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Asia Pacific Market Open – US Dollar, Fed, Euro, British Pound, Brexit, Yen

  • Pre-positioning for next week’s Fed may have sent the US Dollar generally lower
  • Euro and British Pound gained. GBP/USD rise halted as Brexit plan was grilled
  • JPY may fall next as APAC shares rally, NZD/USD may rise on NZ spending data

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The US Dollar suffered its worst day (~0.68%) in exactly two months as traders sold the currency ahead of next week’s Fed interest rate announcement. Losses were particularly amplified after Asia Pacific trade concluded and European shares came online. The DAX and Euro Stoxx 50 rallied 0.88% and 1.03% respectively.

US 2-year government bond prices fell in tandem with the greenback as stocks rose, suggesting a “risk on” market trading dynamic. But a major event that might have triggered the reach for yield seemed notably absent. Rather, it may have reflected pre-positioning for the Fed. The markets are widely anticipating a hike next week and another in December is also well priced in at about 75%.

This means that the risk of a relatively dovish Fed seems greater given the thin margin needed to further prepare the markets for a fourth rate hike by 2019. As such, traders wishing to hedge this vulnerability might have done so by selling the US Dollar. This offered a boost to the greenback’s FX competitors such as the Euro and British Pound.

Speaking of, the sharp rally in GBP/USD lost momentum as UK Prime Minister Theresa May’s ‘Chequers’ Brexit plan was grilled by several EU leaders. Speaking at the press conference of the informal meeting of heads of state, President of the European Council Donald Tusk noted that May’s Brexit plan ‘won’t work’. Meanwhile the Prime Minister of the Netherlands, Mark Rutte, noted that her proposal raises difficulties.

As we head into the end of this week, we may see Asia Pacific benchmark indexes echo the upbeat mood in the markets. This would further weigh against the anti-risk Japanese Yen which was a notable underperformer on Thursday. Meanwhile, a ‘risk on’ dynamic would give further upside momentum to the Australian and New Zealand Dollars which already enjoyed decent appreciation Thursday.

After yesterday’s better-than-expected GDP report, the New Zealand Dollar eyes local economic news flow. As we mentioned earlier, RBNZ rate cut bets have been building but the surprise in New Zealand economic growth has reduced those. Thus, if local credit card spending data improves then we may see more NZD gains.

US Dollar Technical Analysis – Downtrend Picking Up Pace

On a daily chart, the US Dollar continues making downside progress in the aftermath of a shooting star bearish reversal pattern and break under a near-term rising support line. DXY has descended through 94.08 (July 26th low) and now aims for 94.08. A descent through support then exposes 93.71.

US Dollar Daily Chart

US Dollar Downtrend Gains Speed for Fed, Yen Prices May Fall Next

Chart created in TradingView

US Trading Session

US Dollar Downtrend Gains Speed for Fed, Yen Prices May Fall Next

Asia Pacific Trading Session

US Dollar Downtrend Gains Speed for Fed, Yen Prices May Fall Next

** All times listed in GMT. See the full economic calendar here

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--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter