Forexlive Americas FX news wrap: Fed's Williams dovish comments sends the USD tumbling
Forex news wrap for NY trading on July 18, 2019
- Major US stock indices close with gains
- USD continues the fall
- Gold trades to highest level since May 2013
- Pres. Trump: US ship took defensive action against Iranian drone
- Fed's Clarida: US economy is in a good place but uncertainties have increased
- Fed funds futures now pricing in at 59% chance for 50 bps cut in July
- Even more Williams: low inflation expectations a worry as economy strong
- WTI crude oil futures settle at $55.30
- More Williams: US inflation expectations are far more anchored than 25 years ago
- Iran offers nuclear deal if US lifts sanctions
- Fed's Williams: It is better to take a preventative approach than to wait for disaster
- European shares and the session lower on the day
- Iran Pres. Rouhani says Iran is determined to leave doors open to save nuclear deal
- Fed's Bostic downplays warning signal from inverted yield curve
- US leading index for June -0.3% versus 0.1% estimate
- Fed's Bullard: A couple cuts could shift the yield curve upward
- Benn amendment passes in UK parliament to prevent Oct Brexit shutdown in 315-274 vote
- ADP Canada June employment +30.4K vs -16.0K prior
- US June Philly Fed +21.8 vs +5.0 expected
- June Canada Teranet house price index +0.5% vs +0.7% y/y prior
- US initial jobless claims for the week comes in at 216K vs 216K estimate
- The GBP is the strongest. The CAD is the weakest as NA traders enter for the day
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%
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
- 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).
- 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.