US AM Digest: USD Gains Come to a Halt as CPI disappoints

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

Major Headlines

  • NZD slides as RBNZ signals that rates could go up or down
  • BoE delivers neutral hold, lowers inflation and GDP forecasts
  • US CPI disappoints, core readings fall short of expectations

GBP: The Pound fell in the wake of the Bank of England QIR in which the central bank delivered a “neutral hold” of a 7-2 vote split, while also lowering their inflation and GDP forecasts. The MPC commented that weak growth may be in part due to temporary factors, however noted that the impact of Sterling depreciation weakness on inflation may fade a little faster than previously (reminder surging inflation prompted BoE to raise rates in November). As such, OIS markets have priced out a full 25bps rate hike this year with bets for an August rise at 42% from 62%. 1.35 continues to keep GBPUSD propped up for now.

USD: The recent USD bullish momentum has come to a halt this morning with the greenback down 0.7% after today’s rather disappointing US inflation report. The headline figures matched expectations at 2.5%, however, core CPI fell short of economist forecasts, subsequently weighing on the DXY. However, this is unlikely to deter the FOMC from its current rate hike path.

NZD: The Kiwi is among the worst performers today following a relatively dovish RBNZ monetary policy with the most notable comment from the new Governor was that “rates could move up or down”. This is at odds with the RBA who remain adamant that the next move in interest rates is up. In light of this contrast, AUDNZD had been the biggest mover with the cross back at 1.08, subsequently, providing a lift for the Aussie to push through the 0.75 handle.

DailyFX Economic Calendar: Thursday, May 10, 2018 – North American Releases

DailyFX Webinar Calendar: Thursday, May 10, 2018

IG Client Sentiment Index: GBPUSD Chart of the Day

GBPUSD: Data shows 68.7% of traders are net-long with the ratio of traders long to short at 2.2 to 1. In fact, traders have remained net-long since Apr 20 when GBPUSD traded near 1.42052; price has moved 4.5% lower since then. The number of traders net-long is 4.6% lower than yesterday and 7.0% higher from last week, while the number of traders net-short is 1.7% lower than yesterday and 8.4% lower 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.

Four Things Traders are Reading

  1. Inflation Overshoot in April Unlikely to Deter Fed’s Pathby Dylan Jusino, Analyst
  2. S&P 500 Technical Analysis: Wedge Formation Nearing Completion” by Paul Robinson, Market Analyst
  3. GBPUSD Weaker After Bank of England Neutral Hold” by Justin McQueen, Market Analyst
  4. Italian Stocks Fall, Bond Yields Rise as Political Worries Increaseby 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

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