GREENBACK STRENGTHENS AFTER A HAWKISH FED STATEMENT
The US dollar index rose against the major pairs after the Fed raised interest rates yesterday. In the monetary policy statement, officials said that the economy was doing well which means that more rate hikes will be necessary. It pointed to another hike in December, three more in 2019, and one in 2020. Yesterday’s hike was the eighth in the current tightening cycle that started in 2015. The Fed also removed the closely-watched phrase on supporting the economy in the statement. In the press conference, the Fed chair said that the economy was in a ‘particularly bright spot’.
The US released the final reading of the second quarter’s GDP number. The data showed that the economy expanded by 4.2 in the quarter. This was a similar number to what was reported a month ago. The initial jobless claims rose to 214K which was higher than the expected 210K while the continuing jobless claims fell to 1.661K which was better than the expected 1,684K. Durable goods orders rose by 4.5% in August, which was better than the expected 1.9%. This was the highest level since July last year. Corporate profits growth was revised slightly lower to 2.1% from last month’s 2.4%.
The Canadian dollar slid against the USD as NAFTA negotiations faltered. In a press conference yesterday, the US president said that the two countries were not getting along as a key deadline loomed. In the conference, he said that he had turned down an invitation to a meeting with Canada’s Justin Trudeau and threatened hefty car tariffs. Canada is the biggest trading partner with the US. At issue is the dairy industry which Canada places heavy tariffs on in a policy known as supply management. This is a policy highly disliked by Canadians who pay a higher price for milk. However, it is loved by residents of Quebec who have the most representatives in parliament. Therefore, if NAFTA fails, a small Canadian industry will come between the larger industries like automobiles.
The Japanese Yen traded up and down against the USD after Trump held a meeting with Shinzo Abe. After the meeting, Donald Trump said that Japan had agreed to restart a free trade deal with the US. If done, this will be a deal between the largest and third largest economies in the world. In the past, Donald Trump has accused Japan of placing large trade barriers with the US. He has blamed these barriers to the $67 billion annual trade deficit the US has with Japan.
The kiwi was little moved today after the RBNZ released the interest rate decision. The bank left the Official Cash Rate (OCR) at 1.75% and pledged to leave it unchanged until 2020. When an adjustment happens, the bank said that it will be either up or lower. The bank said that the low interest rates have lowered the value of the kiwi, which has in turn led to increased exports. However, the numbers released yesterday showed that exports struggled in August.
In the past one month, the USD/JPY pair has moved from a low of 109.77 to a monthly high of 113. Along the upward move, the pair has moved in a close channel of diagonal support and resistance points. There are signs that the upward momentum is nearing an end. In the four-hour chart, a crossover of the short and longer-term EMAs is happening. If it does, the pair will likely test the important 111.75 support level.
The USD/CAD pair rose to an important resistance level of 1.3060 as the Canadian dollar fell against the USD. As the pair reached this resistance level, the momentum indicator started to decline. This is an expected move as the pair consolidates after hitting an important resistance level. More upward movements will likely take the pair to the 1.3111 resistance level.
The EUR/USD pair dropped sharply after the Fed raised interest rates. As it dropped, the pair crossed the major support of 1.1740. This was a major technical factor because it breached a major support level as shown in the hourly chart below. In addition, there was a crossover of the short and longer-term EMAs which is an indication that a new downward trend was starting. This means that the pair could continue moving lower and possibly test the 1.1650 support.