US DOLLAR ACCELERATES AFTER YELLEN COMMENTS AND INCREASE IN DURABLE GOODS
Yesterday the US dollar traded higher against the euro as the German election results continued to shake trader sentiment. A weaker than expected performance of Angela Merkel's conservative party suggests that Europe could face political turbulence in the future. Over the last two days the euro fell 1.4% against the US dollar.
On Tuesday, economic data showed the impact of hurricanes Irma and Harvey. According to the US state commerce department, new house sales declined 3.4% in August, which is the lowest level since December 2016. Consumer confidence also slipped to 119.8 in September as compared to 120.4 in August.
Recent data released today showed that the demand for US factory goods rebounded in August which is pointing to a continued increase in business investment. Orders of durable goods increased 1.7% in August versus the 1.0% expected and as compared to -6.8% in the previous month. Core durable goods orders rose 0.2% as expected.
Demand for the US dollar also increased and strengthened after comments from Janet Yellen. The Chair of the Federal Reserve said in her recent speech that the central bank has to increase the interest rate gradually as it would be unwise to put the monetary policy on hold until inflation is back to 2.0%. She also said that there would be the risk that the labor market could be overheated without further increases in the interest rate over time, which is expected to create inflationary problems that might be difficult to overcome without triggering a recession.
Many investors are looking for any update on a US tax plan that could revamp the stock market. Republicans are expected to release a blue print for tax reform later today that is expected to include a wide range of tax cuts for individuals and businesses, according to speculations. Any signals regarding the tax cut could accelerates the increase in small cap company's share prices, which tend to gain more benefit from tax reductions and generate more revenue domestically.
EURUSD is under pressure as it has been capped by a bearish trend line since September 22. Yesterday's high at 1.18609 is playing a resistance role. The relative strength index lacks upward momentum. As long as 1.18609 (yesterday's high) is resistance, look for a new decline towards 1.16616 (last month's low) and 1.1620. Alternatively, above 1.18609 look for 1.19360 (this week's high) and 1.20306 (last week's high).
USDJPY is expected to continue to trade its upside movement. The dollar is supported by the recent increase in durable goods order and yesterday's comments from Ms. Yellen. Technically the pair is trading above the 50 day moving average and 20 day moving average, which confirms the bullish outlook. the relative strength index is also above its neutrality area at 50 and lacks downward momentum. As long as the pair is trading above 112.16 (today's low) look for further advancement to 112.50 and 112.80. Alternatively, below 112.16 look for 111.50 (yesterday's low) and 111.00.
EURGBP is capped by the declining trend line. The 50 day moving average is also in decline, which suggests a break below today's high is highly possible. As long as the pair is trading below 0.8800 (yesterday's high) bearish acceleration towards 0.8730 and 0.8675 is likely. Alternatively, above 0.8800 (yesterday's high) look for 0. 8830 and 0.8898 (last week's high).