Thursday, August 3, 2017

FX: "Dollar-Bloc Currencies Turning, but Euro Downticks Limited"

From Marc to Market:
The high-flying dollar-bloc currencies may be a preliminary sign market change. The US dollar is gaining on the Canadian dollar for the fourth consecutive session. It is probing resistance we identified in the $1.2620 area. The US dollar has not traded above its 20-day moving average since the Fed hiked rates on June 14. It is found today near CAD1.2625.

A smaller than expected trade surplus (A$856mln, half of what was anticipated) provided the fodder to extend the Australian dollar's fall to a third session. After spiking to $0.8065 last week, it has drifted lower. A break of $0.7875 (and the 20-day moving average is found near $0.7865) would suggest the consolidation is folding into an outright correction.

The focus today is on the Bank of England and its "Super Thursday" when the Quarterly Inflation Report is also released along side the MPC minutes. A rate hike is highly unlikely. The focus will be on the vote and if Haldane votes to hike as he indicated he has considered. We suggest that if Haldane sticks with the majority, the quid pro quo may a more hawkish inflation report. This could be expressed in part, for example, by lowering in the growth forecast and lifting the inflation forecast. This means that a reaction to a 6-2 vote (rather than 5-3 as was the case previously) may be tempered by the forward guidance and Carney's press conference.

Separately, the UK reported the service and composite PMI. The former rose to 53.8 from 53.4, and this fed into a rise in the later to 54.1 from 53.8. The composite average 54.7 in Q2 and 54.6 in Q1. This would suggest the UK economy is seeing little improvement at the start of Q3. Nevertheless, sterling is firm ahead of the BOE meeting. It made a new high for the move, a little above $1.3265. It is an 11-month high. Some unwinding long euro-short sterling positions may have lent sterling support against the greenback.

The euro is trading in a less than a third of a cent range today around where North American dealers left it yesterday. It has pulled back a little more than three-quarters of a cent after poking through $1.1900 briefly yesterday. Support is seen near $1.1780....MUCH MORE