The US dollar is sliding across the board. The greenback is grinding lower in an orderly fashion, allowing for traders to pile in and ride the slide.
What is behind these moves? There are 3 reasons and here are updates on 5 currency pairs:
Dovish dissent: Yellen truly tried not rocking the boat in her last post rate hike press conference. The Fed raised rates as expected and left the dot-plot unchanged. The wording of the statement hardly changed and her tone was balanced. However, this time we had two members voting against the hike. Kahskari did not surprise markets with his regular dissent, but Evans remembered he was a dove. The President of the Chicago Fed joined Kashkari. Is this the beginning of a trend? Will Powell’s Fed refrain from raising rates 3 times in 2018? Speculation is rife.
Low inflation, again: While the Fed focuses on Core PCE, this is a belated figure and the last one is only for October. The most recent inflation report came out hours before the event and it was for November. After a brief pause, Core CPI returned to 1.7% y/y again. This implies inflation is going nowhere fast. How long can the Fed say it is transitory? For how long can it remain a mystery? Is inflation really around the corner? Without rising prices, there is no justification to raise interest rates.
US politics: The tax bill was advancing relatively smoothly. The scenes around the failure on health care were not seen with taxes. But Republicans will face a harder task going forward: their slim majority will become even slimmer after the stunning loss in Alabama. Some expect them to rush to approve a tax bill before their majority tightens, but there is another scenario as well. Given the unpopularity of the bill and voters punishing them, some might change their political calculations and vote against it, to preserve their own seats. The dollar advanced on hopes for a good deal, and these hopes are somewhat slimmer now.
Here are updates on 5 major pairs:
- EUR/USD extends its advance above 1.18. The round level served as resistance. The next hurdle is 1.1850, followed by 1.1910 and 1.20. Support awaits at 1.1720. The euro has a rate decision of its own later today. See Draghi can try to push the euro lower, but will likely fail
- GBP/USD is trading around 1.3430. Resistance is at 1.35 and 1.3580. Support is at 1.3340. The advance of the pound comes despite a rise in UK unemployment and worries that a new deal on trade will have to wait for a long time.
- USD/JPY dropped back to 112.60. Once again, the pair sticks to the range. Any move to the upside is limited. Resistance is at 113.50, followed by 114.50. Support is at 112.20 and 111.
- USD/CAD: The Canadian dollar is unable to take full advantage of the slide of the USD, trading around 1.2820. Resistance is at 1.2920 and support at 1.2770 and 1.27. Oil prices have stabilized and aren’t going too high too fast.
- AUD/USD extends its gains to 0.7660. The Aussie had an excellent jobs report, which showed a gain of over 61K jobs. This compounds the weakness in the dollar. Resistance is at 0.7730 and 0.7840. Support awaits at 0.76.
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