certain extent. Immediate resistance in AUD/USD is found at 0.7950. There is initial support at 0.7900 and then at 0.7880. A stronger US Dollar should see the Aussie slip-sliding away. Likely range today, 0.7880-0.7930. Sell rallies.

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