U.S. Session Recap – Sept. 17, 2014

  • US PPI flat at 0.0% vs. 0.1% expected and previous
  • US TIC long-term purchases shows an outflow of 18.6B vs. 25B inflow expected
  • CA manufacturing sales up by 2.5% in July vs. 0.9% uptick in June
  • China provides 500 billion yuan ($81.4 billion) liquidity to country’s 5 biggest banks
  • Fed watcher Jon Hilsenrath says the Fed is likely to stick to its low rate pledge

The dollar was knocked with a triple roundhouse kick during the US forex trading session, as news reports inspired mild rallies among high-yielding currencies.

The Greenback started the day on the wrong side of the charts, as traders who were ready to take profits ahead of the FOMC statement reacted to a flat US PPI reading. Then, a couple of hours into the session, Sina.com printed that the People’s Bank of China (PBoC) is injecting 100 billion yuan worth of liquidity to each of the country’s five biggest banks through standing loan facilities with tenor of three months.

The move had several implications for forex traders. For one thing, analysts estimate that the immediate impact is similar to a rate cut or a 50-basis-point cut in the PBoC’s reserve required ratio (RRR). It also hints that the central bank is reacting to economic slowdown concerns brought about by recent disappointments in major economic data. Last but not the least, the move lessens the possibility of the central bank actually cutting its rates or RRR in the near future.

Not surprisingly, commodity-related currencies were some of the strongest beneficiaries of the news. AUD/USD jumped by 62 pips to .9095, USD/CAD dropped by 69 pips to 1.0969, and NZD/USD popped up by 34 pips to .8198. AUD/JPY also staged a 73-pip rally to 97.46 while EUR/AUD fell by 82 pips to 1.4250.

Forex price action was also interesting even for those who weren’t trading the comdolls. You see, Jon Hilsenrath, a Wall Street Journal reporter and a closely-watched analyst on the Fed’s moves, said in an interview that he doesn’t believe the Fed will make major changes in this week’s FOMC meeting. In fact, he believes that the Fed is likely to stick to its pledge to keep interest rates low for a considerable time.

The possibility of prolonged period of low rates pushed EUR/USD 13 pips higher to 1.2959 and USD/CHF lower by 9 pips to .9327. GBP/USD, which was already supported by more polls showing “NO” votes leading in Scotland’s upcoming referendum, shot up by 79 pips to 1.6277 throughout the session.

Will forex traders in the Asian session continue to drag the Greenback lower? New Zealand had just released its current account numbers and Australia had just printed its MI leading index report, but so far the Aussie and Kiwi haven’t shown significant reaction to the reports. Watch your comdoll pairs closely anyway, in case we see more reports that could affect risk sentiment today!

See also:

London Session Recap

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