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USD strengthens ahead of central bank week

USD strengthens ahead of central bank week

 

- USD continues to trade with a positive bias on Monday morning and should consolidate last week’s gains as traders brace themselves for this week’s FOMC and BoJ meetings

- Investors expect the BoJ to further ease monetary policy by cutting its policy rate from -0.10% to -0.15%, while the government may also do its bit by delivering fiscal stimulus

- The market will likely await the BoJ’s announcement on Friday before massively selling the yen and pushing USD/JPY above the 108 resistance level

- Meanwhile, the currency pair should trade sideways between 105.50 and 107.50

- RBNZ: The bias remains on the downside as the central bank is expected to deliver a rate cut at its August meeting

 

The US dollar continued to trade with a positive bias on Monday morning consolidating last week’s gains as traders brace themselves for this week’s FOMC and BoJ meetings. The market is not expecting the Federal Reserve to tighten its monetary policy on Wednesday but is definitely awaiting an update on its thinking. On the other hand, market participants expect the BoJ to further ease by cutting its policy rate from -0.10% to -0.15%, while the government may also do its bit by delivering fiscal stimulus.

 

In spite of these expectations, the Japanese yen rallied in Tokyo as traders wondered whether the BoJ would ultimately deliver the stimulus. USD/JPY erased early session gains and returned to around 106 on the European opening. The market will likely wait for the BoJ’s announcement on Friday before massively selling the yen and pushing USD/JPY above the 108 resistance level. Meanwhile, the currency pair should trade sideways between 105.50 and 107.50.

 

Precious metals had a tough start into the week against the backdrop of a strengthening US dollar. The yellow metal slid 0.38% on Monday and returned towards the $1,300 threshold. Silver also faced significant selling pressures as it slipped 0.70%, down to $19.49 an ounce. On the upside, the $21 resistance still holds, while on the downside a support can be found at around $19 (previous lows).

 

NZD/USD swung widely on Monday as the currency pair tested the strong 0.70 support level (50dma and psychological level). The Kiwi dropped first to 0.6957 on falling commodity prices before bouncing back at around $0.70. Overall, bias remains on the downside as the RBNZ is expected to deliver a rate cut at its August meeting.

 

Asian equity returns were mixed this morning with most equity indices already back near 2016 highs. The Nikkei consolidated at around 16,620 points, edging down 0.04% on the session, while the broader Topix index slid 0.19%. In mainland China, the Shanghai Composite fell 0.20%, while its Shenzhen counterpart was down 0.37%. Offshore, Hong Kong’s Hang Seng fell 0.24%. Further south, the NZX/S&P was up 1.26%, while Australian equities were up 0.64%. European futures are moving back-and-forth across the neutral threshold and are currently blinking green.

 

Today traders will be watching IFO business climate from Germany; capacity utilization form Turkey; Dallas Fed manufacturing activity index.

Monday, 25 Jul, 2016 / 8:47

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