Americas

Today UK Prime Minister Theresa May announced her resignation, effective June 7^th. The contest for new Conservative leadership is expected to be complete by the end of July, with Boris Johnson the odds-on favorite as May’s replacement. Johnson has been a leading ‘Brexiteer’, prompting JP Morgan to raise the likelihood of a no-deal (‘hard’) exit to 25% from the previous 15%.

The Pound Sterling initially strengthened following May’s announcement, with the GBPUSD trading as high as 1.2718, or +0.51% compared to yesterday’s close. The pound has since surrendered some of those gains but remains higher for the day.

The dollar is broadly weaker today, following though on yesterday’s losses initiated by fresh tensions over US/China trade. The dollar’s largest percentage declines are against the NOK (-0.60%), SEK (-0.57%), and NZD (-0.41%).

U.S. Durable Goods data released today showed orders declined in April by 2.1%, worse than the consensus estimate of -2.0%. And the prior reading of +2.6% was revised down to +1.7%, a significant negative adjustment.

Americas

Overnight the Trump administration loosened trade restrictions placed on Huawei, China’s tech giant and leading manufacturer of smartphones. Last week the U.S. Commerce Department added Huawei to an export blacklist, preventing the company from purchasing almost any U.S. goods, spurring a global equity selloff. Today’s reprieve grants Huawei a 90-day license to continue to receive software updates for its cellphones and was the catalyst for today’s rally in equities.

The DXY (dollar index) is higher today, its 6^th daily gain over the last seven trading sessions and is trading above 98.00. Key resistance is nearby at 98.30.

Today’s primary dollar gains are concentrated against the APAC currencies: AUD (+0.56%), NZD (+0.49%), JPY (+0.44), TWD (+0.25%), and SGD (+0.14%). The Australian dollar is trading just above key weekly support at 0.6875. A weekly close below 0.6875 and a monthly close below 0.7015 will trigger system generated sell signals, adding momentum to further AUD declines.

U.S. Existing Homes Sales data released today for April show a gain of 5.19m vs. the estimate 5.35m. The -0.4% decline compared to March was well below the anticipated gain of 2.7%.

Americas

The dollar is broadly higher today, driving the U.S Dollar Index to its 5^th consecutive daily gain. Ongoing uncertainty surrounding US/China trade tension continues to drive flows towards the traditional ‘safe haven’ currencies (USD, JPY, CHF).

Today the Japanese yen is higher by 0.10% vs. the dollar, bringing the yen’s monthly gain to +1.53% against the greenback. Similarly, the CHF has gained 0.71% vs. the dollar during May. The dollar has made gains of its own, most notably against the GBP at +0.35% today and +2.24% for May.

The pound sterling traded to a fresh 3-month low today following reports of failed Brexit negotiations. Brexit seems to have dropped out of the headlines after the March 29 deadline was extended to October 31. In fact, online searches for ‘Brexit’ headlines have declined by 81% since the week of March 24-30 according to Google Analytics. Nevertheless, the Brexit process continues, along with the potential for volatile trading in the GBP.

The Mexican peso has declined as much as 1.33% vs. the dollar over two days of trading after the Bank of Mexico left the key borrowing rate unchanged at 8.25% at yesterday’s policy announcement. Daily volatility in the USDMXN pair has increased from 9.1074 on April 30^th to 11.3746 today (a gain of 24.89%). Resistance at 19.2400 continues to limit the dollar’s advance.

Americas

The dollar continues to rally from Monday’s selloff (where the DXY traded to a low of 97.028), and is currently trading at 97.675, a rebound of 0.67%. Monday’s weakness was spurred by China’s strategically timed announcement (just before the market open in the U.S.) of retaliatory tariffs on U.S. goods.

Today’s primary gains for the dollar are against the GBP (+0.50%), MXN (+0.35%), AUD (+0.30%), and NZD (+0.27%), with losses against the JPY (-0.24%), and CHF (-0.07%). Today’s activity mirrors the dollar’s performance for the month with MTD gains against the GBP (+1.60%), AUD (+1.31%), MXN (+1.12%), and NZD (+1.00%) and losses against the JPY (-1.85%) and CHF (-1.00%).

The GBPUSD has declined in seven of the last eight daily sessions and is trading at a 3-month low. Next support is seen at 1.2750.

Monthly Retails Sales data was reported for April this morning at -0.2% compared to the estimate of +0.2, a significant miss. Industrial Production and Capacity Utilization for April was also released today and showed a decline of -0.5% vs. the estimate of 0.0% (no change). The duo of disappointing economic results is weighing on equities this morning with the major U.S. indices down 0.50% on average.

Americas

The U.S. dollar is lower this morning against all the G10 currencies with notable declines against the NOK (-0.63%), CAD (-0.58%), SEK (-0.41%), and CHF (-0.37%). The dollar’s declines also extend to a broad list of majors/minors including the ZAR (-1.02%) and MXN (-0.38%).

Sentiment shifted against the dollar as updated Consumer Price Index (CPI) data was reported this morning at +0.3% for April compared to the +0.4% estimate. Inflation for April was tied primarily to rising gasoline prices which increased 12% during the month (and 60.4% over three months). Gas price increases are tied to refinery maintenance and unexpected short-term temporary factors so are discounted as truly inflationary. Yesterday’s Producer Price data combined with today’s CPI are the latest in a string of disappointing inflation readings and will require the Fed to continue its ‘patient’ stance on rate policy.

Equities are down this morning as new tariffs of 25% on Chinese goods went into effect early this morning. The S&P500 Index is currently -1.09% today and -3.51% for the week. The CNH (China Renminbi) is down 0.38% vs. the dollar today, extending its decline for the week to -1.91%.

Americas

U.S./China trade tensions continue to dominate the headlines ahead of today’s talks in Washington. Recent comments by U.S. and Chinese officials reflect a hardening stance on both sides, dimming the hope of any reconciliation soon. The Trump administration is set to implement a new round of tariffs on Chinese goods starting at 12:00am Friday, May 9^th, where tariffs on $200bio of Chinese exports will increase to 25% (from the current 10%). Trump has also suggested additional tariffs of 25% on another $325bio of Chinese goods may be forthcoming if trade negotiations fail to make progress. Unsurprisingly China has threatened retaliatory tariffs.

Lack of progress on U.S./China trade negotiations has led to a spike in market volatility, primarily in the equities markets where the VIX (volatility) Index has jumped to 22.77 from last Friday’s close at 12.87. The major stock indexes have seen significant declines since last Friday’s close with the S&P500 -3.41%, the Dow Industrials -3.20%, and the Nasdaq100 -4.36%.

The currency markets have been largely insulated from the tariff-induced volatility. The US Dollar Index is currently down 0.27% from Friday’s close with dollar major declines against the JPY (-1.31%), EUR (-0.28%), and CHF (-0.24%) and gains vs. GBP (+1.20%), NZD (+0.92%), AUD (+0.57%) and CAD (+0.45%). The dollar has advanced 1.35% vs. the Chinese Renminbi over the same 6-day period.

Producer Price Index data released this morning showed an April increase of 0.2%, below the forecast of 0.3%. With wholesale inflation unchanged over the last year at 2.2%, inflation continues to be a no-show.

Americas

A Tale of Two Feds. Yesterday the FOMC released its prepared policy statement, which was largely in line with expectations… solid jobs gains, low unemployment, low and declining inflation, and no rate change. The key text of the statement relating to inflation was: “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed.” The absence of inflation is one thing, but the mention of declining inflation was unexpected and supported the current premise that the next policy action would be a rate cut.

However, in the post-announcement press conference Fed Chair Powell offered a different take on inflation stating that “We suspect that some transitory factors may be at work. Thus, our baseline view remains that, with a strong job market and continued growth, inflation will return to 2 percent over time and then be roughly symmetric around our longer-term objective.”

In a matter of minutes, the focus shifted from declining inflation to an expected increase in inflation over time. The whipsaw impact on the dollar was evident as the US Dollar Index went from the day’s low of 97.150 to a high of 97.728 (a gain of 0.59%) during the brief shift between the policy announcement and the press conference. The dollar closed the day broadly higher with the most significant gains vs. the NZD (+0.78%), AUD (+0.47%), CAD (+0.43%), and MXN (+0.26%). Dollar strength has carried over to today’s session on increasing dollar momentum.

USDCAD: Near-term support is seen at 1.3390 and resistance at 1.3505. Medium-term resistance at 1.3560 and 1.3650. Long-term trendline resistance at 1.3800. Daily, weekly, and monthly signals point to a stronger USD.

USDMXN: Near-term resistance currently at 19.1900 and higher at 19.2900. Medium-term resistance is seen at 19.4600. Support at 18.8000 and key support at 18.7500.

Americas

The dollar closed April with a gain against eight of the G10 currency pairings, its only loss vs. the EUR with a minimal decline of 0.02% and no change vs. the DKK. The dollar's primary gains were against the SEK (+2.18%), CHF (+2.02%), NZD (+1.92%), AUD (+0.90%) and CAD (+0.61%). 

The dollar's strength carried over to a wider basket of major and minor currencies, the only exception coming against the Mexican peso with a decline of 1.04%. The dollar’s decline vs. the peso is consistent with the market's recent trend to increase exposure to 'risk' assets.

Today the dollar is mixed in quiet trading ahead of the FOMC’s rate policy announcement scheduled for this afternoon. The dollar is lower vs. the MXN, CHF, GBP, EUR, & JPY but higher against the NZD, CAD, SEK, NOK, and AUD.

The FOMC rate decision will be released today at 2PM ET and the expectation is for no change. The probability of a rate cut today is currently a miniscule 2.2% and a 0% for a rate hike. However, over the next five FOMC meetings scheduled for this year the chance of a rate cut increases significantly, starting at 23.4% at the June meeting and ending the December meeting with a 68% probable cut.

Americas

The dollar is trading lower today against most major currencies, continuing the theme of a global move into more risky assets. The dollar’s biggest decline in the majors is vs. the AUD at -0.79%, followed closely at -0.58% vs. the NZD. Gains in Asian assets is being fueled by China’s ongoing stimulus efforts to spur economic growth. The AUDUSD is now trading at its highest level in 7 weeks in a directional move that may attract additional momentum buying. Next resistance is at 0.7250 and higher at 0.7300.

Other declines for the dollar are -0.57% vs. EUR, -0.42% vs. CAD, -0.41% vs. GBP, and -0.34% vs. MXN. The US Dollar Index failed to breach 97.200 in three consecutive attempts and is now -0.40% at 96.800, its lowest level in the previous 13 trading sessions. Next support comes into play at 96.500 and major support now seen at 96.300.

Today the USDMXN is trading below 18.8000 (long term trendline support) and has tested as low as 18.7430. A close below 18.8100 will mark the lowest close since 18 Oct of last year. Next support is at 18.7000 and major support at 18.5000.