Forexlive Americas FX news wrap: Fed's Williams dovish comments sends the USD tumbling

Author: Greg Michalowski | Category: News

Forex news wrap for NY trading on July 18, 2019

The USD moved lower in the NY session and got an initial kick lower after some comments from Pres. Trump that tensions in Iran were easing a bit  The Iranian regime had made an overture for a truce on nuclear proliferation (still too early) if the US would will stop sanctions.  Of course, like most negotiations the overtures are one thing, getting to an agreement is another.  In any case, there was a tilt to the downside in the USD on the news (flight out of the safety of the dollar).  

The big moving event was the comments from the NY Fed's Williams who upped his dovish slant by saying:

  • It is better to take preventative measures on rates than to wait for disaster to unfold
  • Research shows that when a neutral rates are low you should not keep your powder dry
  • Policymakers must move more quickly to vaccinate the economy and add monetary stimulus when rates are close to zero
  • When rates are near 0 policymakers cannot afford to take a wait and see approach
  • Lower for longer rates foster good financial conditions, allows stimulus to pick up steam, allows inflation to rise
  • Promising temporarily higher inflation after rates touch zero can offset nearly all negative effects of low rates
  • If inflation gets stuck below the goal, people's expectations may push inflation lower, reducing Fed's ability to be effective
  • Long-term forces lowering neutral rates set to linger
  • Investors see low-inflation readings as a new normal
  • Williams currently estimates neutral rates in US around 0.5%
It is hard not to exclude any of those comments as each adds to the dovish argument in a different way.  

The headlines sent the dollar tumbling lower (the Dollar index - DXY - moved below it's 200 day MA).  The greenback fell against all the major currencies with the declines vs the GBP (-0.92%) and the AUD (-0.91%) as being the greatest.  The dollar also took a big step lower vs the NZD (-0.74%) and the JPY (-0.64%).  Below is a summary of the % changes of the major currencies vs each other. The USD was the runaway weakest.
 
Forex news wrap for NY trading on July 18, 2019

The reaction in other markets was equally as impressive.

  • Gold, which tends to go opposite the USDs move, continued it's reversal of earlier declines by rising by over $20 at the highs after William's comments. We currently trade up +$18.89 or 1.30% at $1445.58. The high reached $1448.29. The low was at $1414.65, down nearly -$12 on the day at the time. That was a big reversal for the precious metal
  • US stocks reversed earlier declines and ended higher on the day. For the the Nasdaq index it closed up 22.036 points at 8207.24, after being down -50 points at the lows. The S&P index closed up 10.69 points at 2995.11, after being down -11.33 points at the lows. The Dow closed near unchanged but recovered a -0.50% decline at the lows.  Below is a graphical look at the % low, high and close levels in the North American and European indices today
US stocks close higher after a down and up ride today
  • Bond yields reversed course as well after being up in the NY morning, they reversed on the comments and are trading lower by up to -6.1 basis points in the short end (the shorter end fell over -5 bps yesterday).  The longer end saw the yields of the 30 year rise by 0.7 bps as the yield curve steepened on hope for multiple cuts by the Fed.  In fact the expectations for a 50 bp cut in July surged from about 34% at the close yesterday to close to 65% currently.  That'lll help to steepen the yield curve. Below are the changes and high to low ranges for the varies maturities (from 2 to 30 years). 
US yields move lower.
Some technical levels for some pair in the new day:
  • EURUSD: The EURUSD moved up to the 100 and 200 bar MAs and 38.2% of the move down from the June 25 high at the 1.1272-79 area. The high today reache 1.1279 and trade at 1.1275 currently. A move above that area and the highs from last week and this week at 1.1285 will open the door to 1.1302 (50% of the move down from the June 25 high).
  • GBPUSD:   The GBPUSD also moved higher but is stalling at the 100 bar MA on the 4 hour at the 1.25549. A move above would look toward the 50% at 1.2582 and then the 200 bar MA on the 4-hour at 1.2614.  On the downside, the pair should not travel below the 1.2500 level if the move higher is to continue.
  • USDJPY: The USDJPY fell below support at 107.53-56 (lows from June 27 and July 3rd) on its way to a low of 107.22. That break level (at 107.53-56) is risk level for shorts now.  A move lower looks toward 107.039 (low from June 21) and then the June low at 106.773. 
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