The USD wobbles on Super Thursday

In recent years, the market has developed a tendency to highlight the upcoming dates on the economic calendar which have two or three Tier 1 economic events from different countries all coming out on the same date. Today is one of those dates and in the lead up was dubbed “Super Thursday” due to the scheduling of an FOMC meeting, the release of Q4 GDP in NZ and Australian employment data, all within a few hours of each other.

Coming into “Super Thursday”, the market could easily have been forgiven for being more than a little on edge. Overnight, German car maker BMW had warned earnings will fall “well below” last year. Not to be outdone, the CEO of UBS bank said that Q1 was shaping as “one of the worst first-quarter environments in recent history”. Both of which reinforced a warning from FedEx earlier in the week, who reported declining international revenue as a result of unfavourable exchange rates and the negative effects of trade battles.

Soothing frayed nerves, the Federal Reserve at the FOMC meeting this morning, delivered an unambiguously dovish message. The key points being the dots were cut to a median of no interest rate hikes this year. The dots still forecast one hike in 2020 and no hikes in 2021, with a long run median terminal rate of 2.75%. Furthermore, the balance sheet run down will end in September of this year, several months earlier than expected with the pace of shrinkage to slow from May. Thus, bringing an end to Quantitative tightening (for now) and resulting in the yield on 10-year U.S. treasuries finishing the session down -8.6bp to 2.526%.

Closer to home, New Zealand’s GDP rose by 0.6% in the December quarter, in line with market expectations, although below the Reserve Bank’s forecast of a 0.8% rise. While the print confirms the economy lost some momentum over the second half of last year, it removes some of the downside concerns over the path of growth. Furthermore, the print isn’t viewed as sufficiently soft enough to see the RBNZ shift from its neutral, data dependant pathway.

Finally, to Australia where the unemployment rate today fell to an 8 year low of 4.9%. The fall was due to the number of people looking for work, known as the participation rate falling which removed some of the gloss from the number as did a -7300 fall in number of people holding down a full-time job.

The net result of “Super Thursday” is the U.S. dollar has fallen across the board and as viewed on the chart below the U.S. dollar index, the DXY is now testing a critical layer of support between 95.85 and 95.70ish. This support comes from the 200-day moving average and from the trendline from September 2018, 93.81 low.

Should the DXY break and close below the support region, it would suggest a deeper pullback in the DXY is underway, towards 95.00 initially and possibly all the way back to 93.81. Conversely, should the 95.85/70 support region hold on a closing basis, a retest of the double high at 97.71 cannot be ruled out.

As a leading indicator as to which scenario might play out, keep on eye on the NZDUSD which is currently within 5 pips of making a new high for the year.

Source Tradingview. The figures stated are as of the 21st^h of March 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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