US Dollar Gains for Second Session

Daily Analysis - 27/09/2017

Fed Chair Yellen’s Rate Hike Talk Supports Greenback

The US dollar added to gains against major rivals on Tuesday after Federal Reserve Chair Janet Yellen reinforced expectations for another interest rate hike in 2017. Yellen remarked that the Central Bank needs to continue with gradual rate increases despite uncertainty surrounding the inflationary trend and its possibility of remaining lower for longer.

Euro Slips Further as Dollar Rebounds

Federal Funds futures showed that investors had priced in a roughly 78.00% chance of the Federal Reserve delivering another rate hike in December. Typically, the prospect of tightening monetary policy is viewed as bullish for a country’s currency, which would explain this week’s strength in the US dollar.

Meanwhile, the Euro tumbled to a five-week low of $1.17575 on Tuesday, dented by the growing popularity of the far-right in Sunday’s German election, which has resulted in Chancellor Angela Merkel struggle to weave together a coalition government. Sentiment in the common currency was also hurt by growing tensions in Spain’s Catalonia region. EURUSD was last seen around the 1.1765-mark. The immediate trend is the pair has turned bearish, with a breach of the key support at 1.1750 potentially causing the sell-off intensify.

China Industrial Profits Soar

Industrial firms in China extended their earnings surge this year, indicating resilience in the world's second largest economy despite a slowdown in investment and factory output. Annual profits jumped 24.00% in August to CNY 672.00 billion ($101.21 billion) according to figures compiled by the National Bureau of Statistics, helped in large part by rising commodity costs. On an annualized basis, profit growth stood at 16.50% in July.

For the first eight months of the year, the firms recorded profits of CNY 4.92 trillion, a 21.60% gain over the same period last year. Last month’s robust industrial earnings growth was primarily driven by higher prices, especially in sectors such as steel, oil and electronics per the official statement distributed by the statistical agency. The USDCNH pair was last seen around the strong resistance at 6.6290 in early Wednesday trade.

US Residential Real Estate Sustains Price Increases

Home prices in the United States rose in July even as sales waned, suggesting that the limited supply of properties is disrupting the real estate market. On a yearly basis, the S&P Case-Shiller National Home Price Index edged 5.90% higher in July, slightly faster than the 5.80% annual pace recorded in June. Seattle, Oregon, Portland and Las Vegas witnessed the biggest gains, with prices in Seattle jumping 13.50% through the end of July.

The weakest increases were in Chicago and Washington D.C., both of which reported 3.30% gains. Construction of new homes has been hit by a limited supply of land and difficulty finding construction workers, intensifying the competition among buyers in the market. After a steep decline last week that carried over through Monday, Nasdaq futures are currently trading around 5900 as they gradually recover and extend Tuesday’s gains.

Mexican Joblessness on the Rise

Data from the statistical office INEGI distributed late Tuesday showed that the unemployment rate in Mexico climbed in August for the first time in nine months on a seasonally adjusted basis. The unemployment rate edged up to 3.30% last month from 3.20% in July, matching economists’ expectations.

The rise was the first since November of 2016, when the jobless rate increased to 3.70%. Unadjusted, the unemployment rate surged to a three-month high of 3.53% in August from the 3.41% recorded a month prior and forecasts for a reading of 3.42%. In Mexico, the unemployment rate is officially defined as the percentage of the labour force that worked for less than an hour during the reference period, but expressed a willingness to work. The USDMXN pair is gaining Wednesday morning, breaking above resistance to currently hover around 17.9900.