“The US Fed’s statement Wednesday may give traders a reason to buy back US Dollars.”
The US Dollar looks oversold to me and with US Treasury Yields on the rise, I anticipate a reversal pattern back higher is not far away. Stock market traders will also be very wary of rising US Treasury Yields and I note the Dow Jones was down over 177 points on Monday as a result of rising US Yields. As US Treasury Yields rise (the guaranteed return the US Government pays investors to lend it money) this will likely see money shift out of stocks and into fixed income which US Treasury Yields offer. The thought process will be “why risk money on stocks when the US Government will pay me potentially 3% on my money guaranteed if Yields continue to rise.” US economic data released on Monday continues to show the US economy is on an upward trajectory and with the US Fed’s first statement for 2018 only days away I am sure investment banks and hedge funds are looking for a valid reason to buy back US Dollars. The latest personal income and personal spending data met the market’s estimates on Monday and the PCE Core reading, which is a personal consumption index also met market expectations. The US Dollar, as a result, was supported through the US trading session and will benefit further if US stocks continue to decline.
The Euro and Pound that both rallied strongly throughout the month of January have recently given back some of those gains mostly on profit taking with no significant new news from the ECB or BOE. The profit taking, in my opinion, is because many traders want to be flat leading into the US Fed’s statement on Wednesday and it will give them an opportunity to load up into new trade positions. There is no expectation that the US Fed will raise the official cash rate this week, however, there is a general consensus that March will be the month the Fed lift rates for the first time in 2018. Traders are expecting no less than three rate hikes from the US Fed this year and when you consider what interest rate differential that will create between the US Fed and other Central Banks such as the RBA, RBNZ, BOE, ECB and others the sell-off on the US Dollar in January will be viewed by many as an oversold buying opportunity. I also think the Aussie and Kiwi Dollars are due for a pullback against the greenback and this week’s US Fed statement could give traders reason to exit their long AUDUSD and NZDUSD positions. If the US stock market continues to fall this week the Aussie and Kiwi Dollars will also fall along with it, particularly as US Treasury Yields rise.
Fourth quarter Euro Zone GDP, German inflation data and a speech by BOE Governor Carney headline the economic news through the European trading session today. The US trading session sees a US consumer confidence number released but I do not anticipate it to be a big market mover. If you see the Kiwi and Aussie Dollars move this morning it will likely be post the Trade Balance data released in New Zealand at 8.45am AEDT and then the NAB Consumer Confidence report for Australia at 11.30am AEDT. Neither of these reports is likely to rock the boat too much.
About the Author: Andrew Barnett
Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).
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