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USD takes a breather, BoE decision time

- EURUSD trading with a negative short term bias and should find a strong support at 1.10

- AUDUSD may keep on rising on treasury yields recovery heading towards 0,7676

- BoE: Despite mounting expectations, we only expect some fine tuning with a 25bp cut to .25% with no change in QE at £375bn


After suffering a substantial sell-off against most of the G10 currencies - the dollar index has tumbled 2.60% since mid-July - the US dollar had a surge of pride on Wednesday and continued to recover the following day as Chicago Fed President Evans declared “I do think that perhaps one rate increase could be appropriate this year,” before adding “even if I would prefer none until we saw inflation much more strongly.” Overall, the market took this declaration as a strong sign of confidence in the US economy, especially from one of the most dovish FOMC members (albeit one who is non-voting this year). EUR/USD continued its downside adjustment yesterday as it broke the 1.1170 (Fibonacci 50% on June’s debasement) level before stabilising at around 1.1135 during the Asian session. The pair is trading with a negative short-term bias and should find a strong support at around 1.10 (psychological level and bottom of the yearly rising trend line).


The Australian dollar took a breather in overnight trading, boosted by a recovery in treasury yields. Australian 10-year yields moved closer to the 2% threshold in Sydney, surging 15bps since Tuesday. Similarly, 5-year yields bounced up almost 10bps to 1.55%. AUD/USD rose 0.18% to 0.7602 in spite of lacklustre data from the retail sector. Indeed, June retail sales rose 0.1%m/m (versus 0.3% consensus and 0.2% previous). In the second quarter, retail sales ex inflation surged 0.4%q/q and missed estimates and the previous reading of 0.5%, suggesting that domestic consumption is having a hard time taking off as consumers struggle to get better clarity on the country’s outlook. AUD/USD continues to trade with an upside bias, headed towards the next resistance at 0.7676 (high from July 15th).


Peter Rosenstreich, head of market strategy: BoE: Despite big expectations, we are only expecting some fine tuning with a 25bp cut to .25% and no change in QE at £375bn (Many expect a broadening and extending of purchases). We suspect that with weak but limited data the majority of BoE members are unlikely to “drop the hammer”. Until last week the economic data post-vote was not particularly damaging, however the collapse of PMI (sharply below 50 expansion threshold) sent Weale to the easing side. For the market a 25bp cut will be merely ceremonial given the status of global loose economic policy. There is growing support for a switch to fiscal stimulus as seen in Japan. With the sterling pressed by about 12% since pre-referendum levels this should be considered easing, yet with UK policy rate finally below the US for the first time in decades and UK spreads at their widest since 2000, the BoE will have no problem guiding the pound lower.” ---


Today traders will be watching Markit retail PMI from Germany, the euro zone, France and Italy; BoE interest rate decision and asset purchase target; initial jobless claims, factory orders and durable goods orders from the US.

Thursday, 04 Aug, 2016 / 8:42

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