Fed Testimony Boosts USD and GBP Falls. Will Yen Decline?
Published on: 07/19/18 2:38 PM
Category: Uncategorised
US Session Recap – Greenback rises, GBP Declines
The British Pound fell against other major currencies even after the news of UK Prime Minister Theresa May evading a defeat to retain the EU custom union decision open after Britain exits the EU. UK two-year bond rates fell lower, and the GBP took most of its declines heading into the vote. There were news wires of Theresa May possibly being defeated. It was the strength in the greenback that also hindered the performance of the British Pound, as well as some other currencies. The USD rose simultaneously with rising US government bond rates, and stocks. This marked the highest close for the S&P since early February. It was the testimony for Fed Chair Jerome Powell which enabled the greenback to appreciate higher. Powell is maintaining his aggressive monetary policy stance and that despite the trade war tensions between the US and other developed nations, the best course of action was to continue to raise interest rates. Powell stated in his testimony that free trade is better for the economic growth of all nations and Protectionist policies will only hinder growth. He remains worried about what the outcome of the trade war rhetoric may have. Powell also pointed out that the Tax bill was beneficial for the US economy. Powell mentioned that wage growth in the US was moderate and that the Fed had still not reached its overall inflation target.
The New Zealand dollar ended up appreciating during trading in the Asian session after a news release of a better than expected RBNZ core inflation gauge number. The Japanese Yen underperformed for the day as Asian stocks gained.
Could Asian Shares Gain as Yen Declines?
With limited major economic news, the protentional market movers will be risk events such as the ongoing trade war issues. If the Asian equities can mimic the gains seen in the US markets, the Japanese Yen could have more room to fall as the Aussie dollar and the Kiwi appreciate. The Malaysian Ringgit may not drop much as its June CPI eases as is projected by Malaysian central bank.
Possible NZD/USD Trade
Traders with a contrarian trading style may want to keep an eye on the NZD/USD pair. Data for traders shows that the ratio of traders long to short NZD/USD is 2.07 to 1. Since April traders have remained net-long when the pair traded near 0.73681 and the price has dropped since then. The number of trader’s net-long NZD/USD are 5.6 % lower from last week, and the number of trader’s net-short is 23.2% lower from last week. The fact that traders are net-long suggests that the NZD/USD pair may continue to decline and looks bearish from a contrarian perspective.
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