Fed’s Bullard Sends Dollar Climbing

Daily Analysis - 21/07/2015

Powerful FOMC Voting Member Hints High Probability of September Liftoff


The US dollar continues to make gains against peers, rebounding to multi-week highs against as a basket of currencies as anticipation of September rate hike continues to mount. Augmented by the idea that the Federal Reserve no longer needs to implement crisis driven policies, traders repositioned for the possibility that the September FOMC Meeting will be the date for liftoff.

Bullard Jawbones Dollar Higher

Comments yesterday from St. Louis Federal Reserve President James Bullard were enough to send the dollar to five week highs after remarking that it was “prudent to raise rates off zero.” This immediately sent the US dollar higher against peers as an exit from bonds sent treasury yields soaring. Other relevant observations such as the idea that the “economy doesn’t need emergency policy setting anymore” combined with “asset prices not in bubble territory but it’s a risk” has raised the probability of a September hike above 50%. The dollar continues to make strides against the New Zealand dollar, Australian dollar, and Canadian dollar as anticipation of higher rates is seeing renewed interest in the relative safety of the dollar considering the continued accommodative monetary policies implemented in other developed economies.


Australia Prefers Accommodation

The minutes released overnight from the latest Reserve Bank of Australia Monetary Policy Committee meeting showed that the Central Bank is choosing to maintain its dovish bias while in the meantime awaiting further data and developments before adjusting policy further. The major emphasis of the minutes was unemployment which actually saw a slight uptick last month, with policymakers concerned about continued slack in the labor market. However, continued improvements are expected as the confluence of slower immigration and population growth are expected to help the employment rate improve further in the short-to-medium term. This contrasts with earlier observations pointing to expectation of a rise in the unemployment rate considering the weakness in the commodity sector which is projected to persist for some time. The AUDUSD currency pair continued to weaken overnight on the back of the minutes as the accommodative policy slant endures.


Commodity Crash Continues

The pain in the energy and precious metals asset classes continued throughout the session yesterday with oil picking up the weakness where gold prices left off. The Bloomberg Commodity Index fell to 13-year lows in a sign that the global downturn continues to accelerate with demand for base commodities faltering. Much of the softness in prices is originating in China which is seeing increasingly sluggish housing growth and fading industrial production. Concerns about the volatility in the equity markets are also seeing investor interest in other assets classes decline as traders rush for the exits in some cases and double down in others. The volatility has led to a wave of margin calls and liquidations, many of which have become increasingly manifested as the catalyst for the vulnerability in commodity prices. Oversupply continues to be strong a indication that the price rout may persist indefinitely.


French CAC Equidistant Channel Technical Pattern

Pervasive optimism has sent European equities rallying for the last week after regional parliaments agreed to bridge financing for Greece and a new round of negotiations for a third bailout package. Regional equity benchmarks are trending higher, with the French CAC 40 currently trading within an equidistant channel pattern. French equities have been pushed higher by improving economic data despite the lingering concerns about the economy, unemployment, and overall competitiveness. The technical formation has an upside bias with ideal positions taken at the lower channel line targeting the upper channel line. However, should the index’s price fall below the lower channel line, it could indicate a potential channel-based breakout to the downside and reversal to be accompanied by renewed momentum.


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