Currency Market Catches its Breath after A “Patient Hold” from the Fed

. 3 min read

Overview:

  • The US dollar resumes its upward movement, buoyed by a positive economic assessment from the Fed
  • The Euro is dangerously approaching key 1.12 levels following soft PMI reports
  • NYMEX WTI crude oil slumps lower, down 2.30% on the day

Highlight:

The Euro is trading lower, down 0.20% on the day, and is threatening to crash below the key 1.12 level. Soft PMI across the Eurozone is the main driver behind the recent downward moves. Investor sentiment is turning more pessimistic over future outlook with the manufacturing PMI is still “deep in decline”. Economy growth has stagnated in France and Germany remains in contraction. Trade protectionism, Brexit, and a beleaguered auto industry are all weighing on the shared currency.

US DOLLAR

The US dollar is trading with a positive bias on a trade-weighted basis following a “patient hold” decision from the Federal Reserve. The DXY Index trots higher for the second consecutive. The assessment from Fed Chair Powell was cautiously optimistic with a strong labour market, but softening core inflation.

We expect the market to take a breather ahead of the release of the non-farm payroll data due tomorrow. Job gains have been consistently solid, and unemployment remains at all-time low levels. NYMEX oil takes another tumble, sliding to a five-day low near $62.40 reacting to US EIA report showing a build-up in stock. Further weakness in the price of the black gold is likely to exert pressure on commodity-linked currencies.

BRITISH POUND

GBP/USD is searching for clear direction trading around the mid-point of 1.30. The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to keep the Bank Rate at 0.75%.  The members now expect quarterly growth to slow down around 0.2% in Q2. Brexit uncertainties remain a major headache and business investment has been severely affected over the past year

EURO

EUR/USD is trading around the 1.12 post as the market continues to assess the latest FOMC interest rate decision. The shared currency received no boost from the latest German PMI. The Manufacturing Index at 44.4 in April remains close to the March 80-month low.  New orders were lower and struggles in the automotive industry are adding pressure to the sector as a whole. The Eurozone’s manufacturing sector remains in contraction territory with PMI below 50-mark for three months in a row. The pair is expected to trade cautiously from here with a negative tilt.

CANADIAN DOLLAR

The USD/CAD pair is trading near the upper end of recent trading ranges. The greenback is buoyed by the Fed’s rather not-so dovish statement. We note a cautious sentiment prevailing across the market ahead of the employment numbers. There are no data releases from Canada, and therefore we expect the pair to trade with a positive bias with an attempt to breach the 1.35 handle.

AUSTRALIAN DOLLAR

Optimism springs eternally in Australia and New Zealand that the US-China trade talks will produce an agreement. That, and the expectation the RBA and RBNZ will follow the lead of the US FOMC and hold interest rates are helping the AUD cling on to .70's relative to the greenback.

FEATURED CURRENCY

USD/JPY is consolidating within recent trading ranges, and the market's attention once again returns to the 112 post.  The calendar is relatively light today and with Japan closed for Constitution Day, so we expect liquidity to remain thin.

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