US$ topping out?

Finport Currency Brief 

 

Good morning all;

 

AUDUSD: Prior to my recent trip to Europe I wrote that the US Dollar strength is on the wane upon my return this continues to be the case. The market has priced in 2 further interest rate hikes from the US Federal Reserve's FOMC this year, starting with +25bps next month, so the only real concern is if their inflation numbers push higher still and that warrants a third. Nonetheless, several major reports suggest that be it a second or even a third rate hike, this would push the Fed Funds rate at or close to neutral and meaning their tightening phase should stop early next year. Locally we've not had the most positive data as domestic Wages Growth flat-lines and Unemployment ticks higher, but still the A$ strengthens on the back of commodities and risk appetite. The next couple of weeks ahead will be interesting as we'll see US Unemployment numbers released and then the Reserve Bank meet early June, but we can discuss that closer to the date. In the meantime the  solid technical support seen on the charts still holds and as long as there's no fallout from Trump's political shenanigans, I maintain my forecast of a continued grind higher over the weeks to come. 

 

AUDEUR: Has hit highs last seen at the start of February as the European Central Bank suggest that inflation will rise, but it's not enough for them to pull back on their accommodative easing policy any further. Recent German GDP and Manufacturing numbers have disappointed as did the EU Inflation report. Tonight sees the release of the German Business Climate survey and that is also expected to print lower than last month. So taking the above into conideration and looking to the charts I now target 0.6535 as the next line in the sand, being the 50% retracement of the year long high/low range. 

 

AUDGBP: BREXIT concerns continue to weigh heavily on Sterling. News that the bill set to be debated in a June Parliamentary vote has been heavily amended was greeted by mass protests from the House of Lords and this type of news has outweighed better than expected UK economic data. The Bank of England appear to be firmly "on hold" and with no UK numbers due next week we can potentially target 0.58p near to medium term, with 60p+ further out. Once there I'd suggest we look at hedging a fair portion of any future exposure.

 

Jim Devonport

E: jim.devonport@finport.com

M: 0415 066 468 


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