FX market outlook

FX market outlook

Posted on Friday, August 25 2017 at 8:23 am GMT+0000

Dollar gains ahead of Jackson Hole; oil up on Texas output disruption

The dollar gained against the yen and the euro ahead of the central bankers’ symposium in Jackson Hole. The dollar index was up 0.11% and was trading at 93.37 as Asian traders were heading home for the week. Oil prices also rose on the possible disruption in the Gulf of Mexico, in Texas.

The release of the encouraging Japanese CPI data did little to lift the yen against the dollar as the pair traded on the back of strong dollar buying ahead of the Jackson Hole symposium. National CPI and its core unit of measure both came in line with expectations, at an annual gain of 0.5% and 0.4%, respectively. More so, the annual Tokyo core CPI rate advanced 0.4% in August, rising above the expected 0.3% gain, data released this morning showed. While this is encouraging and could have lifted the yen against the greenback, forex markets failed to record such a move. With Fed Chair Yellen’s speech on schedule later today, many traders have been buying the dollar to square positions ahead of that event. Dollar/yen rose modestly to last trade at 109.59.

The euro was weaker against the dollar and last traded at $1.1773. The pair traded in a narrow range for most of the Asian session, but the common currency came under pressure upon the release of the disappointing German import prices for July. The German import price index fell 0.4% in July, m/m, much worse than the expected 0.1% gain. Annually, the index rose 1.9%, which is below the expected rise of 2.4% and the prior month’s value of 2.5%. The country’s GDP expansion in the second quarter came in line with expectations (a 0.8% annual gain and a 0.6% quarterly expansion).

Traders are eagerly awaiting the speech by European Central Bank President Draghi and positioning ahead of that event late in the US session. Market participants are expecting clues about the monetary policy outlook within the eurozone. However, opinions about what Mr. Draghi will speak about are divided. Making a parallel with his 2014 appearance at Jackson Hole when he laid the groundwork for the bank’s bond-buying scheme, many investors are hoping he will hint at future steps of the ECB. But, leading up to the event, many sources signaled that market participants shouldn’t have such expectations as Draghi’s speech will be dull.

The US currency was either flat or modestly weaker against some of the other majors. Aussie/dollar rose 0.15% to last trade at 0.7911. The kiwi was up as well at $0.7211. Sterling was broadly flat and was trading at $1.2800 ahead of the European open.

Oil prices rose amid the potential output disruption in the Gulf of Mexico as Hurricane Harvey is heading for the center of the nation’s oil industry. The storm could potentially become the biggest hurricane to hit the US coast in the last 12 years. WTI was last trading at $47.81 a barrel, up 0.84% and Brent crude was at $52.55, up 0.98%.

Gold prices were flat on the day and were trading at $1,286.40 an ounce ahead of the European open.