In last week’s blog on 10th June, I said the following…
“I view the current dollar weakening (cable bounce) as a correction with possible targets at 1.5490, or possibly 1.5670, and furthermore, it would seem unlikely that a new impulsive wave in the dollar bull-trend commences until at least the backend of next week.”
So far this week, cable (GBP/USD) has rallied as high as 1.5655, and we are currently not too far from those highs, later on today we’ll get the announcement from the Federal Reserve, following the Federal Open Market Committee meeting which started yesterday. I see no reason to retract my prognostications of late last week, if any dollar rally ignites this week, it was always likely to be after we’ve moved on from what could be a potentially significant event in the macro-world. To be clear, the market believes that September is the most likely start for a rate hiking cycle in the United States, but we should get more clarity about how the US Central bank intends to manage monetary policy in the latter half of 2015. I keep looking at longer term historic charts of US dollar index, to get an insight into the price action during a longer term major bull trend, and the inescapable conclusion is that the correction we’ve had since the highs of mid-March have been mild, and relatively brief in comparison to past events. I’m particularly drawn to the huge Volcker inspired rally that ended in the mid-1980s and also the rally that ended just after the millennium, if even the smaller rally is an indication of how far much dollar appreciation is still to come, then we are not even half way there yet. Consider the implications of that statement… we have seen the greenback strengthen from EUR/USD 1.40, and we might not have seen half of the move yet? Woof!
Non-oil exports out of Singapore were published in the Asian session today, and they were quite disappointing, -0.2% versus +3.1% forecast for year on year to May. I always pay special attention to any data out of Singapore as it is an extremely open economy that is as connected to the global supply chain as any. It is effectively a litmus test for the global economy, so perhaps some concern is justified.
In a short time we’ll get average earnings data for the UK. I’ll be paying special attention to this data, it will get tougher for Governor Carney to keep rates on hold until next year if things start to run ahead of him. It would also cause further strength in pound sterling. We should at least get more information about the voting split at the Bank of England a little later this morning, truth be told, no one is expecting any surprises here. All are expected to have voted to maintain the status quo.
For now, we maintain the belief that the US dollar is in fact ascendant, and as I’ve said in the recent past, we will hold to that view unless EUR/USD goes above 1.1467 and GBP/USD goes above 1.5816. We don’t expect too much excitement from the major currencies until after the FOMC announcement which is at around 7pm UK time.
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