US DOLLAR ROUT SUBSIDES AHEAD OF HOUSING DATA
After crashing to fresh 11-month lows, the US dollar stabilized Wednesday ahead of headline housing figures in the North American session.
The US dollar index (DXY) fell half a percent on Tuesday to 94.64, its lowest since August 2016. In the process, the euro approached multi-year highs while the British pound briefly punched above 1.31 US.
Dollar bulls have been muted all year on expectations the Federal Reserve will be slow to normalize monetary policy. Weak economic growth and tame inflationary pressures suggest the US central bank will keep policy more accommodative for the foreseeable future.
President Donald Trump’s second attempt to repeal and replace Obamacare failed on Tuesday, as Republicans were unable to muster enough support to drive the agenda forward. The Trump White House is likely to shift its attention to tax reform in the coming months.
Traders can expect a light release schedule on the economic calendar today. The European Commission’s statistical agency will report on construction output at 09:00 GMT.
The biggest release of the day takes place at 12:30 GMT when the Commerce Department reports on housing starts and building permits. Housing starts are forecast to rebound to a 1.15 million-unit annual pace in June after falling 5.5% the previous month. Building permits – a bellwether of future construction plans – are expected to hit 1.2 million after falling 4.9% in May.
Later in the morning, the US Energy Information Administration (EIA) will release weekly crude inventory data for the period ending 14 July. Crude stocks are forecast to decline by 3.74 million barrels. Inventories plunged by 7.56 million the previous week.
Oil prices rose on Tuesday on news that Saudi Arabia was considering curbing exports. The Saudis are the de facto heads of the Organisation of the Petroleum Exporting Countries (OPEC), a mainly Middle Eastern cartel that controls vast swathes of the global energy market.
The euro reached a session high of 1.1585 on Tuesday, putting it on track to test the 2016 high north of 1.1600. Further upside toward 1.1600 could provide difficult in the short term. The euro remains extremely bullish, but may ebb in the short term as the market absorbs recent gains.
Sterling made a strong push toward 1.31 on Tuesday before paring most of its gains. The GBP/USD exchange rate was last seen trading around 1.3030. Immediate support is located at the psychological 1.30 level, followed by 1.2960. On the opposite side of the spectrum, immediate resistance is seen at 1.1310.
US crude prices approached $47.00 a barrel Tuesday before settling well off that mark. Prices tested the $46.00 level earlier in the week, which continues to offer strong support. A break below that region could lead to a bigger drop toward $45.00 a barrel. However, another large inventory drawdown on Wednesday could lead prices back toward $47.00.