It is not the failed healthcare bill itself that has caused all these market moves. Yes that may well have been the trigger, but investors are worried about the challenges Trump will face in trying to get his other policies passed which may well limit the government’s fiscal spending. The worry is that only will this weigh on GDP, but potentially on inflation too. Thus, the Fed may not raise interest rates as aggressively as had been priced in, hence the falls in the dollar.
The euro/U.S. dollar (EUR/USD) currency pair looks set to close higher for the fourth consecutive week. That sounds impressive. But to put things into perspective, it has been trading inside a narrow range between 1.05 and 1.08 for much of this year. The 300 or so pip range is nothing to get excited over. But then this is the EUR/USD we are talking about. It hasn’t exactly moved much since early 2015. Nevertheless, there’s no doubt about which group of market participants have been in control this month, and, in fact, quarter.
With strong Eurozone data and ahead of Canadian CPI, we are naturally drawn to the EUR/CAD today. Well, the EUR/CAD has been trending higher since the end of February after it created a false break reversal pattern around the 1.38 handle. It tried to break below that support level several times, but failed.
If the USD/JPY were to break below this support region, which is our base case scenario, then the next stop could be around the 108-109 area. This is where the support trend of the bearish channel meets the 50% retracement level and the 200-day moving average.
Earlier, data from the ONS showed consumer price inflation in the UK rose to its strongest level in nearly three-and-a-half years to 2.3%. The pound’s reaction was swift. The British pound/U.S. dollar (GBP/USD) currency pair jumped to 1.2470 while the EUR/GBP slumped to 0.8655. The GBP has since eased back a little but remain near the day’s highs, which suggest more gains are likely.
Once again, the AUssie/U.S. Dollar (AUD/USD) currency pair is back, banging its head against the ceiling around that 0.7730-80 resistance range. Relative to other major currencies, though, the Aussie has performed rather well in recent times. So, it may finally clear this resistance zone at the umpteenth time of asking.
The GBP/USD has hit a fresh post-FOMC high this afternoon. Like the Bank of Japan and Swiss National Bank, the Bank of England decided to keep its monetary policy unchanged. But it wasn't a unanimous decision as Kristin Forbes voted for a 25 basis point rise amid concerns over inflation. This caused the pound to jump across the board.
According to the Bureau of Labor Statistics, the U.S. economy created 235,000 net new jobs, well above economists' expectations of 200,000 new jobs. Crucially, the details to the report were similarly strong.
Sterling bears were unleashed during Wednesday’s trading session, with the British pound/U.S. dollar currency pair sinking to a fresh seven-week low at 1.2150 as investor anxiety heightened ahead of the UK Spring Budget speech. Treasury chief Philip Hammond will be in the limelight today, and is set to provide some insight on the UK government’s financial plans as it embarks on its quest to exit the European Union.
The general consensus going into today’s UK budget is that Chancellor Philip Hammond will disappoint and that the pound/U.S. dollar (GBP/USD) currency pair may extend its declines towards 1.20. He is well aware of Brexit risks and may thus predict a more turbulent economic outlook.