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Dollar bears singing summertime blues

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Michael O’Neill

FX Trader, Loonieviews.net

USD dollar bears are raising a fuss and a holler. They’ve been short all summer just trying to earn a dollar (apologies to Eddie Cochran). Then, yesterday, Bank of England Governor Mark Carney and Fed Chairman Jerome Powell proved their efforts were in vain. 

The broad US dollar rally triggered by dovish comments from Carney and exacerbated by Powell’s rosy, rate raising outlook, continued until just after the New York open. Apparently, EURUSD traders decided that the 1.2% drop in the single currency from yesterday morning was enough. They may have been encouraged by the 12.3% drop in US housing starts in June and a 2.2% fall in building permits. In addition, European Central Bank governing council member Francois Villeroy repeating his comment from last week, that the earliest ECB rate hike would be in the summer of 2019, underpinned the single currency.  However, as rallies go, it was pathetic. EURUSD rose from 1.1602 to 1.1638. For today, a break above minor resistance at 1.1665 would extend gains to 1.1690.

Sterling can’t catch a break.  A dovish Carney does his best to derail sentiment for a UK rate hike on August 2. This morning’s string of soft UK economic reports which included a weaker than expected June CPI report (Actual 2.4% vs forecast 2.6%) coupled with rising fears of a no-deal Brexit led to GBPUSD probing support in the 1.3010 area. Prime Minister Theresa May’s tenuous tenure and the risk of UK elections has fueled the downside and until it is resolved with limit gains. Boris Johnston’s speech could cause fireworks. Some believe it could be his opening gambit for a leadership bid.

Fed Chair Powell’s has started his second day of testimony. Analysts expect a repeat of yesterday’s optimistic economic outlook.

Wall Street opened flat. Traders have tempered their enthusiasm for strong corporate earnings because of the plunge in oil prices. WTI oil prices are hovering around the recent low of $67.05. Traders expect today’s Energy Information Administration (EIA) crude stocks change report to echo yesterday’s increase in weekly crude oil stocks, reported by American Petroleum Institute.

EURUSDhourly.                                                                                                                                  Source:Saxo Bank

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