Earning Seasons

Dollar Dips Ahead of Key Data, FOMC Meet; Stocks Erase Gains

Summary: The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value relative a basket of 6 major currencies ended slightly weaker in choppy trade. USD/DXY dipped to 99.979 from 100.058. Ahead of key data releases today, the Federal Reserve meeting, and upcoming month-end, FX moves were inconclusive. Commodity cousins, the Australian and New Zealand Dollars extended their gains are both countries began opening their economies successfully taming Covid-19. The Aussie was up 0.64% in late New York at 0.6492 after hitting 7-week highs at 0.65138 overnight. The Kiwi finished 0.44% higher at 0.6061 (0.6044). The Euro erased gains after trading to an overnight high at 1.08885, ending little-changed at 1.0822 (1.0825). Ratings agency Fitch cut Italy’s credit rating to BBB-, one notch above “junk” status. The Dollar eased 0.25% against the Yen to 106.87 from 107.27, as month-end rebalancing demand boosted the Japanese currency. Sterling finished flat at 1.2425. Against the Canadian Loonie, the Dollar closed 0.31% lower to 1.3995 (1.4045) as Oil prices steadied after another highly volatile session. Wall Street stocks erased gains after a slew of mixed corporate earnings. The Dow shed 0.1% to 24,102 (24,122). The S&P 500 lost 0.3% to 2,864 (2,877). Bond yields slipped with the key US 10-year rate closing at 0.61% (0.66%).
Japan’s Unemployment rate was unchanged at 2.5%, matching forecasts. The Bank of Japan’s CPI measure for the country slipped to 0.1% from 0.2%. The UK Conference Board’s April Realised Sales slumped to -55, underwhelming forecasts at -45 and the previous month’s -3. US April Trade deficit blew out to -USD 64.26 billion from -USD 59.9 billion. The US Conference Board Consumer Confidence Index weakened significantly to 86.9 in April from a downwardly revised 118.8 (from 120.0), missing expectations of 88.3.
On the coronavirus front, US cases passed the 1 million mark while deaths topped the 58,220 lives lost in the Vietnam War, according to a Bloomberg report. The daily death toll in New York though dipped to 335 slightly below the previous day with the state appearing to have hit a peak.

US Richmond Manufacturing - Forex Factory - 29 April 2020
US Richmond Manufacturing – Forex Factory – 29 April 2020

On the Lookout: Today sees the release of several key reports, all of which can move FX. Expect consolidation into these numbers in what will likely be another highly volatile session. Japanese markets are closed in observance of Showa Day.
New Zealand’s April Trade Balance just released saw its Surplus ease to +NZD 672 million from March’s downwardly revised +NZD 531 million (from +NZD 594 million) and missing forecasts of +NZD 700 million. NZD/USD was little changed at 0.6060 following the release.
Australia reports it 202 Q1 Headline and Trimmed Mean CPI report, both forecast to ease slightly.
Euro area data kicks of with Germany’s Import Prices, and Preliminary CPI reports. Switzerland releases its Credit Suisse Economic Expectations. US reports finish off the day with Advance Q1 GDP and GDP Price Index and Pending Home Sales.
The big event is the Federal Reserve’s interest rate meeting and press conference (4.30 am Sydney time, 30 April). The Fed meeting and rate announcement will come after the release of Q1 GDP. The Fed is widely expected to leave interest rates unchanged. Markets will focus on what the Fed expects from the economy this year. How Jerome Powell assesses the contraction and what he emphasises.

Trading Perspective: The month-end rebalancing needs saw demand for currencies which weighed on the US Dollar. Much of this demand has been satisfied and the spotlight is now on the data and FOMC statement. Expectations are for downbeat US data and FOMC. Market positioning is also short US Dollars into today’s reports. Market positioning will be a factor in today’s trade. The risk is for a setback in the broadly weaker US Dollar sentiment.

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