FX market outlook

FX market outlook

Posted on Wednesday, July 12 2017 at 8:47 am GMT+0000

Dollar slides amid new discoveries in Trump controversy; markets eye Yellen’s testimony

The dollar fell to a more than one-week low against a basket of major currencies in late US trading yesterday, after U.S. President Donald Trump’s eldest son released an email chain citing Russian support for his father before last year’s U.S. election. The greenback continued trading lower for most of the Asian session today. The main focus of the day will be Federal Reserve Chair Janet Yellen’s testimony in Congress.

President Donald Trump’s eldest son released emails last night that cast another cloud over his father’s presidency and sent the dollar lower against most of its major peers. The emails could be seen as a concrete evidence that Trump campaign officials did have Russian help to win last year’s elections. The dollar index, a broad measure of the greenback’s strength was last trading at 95.733 vs yesterday’s intra-day high of 96.205.

Asian currencies were gaining on the US dollar during the first trading session of the day. The yen gained against the greenback, with the dollar breaching the 114 handle. Dollar/yen was last trading at 113.46 ahead of European trading. The Australian dollar was also up against the US dollar, to last trade at $0.7645. Westpac’s consumer confidence survey for July could have also supported the aussie. At 0.4%, the figure showed an improvement from the prior month (a decline of 1.8%). The kiwi showed similar pattern, rising to the $0.7237 level, after heavy losses yesterday.

Today, the markets are focused on probably the key event of the week in the US, Janet Yellen’s testimony in Congress on monetary policy. Investor community is hoping for more clues on the Fed’s  latest thinking about monetary policy, especially regarding the potential of another rate hike this year and the timing of the start of the balance sheet reduction. Two Fed members, Fed Governor Lael Brainard and Minneapolis Federal Reserve Bank President Neel Kashkari spoke on Tuesday, however their dovish-perceived speeches added some uncertainty ahead of today’s event.

Looking at Europe, in a relatively quiet day the euro gained in late US session last night on the political clutter from Washington. Euro/dollar rose to an intra-day high of 1.1480 to close at 1.1466. This morning, the euro managed to sustain the gains, though it came under pressure against the greenback just ahead of the European open. The rise in Germany’s 10-year bund yield to 0.61% also provided support to the euro.

Looking ahead, the Bank of Canada policy meeting will be another topic of interest for most traders, as the bank is expected to announce an interest rate hike.

Oil prices continued to rise after popping higher on Tuesday amid reports that US inventories fell last week. The American Petroleum Institute reported a fall of 8.13 million barrels, well below the forecasted reduction of 2.9 million and adding to a draw of 5.76 million barrels the prior week. Brent crude was last trading at $48.20 a barrel, while WTI was at $45.80.

Gold also rose today, extending yesterday’s late-night gains. The precious metal was last trading at $1,218.58 an ounce.