Dollar Rangebound as Investors Await Fed Rate Decision, Yen Trades with Weak Bias
The dollar traded in a narrow range on Thursday as markets settled after U.S. midterm election results came in as expected, leaving investors free to focus on a Federal Reserve’s policy decision later in the global day.
The central bank’s Federal Open Market Committee (FOMC) is expected to maintain the hawkish language seen in recent policy statements, while keeping interest rates unchanged this time.
The Fed has raised rates three times this year as the U.S. economy boomed and inflation started to pick up, and it has signaled a rate rise in December, with two more hikes by mid-2019.
“The dollar is likely to benefit as we still expect the Fed to maintain its hawkish stance. The U.S. economy needs rising rates as wage pressures are building and there is a risk of an overheating of the economy,” said Sim Moh Siong, currency strategist at Bank of Singapore.
The prospect of further Fed tightening helped the dollar recover against the euro and yen, having lost ground after the mid-term elections resulted in a split Congress, with Democrats winning control of the House of Representatives and Republicans cementing their majority in the Senate.
Expectations that the Washington will descend into gridlock has reduced President Donald Trump’s chances of pushing through a fiscal stimulus package.
The dollar index .DXY, a gauge of its value versus six major peers traded at 96.22 on Thursday, gaining 0.23 percent.
The dollar strengthened 0.14 versus the yen to trade at 113.66 on Wednesday. The dollar has gained around 1.9 percent over the Japanese currency over the last nine trading sessions due to the diverging monetary policies of the U.S. Fed and the Bank of Japan (BoJ).
BoJ Summary of Opinions: Inflation to Increase “Gradually”
The Bank of Japan’s (BoJ) Summary of Opinions shows the Japan central bank’s inner monologue from the bank’s most recent meeting.
Inflation to accelerate “gradually” towards the BoJ’s 2% target.
Price growth remains weak, as inflation struggles to meet the target.
The BoJ sees a necessity to maintain its easing policy.
BoJ to maintain monetary policy, but also watching for negative repercussions of hyper-easy policy.
Attention to be paid to keeping 10-year yields near zero, which could lead inflation away from 2% target.
BoJ should consider a more flexible range of yield moves and target maturity for JGBs.
The central bank must be “vigilant” that in case of a recession, regional banks’ profits are protected.
The monetary easing policy must be strengthened in efforts to induce policy coordination with the Japanese government.
Stock Market News
Asia Pacific Stocks Climb but Fed May Cap Gains as S&P 500 Falls
ASIA PACIFIC MARKET WRAP – JAPANESE YEN, FED
- Asia stocks follow Wall Street higher following 2018 US midterm election results
- Anti-risk Japanese Yen declined, ASX 200 continued near-term rise as forecasted
- Fed rate decision may boost the US Dollar, send the S&P 500 back into the red
As anticipated, Asia Pacific benchmark stock indexes followed Wall Street higher. There, the S&P 500 and US Dollar gained following the outcome of the 2018 US midterm elections. However, most gains in Asian stocks were as a result of gaps to the upside as subsequent follow through was notably lacking. The Nikkei 225 was up almost two percent, lead higher by all of its sectors.
Outside of Japan, Chinese and Australian equities also rose. The Shanghai Composite rallied about 0.36 percent while the ASX 200 gained about 0.53 percent. Financials and health care were the notable driver of positive performance in the latter. South Korea’s KOSPI also climbed, rising about 1.56% which was its highest in about two weeks.
Not surprisingly, the anti-risk Japanese Yen edged lower against its major counterparts. Other major currencies were rather quiet. Meanwhile, fundamental and technical warning signs may precede a bearish reversal in AUD/CAD. The Philippine Peso appreciated following softer-than-expected third quarter economic growth. GDP clocked in at 6.1% y/y versus 6.2% anticipated. Local officials hint that better performance may come in Q4.
Perhaps the rather quiet trading session is appropriate given that we still have the Fed rate decision later today following the US midterms. Fed funds futures are still not fully pricing in a rate hike in December, those odds are around 78.1%. As such, hints that a fourth hike is inevitable this year may revive gains in the US Dollar. This also risks sending stocks and the S&P 500 lower.
European Shares Shine After U.S. Midterms
European shares bounced on Wednesday in a broad rally after U.S. midterm elections delivered no big surprise, with a string of solid earnings updates and a rally in Spanish banks on a favorable tax ruling also providing relief.
The pan-European STOXX 600 benchmark closed with a 1 percent gain near a three-day high hit earlier in the session, with all major country and sectoral indexes gaining between 0.5 percent and 2 percent on the day.
Spain’s stock market .IBEX closed at its highest since Oct. 10, boosted mainly by its banking sector.
The U.S. midterm elections saw Democrats ride a wave of dissatisfaction with President Donald Trump to win control of the U.S. House of Representatives on Tuesday, giving them the opportunity to block Trump’s agenda and open his administration to intense scrutiny.
A divided Congress could be neutral for equities overall, some dealers said, but the result spurred investors to return to riskier assets, such as equities.
“With the Democrats taking over the House we will now have to see what gridlock in Congress means for policy. As for the market impact, a split Congress has historically been bullish for equities and we expect to see the same pattern again,” said Torsten Slok, Chief International Economist at Deutsche Bank.
“It is too early to predict where policy will go … What matters for markets is what will happen to trade policy, healthcare policy, immigration policy and fiscal policy.”
Company results announcements drove the biggest movers on the STOXX 600, with Scout24 (G24n.DE), Ahold (AD.AS) and Vestas (VWS.CO) rising by between 6.2 percent and 7.6 percent after strong updates. Adidas (ADSGn.DE) fell 3.6 percent after the sportswear company cut its revenue target after a fall in sales in western Europe.
Bitcoin Cash, Litecoin and Ripple Daily Analysis – 08/11/18
It’s red across the trio this morning, with BCH and XRP seeing heavy losses as the froth comes off the top.
Bitcoin Cash Hits Reverse
Bitcoin Cash fell by 2.04% on Wednesday, partially reversing a 12.3% gain on Tuesday, to end the day at $620.5.
In a relatively choppy day, Bitcoin Cash recovered from a start of a day intraday low $608.4 to strike an early afternoon intraday high $646.8, before pulling back to an afternoon low $610.5. The moves through the day leaving the major support and resistance levels untested, with Bitcoin Cash managing to move back through to $620 levels.
At the time of writing, Bitcoin Cash was down 5.25% to $587.9, with a particularly bearish start to the day seeing Bitcoin Cash slide from a morning high $625 to an early morning low $580 before steadying, the reversal seeing Bitcoin Cash fall through the day’s first major support level at $603.67 to call on support at the second major support level at $586.83.
For the day ahead, a move back through to $600 levels would support a recovery through to the morning high $625, though with the broader market struggling, cutting the losses through the day with a break back through to $600 levels may be as good as it gets for the bulls.
Failure to move back through to $600 levels could see Bitcoin Cash give up more of the recent gains, with a fall back through the second major support level at $586.83 likely to bring $560 levels into play before any recovery, the third major support level at $548.43 unlikely to be tested barring particularly negative news hitting the wires.
Litecoin Tracks the Market
Litecoin slid by 3.69% on Wednesday, reversing most of the 4.45% rise on Tuesday, to end the day at $53.82.
A start of a day intraday high $56.4 saw Litecoin come up short of the day’s first major resistance level at $56.74, with a bearish morning seeing Litecoin slide through the day’s first major support level to an early afternoon intraday low $53.3 before steadying through the remainder of the day.
At the time of writing, Litecoin was down 1.24% to $53.15, with Litecoin tracking the broader market through the early hours. A start of a day bounce to a morning high $54.45 came up short of the first major resistance level at $55.71, with a broad based sell-off pulling Litecoin to a morning low $52.68 before steadying, support at the first major support level at $52.61 kicking in to prevent heavier losses early on.
For the day ahead, a move back through the morning high $54.45 would be needed to support a move through to $55 levels to bring the day’s first major resistance level at $55.71 into play, though Litecoin would need to make a move in the early part of the day to support a bounce back from the early losses.
Failure to move back through the morning high could see Litecoin track Bitcoin Cash deeper into the red, a fall back through the morning low $52.68 likely to see Litecoin slide through the first major support level at $52.61 to call on sub-$52 support levels before any recovery.
Ripple Hits the Brakes
Ripple’s XRP fell by 2.57% on Wednesday, partially reversing Tuesday’s 10.65% gain, to end the day at $0.54083.
A bearish start to the day saw Ripple’s XRP fall from a start of a day intraday high $0.55544 to a mid-morning intraday low $0.52837 before finding support through the afternoon to move back through to $0.54 levels. The moves through the day left the major support and resistance levels untested, while Ripple’s XRP continued to hold above the 38.2% FIB Retracement Level of $0.5225.
At the time of writing, Ripple’s XRP was down 4.75% to $0.51515, the bearish start to the day seeing Ripple’s XRP slide from a morning high $0.5463 to an early morning low $0.50964 before steading. The reversal saw Ripple’s XRP fall through the first major support level at $0.5277, 38.2% FIB Retracement Level at $0.5255 and second major support level at $0.5145 to come perilously close to sub-$0.50 levels.
For the day ahead a move back through the first major support level at $0.5277 would signal a possible 2nd half of a day recovery, with Ripple’s XRP needing to move through to $0.54 levels to support a run at $0.55 levels and the first major resistance level at $0.5547, though market sentiment and the news wires will need to be aligned to drive a recovery through the early afternoon.
Failure to move back through the first major support level could see Ripple’s XRP pullback through the morning low $0.50964 to call on support at $0.50, while we would expect Ripple’s XRP to avoid sub-$0.50 support levels on the day, barring dire news hitting the wires.
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