Tue, Jan 31, 2023 @ 15:56 GMT
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Into US session: Dollar firm ahead of FOMC, Yen lifted as Chinese stocks tumble on trade war

Entering into US session, Sterling is trading as the strongest one for today, followed by Dollar then Yen. Both Australia Dollar and New Zealand Dollar are the weakest one.

Dollar will be a major focus in US session with FOMC rate decision scheduled. But we’re not expecting any surprise from Fed. The central bank is on course for two more rate hikes this year, one in September and another in December. There is no press conference today. Focus will be quickly turned to minutes to be released later on August 22. Instead, ADP employment and ISM manufacturing to be released earlier in the session could be more market moving.

More on FOMC:

Strength in 10 year JGB yield, which closed up 0.081 at 0.130, could be a factor for Yen’s strength. But considering that Aussie and Kiwi are the weakest, we’d believe that risk aversion is a larger factor. Plus, Yen is also paring back some of the post BoJ selloff only. It’s still the weakest one for the week.

Chinese stocks’ reaction to the heat up in US-China trade war is immediate. The Shanghai SSE dropped -1.80% to close at 2824.53 today. The closed below 2844.19 resistance turned support suggests that recent rebound from 2691.02 has completed at 2915.29 already, ahead of 55 day EMA. Also, the index is kept well inside medium term falling channel. Focus is back on 2753.83 support. Break there will resume the medium term fall from 3857.03 for a take on 2638.30 key support (2016 low). Considering there is no sign of backing from on Trump’s side, and EU has already agreed to join force against China’s improper practices, this 2638.30 level is very vulnerable.

Sterling’s strength could be explained by not-too-bad UK PMI manufacturing, which dropped -0.3 to 54.0. It’s a respectable number. BoE is widely expected to raise Bank Rate by 25bps to 0.75% tomorrow. Sterling’s fate will depend on whether that will be a “dovish hike”.

Suggested reading on BoE and UK:

 

 

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