The U.S. dollar is in consolidation mode ahead of the release of the FOMC meeting minutes today, Fawad Razaqzada, Market Analyst, Forex.com.
The British pound’s sharp rally from the day before has come to an abrupt halt – at least for the time being. Rumors are circulating that three Conservative lawmakers are to follow the seven Labor members of parliament and defect to the Independent Group later today.
It remains to be seen how the markets would react. But judging by this morning’s price action in both the currency and equity markets, investors may show a negative reaction if rumors are confirmed. So, both the pound and FTSE could be hit. If so, this could trigger a new wave of resignations and create more uncertainty. It will also reduce Prime Minister Theresa May’s majority in parliament. Even if the rumors turn out to be just that, rumors, we don’t expect the pound to move meaningfully higher until there is more clarity in the Brexit situation.
Theresa May’s government is continuing talks with the EU. Last month, UK parliament rejected May’s initial deal by a large margin, which has raised the prospects of the UK leaving the block without a formal agreement. The Tories want to make changes to the backstop arrangement, but the EU has continually insisted that they won't reopen the withdrawal agreement. So, the stalemate continues. But if and when May is satisfied she has come up with the best alternative plan, she intends to put this to a vote again. However, it is not clear when this will happen, and time is fast running out.
With the GBP/JPY being a more risk-sensitive pound cross, this pair is among the ones we are monitoring closely as we get closer to the Brexit date. The bulls will not like the fact it has reversed after a brief break above its January high of 144.85, with price also struggling to hold above yesterday’s large bullish candle. Admittedly, the day is not over yet, so things could change again later. Indeed, if rates push higher again and we close above 114.85 then this would keep the bullish bias intact. However, a potential close well below this level would leave behind a shooting star candle near resistance, and this would be a bearish development.
Source: TradingView and FOREX.com.
FOMC & Metals
The U.S. dollar is in consolidation mode ahead of the release of the FOMC meeting minutes today. After the Fed’s last meeting in late January, we have heard from Chairman Jerome Powell and a few other FOMC members, all suggesting that U.S. interest rates are likely to remain unchanged for a while, and that the next move is dependent on incoming data. So, if the FOMC minutes convey a dovish message, bear in mind that this may already be priced in. However, should they reveal a significantly more dovish message than what Powell and Co. have since portrayed, then we could see a more pronounced drop in bond yields and the dollar.
Dovish central banks underpin metals
So far, the dollar has held its own relatively well despite the Fed’s U-turn. Part of the reason why the greenback has remained supported can be explained away by weakness in global data and dovish central banks elsewhere, keeping foreign currencies undermined. Indeed, the fact that some of the other major central banks have also turned slightly more dovish recently is why bond yields have fallen, supporting equities and non-interest bearish assets such as gold and silver. Other metal prices such as copper, platinum and especially palladium have all rallied, too. The firmer metal prices have provided additional support for the positively-correlating Australian dollar.
Aussie jobs key event in Asia
One interesting pair to watch for short-term volatility is the AUD/USD. As my colleague Matt Weller reported yesterday, the technical outlook on the Aussie is looking positive for now thanks in part to growing optimism over a US-China trade resolution. This pair will obviously be impacted by the release of today’s FOMC minutes – not to mention the direction of metal and equity prices (both rising at the moment). But we will also have the latest Australian employment data to look forward to in the early hours of Thursday, which could provide sharper short-term direction for the Aussie.
The consensus expectations among surveyed economists point to a +15,200 print on the headline jobs figure with the unemployment rate seen remaining unchanged at 5.0%. The Australian employment report has beaten expectations in four out of the past five occasions. The degree to which the Aussie dollar will respond to the employment report will depend on the magnitude of the surprise. But should market conditions remain positive (i.e. metals and stocks rising), then any weakness related to the domestic jobs data could be short-lived for the Aussie.
More fundamental events for AUD/USD later in the week
The AUD/USD and other dollar pairs will remain in focus for the rest of the week. Thursday will see the release of some second-tier U.S. data, including durable goods orders, Philly Fed Manufacturing Index and Existing Home Sales. RBA Governor Philip Lowe is due to testify in Sydney late in the day on Thursday (early Friday in Australia). The week will conclude with speeches from various central bank officials.
Source: TradingView and FOREX.com.
