Dollar extends agains after Fed statement

On Wednesday, currency traders were in wait-and-see modeu ahead of the Fed policy announcement this evening. In technical trade the dollar gained slightly ground against the euro and the yen. The Fed statement was in line with the June assessment, but Yellen and Co were at the margin (moderately) positive on the housing and the labour market and maintain their assessment on inflation (For depth analysis see our KBC Flash report). US equities and the dollar extended the intraday uptrend that was already in place before the Fed statement. EUR/USD closed the session at 1.0984 (from 1.1060). USD/JPY rebounded to the 124 area.

Overnight, Asian equities trade mostly positive. Japanese equities join the rally from the US yesterday evening as USD/JPY tries to regain the 124 barrier. The performance of other Asian markets is less impressive, with Chinese equities currently modestly higher and some moderate losses in Korea. Australian markets profit from some tentative signs of bottoming out in some commodity markets. AUD/USD stabilizes in the 0.73 area. The dollar preserves yesterday’s gains against the euro. EUR/USD is changing hands in the 1.0975 area.

Today, the calendar is well filled. In Europa, we look out for the German labour market data and the CPI, the Spanish Q2 growth and EC confidence indictors Spanish growth is expected very strong. Other data might be more mixed. We don’t expected much support for the euro from the European data. Greece might also return in the spotlights as Syriza holds an important internal meeting on its policy approach. The calendar in the US has also market moving potential with the publication of the advance reading of the Q2 GDP and the jobless claims. The consensus expects annualized growth of 2.5%. A the same time, Q1 GDP will be revised. This might have some unexpected consequences for the Q2 release, too. So, there is quite a high degree of uncertainty. Even so, we see upside risks for Q2 growth. Yesterday, the Fed indicated that it is not far from a first rate hike anymore if it sees some further improvement in the economy/labour market. So, a constructive GDP report might be an additional USD supportive. The dollar had already a good run yesterday. Even so, we don’t see much reason for a rebound of the euro while at the same time the US data might be USD supportive. So, we start the day with a moderate negative bias for EUR/USD. On USD/JPY we are more cautious as were are not convinced on the recent rebound in (US) equities.

In a longer term perspective, EUR/USD still trades in the 1.08/1.1467 consolidation range. The bottom of this range was tested last week, but no break occurred. The global picture remains USD constructive (EUR/USD negative), but some consolidation after the recent EUR/USD decline is happening. We maintain a sell on upticks approach for return action lower in this range. EUR/USD 1.1224/78 is a first point of reference. The 1.1534 February correction top remains our line in the sand to maintain a USD positive bias MT term. On the downside, the 1.0819/09 area (27 May low/correction low) is the first high profile support. A sustained break below that level would open the door for a retest of the 1.0521/1.0458 area.

Sterling holing fairly strong

In technical trading, sterling remained well bid yesterday even as the UK eco data were mixed and as the dollar made some progress across the board. The UK money supply and lending data painted a mixed picture. At noon, the CBI reported sales were slightly below consensus at 21 (a stabilisation at 29 was expected). However, this is still a quite decent level for this indicator. Sterling kept a positive intraday momentum after the data. EUR/GBP drifted further south in the 0.70 big figure and closed the session at 0.7041 (from 0.7083). The rally of cable was reversed later in the session as the dollar gained across the board. Cable closed the day at 1.5602, little changed from 1.5613 on Tuesday. Even so, this was a reasonably good performance given overall USD strength.

Today, there are no eco data in the UK. So, sterling trading will be at the mercy of the overall developments in the euro and the dollar. Cable might face some headwinds. The topside in EUR/GBP might be protected today, in line with EUR/USD.

We had a sell-on-upticks approach for EUR/GBP to drift lower in the 0.7483/0.7014 range. Of late, we turned more cautious on sterling as EUR/GBP neared this range bottom. We kept the working hypothesis that high profile news is needed to push EUR/GBP sustainably below 0.70. The ongoing decline of EUR/USD pushed EUR/GBP (temporary?) below the 0.70 mark. We stay reluctant to jump on the sterling rally at the current levels and hope that the rebound goes a bit further to reinstall/add EUR/GBP shorts. The 0.7225/50 area is a first technically important resistance in this cross rate.