US AM Digest: DXY Surges Before Fed Meeting; GBP Underperforms on Manufacturing PMI Miss

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US Market Snapshot via IG: DJIA -0.3%, Nasdaq 100 -0.2%, S&P 500 -0.15%

Major Headlines

  • RBA left the cash rate unchanged at 1.50% and reiterated a steady policy
  • US President Trump extended tariff relief for EU and other allies for a month to June 1st
  • UK PM May is reported to be mulling a deal with Brussels that Brexiteers fear could result to ‘EU Mark II’ and make the UK take rules from EU.
  • UK Manufacturing PMI fell to 53.9 vs. Exp. 54.8; lowest reading in 17-months
  • Canadian GDP Y/Y 3% vs. Exp. 2.8%, M/M 0.4% vs. Exp. 0.3%
  • European markets are closed for Labour Day

GBP: Underperforming in the G10 FX space is the Pound, after UK Manufacturing PMI fell to the lowest level since Nov’16, further erasing bets of a Bank of England May rate hike. Given that UK data continues to deteriorate, this suggests that the UK economy is continuing to slow down amid weak underlying factors as opposed to previously touted temporary influences (adverse weather). In reaction to the soft report, GBPUSD made a break through the March low and the trendline support dating back from March 2017 at 1.3712 before falling below the 1.3700 handle. Support seen at 1.3659 (Sep 2017 high) and 1.3640 (200DMA). Looking ahead, tomorrow will see the release of the Construction PMI, followed by Service PMI on Thursday.

USD: Gains in the US Dollar shows no signs of running out of steam this morning having broken above 92.00, alongside this, trendline resistance from January 2017 had also been breached. DXY continuing to move with intent on hitting 92.50 as investors looks towards a more hawkish FOMC meeting tomorrow to provide the impetus. Further short squeeze on USDJPY gives scope for a potential move to 110 in the near term.

CAD: Canadian GDP figures printed ahead of expectations, consequently providing a boost for the Loonie with eyes now on comments by BoC Governor Poloz at 1745GMT which could prove to be a test for CAD buyers. Selling interest above 1.2900 has provided a top for USDCAD, as such, cautious comments from Poloz will likely see this level tested.

EUR: Euro bears not giving up on a test of 1.2000, EURUSD currently trading at session lows of 1.2030, magnetized around the 23.6% Fibonacci retracement of the move from 1.0340-1.2556 (2017 low-2018 high). On a macro front, President Trump extended tariff relief for the EU among other allies until June 1st, however, unless the EU and US can work out a permanent agreement, this will continue to provide uncertainty for the currency.

AUD: A relatively uneventful RBA meeting with the central bank sticking with its neutral stance on interest rates. Board comfortable in not moving interest rates anytime soon and remains assured that the next move will be a hike. RBA likely to stay unchanged for the remainder of this year, AUD under pressure but largely as a by-product of the strength in the DXY. Buying interest at 0.7500 in AUDUSD holding for now, similarly with NZDUSD at 0.7000.

DailyFX Economic Calendar: Tuesday, May 1, 2018 – North American Releases

DailyFX Webinar Calendar: Tuesday, May 1, 2018

IG Client Sentiment Index Chart of the Day: GBPUSD

IG Market Positioning Suggests GBPUSD outlook is mixed

GBPUSD: Data shows 59.8% of traders are net-long with the ratio of traders long to short at 1.48 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.40793; price has moved 2.8% lower since then. The number of traders net-long is 3.5% higher than yesterday and 16.9% higher from last week, while the number of traders net-short is 20.1% higher than yesterday and 3.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBPUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.

Learn more about the IG Client Sentiment Index on the DailyFX Sentiment page

Four Things Traders are Reading

  1. US Dollar Rally Continues to Build, Nine Gains in 11 Daysby Christopher Vecchio, SeniorCurrency Strategist
  2. Market Sentiment: Positive Towards USD, Negative For GBP” by Martin Essex, MSTA, Analyst and Editor
  3. GBPUSD Falls to 4-Month Low After Weak UK Manufacturing PMI” by Justin McQueen, Market Analyst
  4. Brent Crude Oil Struggles to Breach $75 Mark” by Martin Essex, MSTA, Analyst and Editor

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— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

https://www.dailyfx.com/sentiment?ref-author=mcqueen

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