12 July 2018 ( Lagos ) 

Dollar higher ahead of US CPI release

With the fundamental drivers behind the Dollar’s appreciation still firmly intact, there is a suspicion that the post-NFP sell-off was based on profit taking. Market expectations over the Federal Reserve raising interest rates at least two more times this year are seen as continuing to heavily support the Dollar. With investors potentially rushing to the Dollar as a source of safety amid escalating trade tensions, further upside could be witnessed in the near term.

Market expectations could heighten over the Federal Reserve adopting a more aggressive approach towards monetary policy normalization if inflationary pressures in the United States continue to build.

Today’s main event risk for the Dollar will be the release of US CPI figures for June, which could shape US rate hike expectations for the second half of 2018. Markets are expecting inflation to rise 0.2% month-on-month and 2.9% annually. A figure that meets or exceeds projection is likely to boost expectations of higher US interest rates, consequently supporting the Dollar.

In regards to the technical picture, the Dollar Index remains bullish on the daily charts. The breakout above 94.50 could open a path towards 95.00 and 95.25, respectively.

Currency spotlight – EURUSD

The divergence in monetary policies between the United States and Europe has left the EURUSD fundamentally bearish.

While expectations remain elevated over the Federal Reserve raising rates two more times this year, the European Central Bank is expected to retain the zero-interest rate policy (ZIRP) until after Summer 2019.

With regards to the technical picture, the EURUSD continues to fulfil the prerequisites of a bearish trend on the daily charts. There have been consistently lower lows and lower highs. A solid daily close below 1.1690 could trigger a decline towards 1.1630 and 1.1550, respectively.  Daily bears remain in control as long as prices remain below 1.1850.

Sterling wobbles above 1.3200

The British Pound has been punished by political risk in the United Kingdom and Brexit uncertainty for the most part of the trading week.

An appreciating Dollar has rubbed salt on the wound with the GBPUSD struggling to keep above 1.3200 as of writing. With expectations deteriorating by the day over the Bank of England raising interest rates amid the chaos and uncertainty, Sterling may be destined for steeper declines.

Focusing on the technical picture, the GBPUSD remains bearish on the daily charts with sellers eyeing 1.3190. A solid breakdown below this level could inspire a decline towards 1.3130 and 1.3000, respectively.

Source: Lukman Otunuga, Research Analyst at FXTM

Reporting for EasyKobo on Thursday, 12 July 2018 in Lagos, Nigeria