Morning brief for July 12

Morning brief for July 12

A fresh twist in the controversy over Donald Trump’s alleged collusion with Russia provided a portion of volatility overnight. Trump’s eldest son released a streak of email in which he would welcome the possibility of Russia helping his father to win the election via compromising information about Hillary Clinton. The US dollar tumbled against most currencies on the news. Fed Governor Brainard added to the USD weakness having said that she would abstain from the provision of additional hike suggesting the Fed moved cautiously on a rate hike. She also signaled that she is comfortable with the Fed’s plans to reduce its balance sheet “soon”. How soon is one of the key questions for markets today.

USD/JPY moved lower from overnight shedding additional pips from the recent high of 114.45. The Bank of Japan’s bond-buying operations usually resulting in a bid for USD was not effective today. At the present moment, the pair is trading at 113.40. A move below this level would indicate that the bullish phase has ended and that a consolidation phase has started.

EUR/USD climbed to 1.1488 on a softer USD. The outlook has finally shifted from neutral to bullish. Not to this impulsive momentum, the euro has to continue to accelerate its pace upwards, otherwise, there will be a swift rollback. Chair Yellen’s testimony to Congress is today’s event highlight in the upcoming session. The key message is expected to remain unchanged with Fed introducing additional hike in the second half of this year and starting to trim its balance sheet.

Aussie recovered its last week losses reaching 0.7655 from the recent low of 0.7570. A weaker USD and iron ore prices upsurge were the main contributors to AUD’s rally. From current levels, AUD may grind higher towards 0.7685. A move towards 0.7710 will complicate; most likely there will be a rollback.

Kiwi has also managed to rise higher reversing some of its earlier losses. At the present moment, NZD/USD is trading at 0.7235. There is a scope for extension towards 0.7250. In contrast, a break below 0.7230 would indicate a move towards 0.7185/0.7150 levels.

Sterling posted some gains against USD in Tokyo morning. We will receive the US labor market statistics later today (at 11:30 MT time). The market expects the jobless rate to remain unchanged at 4.6%. Average hourly earnings will likely decline to 1.8% from 2.1% previously.

USD/CAD slipped some points in the Asian session and reached 1.2897 from yesterday’s high of 1.2940. Oil prices extended their gains yesterday as the U.S. government cut its crude production outlook for next year and as oil stockpiles declined. Brent oil futures rose to $48.35 from yesterday’s low at 46.27.

The Bank of Canada today will likely be the first major central bank to increase its rates following the Fed. The BOC communications made us believe that a rate hike is imminent, but when it is delivered, the Loonie will be well supported (unless BoC policymakers say that further tightening will be extremely gradual).

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