Dollar holds on to monthly gain NBK Treasury Group Newsletter
The US dollar has held on to its monthly high supported by rate hike expectations in December. Fed Chair Janet Yellen said the Fed needs to continue gradual rate hikes despite broad uncertainty about the path of inflation in her speech yesterday. Yellen’s remarks attempted to resolve a debate that has split members of the central bank among those worried that inflation may not be at the level needed for a hike. In addition, the interest rate hike probability for the December meeting jumped to 70 percent after Yellen’s speech.
On the data front, new home sales came at 560K versus the forecasted 585K, a second straight decline in purchases of new US homes and combined with downward revisions for prior months, showed a declining market as results begin to be clouded by the fallout from Hurricanes Harvey and Irma.
In Europe, ECB President Mario Draghi spoke to the European Parliament’s committee on economic affairs in Brussels yesterday. Draghi emphasized the need to be “sensitive to the danger of not halting a recovery through hasty monetary-policy decision making.” And he warned that any change of monetary policies will maintain “the degree of monetary support that the euro-area economy still needs to complete its transition to a new balanced growth trajectory characterized by sustained conditions of price stability.” Nonetheless, Draghi still sounded upbeat and noted that “economic expansion is now firm and broad-based across euro area countries and sectors.”
EUR/USD broke important support of 1.1820 now trading around 1.1775. Short and Medium term outlook remains bearish. Further decline is expected and next big support is 1.1665 which needs to break to resume a medium term downtrend move. On the upside a break of 1.1915 would turn the pair to neutral outlook. USDJPY is pushing higher. However, medium term outlook is neutral. For a clear direction, need a break of 112.85 to confirm the uptrend. On the downside, a break below 111.20 would turn the outlook to negative.