The US dollar is up slightly today versus the Euro and Japanese yen before the Fed is due to announce its rate decision. With the US non-farm payrolls due to be reported this Friday, market players were eager about the today’s private sector payrolls forecast, and USD bulls were heartened by the results. According to payrolls giant Automatic Data Processing, private sector jobs increased by 10,000 in April, which were much better than expectations of a 70,000 decline. Also supporting the buck today was the initial reading for US GDP data, which showed that the US economy expanded by 0.6% in the first quarter, in line with market consensus, and also matching the previous quarter’s growth. Hey, as long as it was an expansion on paper, albeit a tiny one, investors have reason to think maybe the US economy may not collapse as many feared. After all, the economy did grow, and data shows it was still not in a recession - theoretically speaking - yet, with yet being the emphasis. While businesses reduced their spending on software and equipment, they increased their stock of supplies, with a good amount heading for export, thus boosting growth. Government spending also added to the GDP. Although the US government may say they support a strong US dollar, they won’t deny the advantage of a weak dollar in helping export of US goods and services.
Other US Data
The Chicago PMI showed a reading of 48.3 in April, a slight improvement from 48.2 in March, and a six-year low of 44.5 in February. Although the reading showed that business activity in Chicago was in the contraction territory for the third month, it was still better compared with March and February. Meanwhile, US core prices, excluding food and energy, rose at a rate of 2.2% in the first quarter, down from the 2.5% rate in the fourth quarter.
Eyes On Fed
The Fed is expected to announce a 25 bp rate cut today from 2.25% to 2% in order to stimulate the US economy that is in the middle of a slowdown, but what’s more important than the move will be the statement. Traders are betting that the Fed will keep the rate unchanged after that so as to combat rising inflation pressures.
Forex Trading
Range trading is the theme in the currency markets today as traders await the FOMC rate decision. EUR/USD went slightly lower today to a low of 1.5515 before bouncing 65 pips up from that expected support zone between 1.5480-1.5510. Should this be violated, bear targets are possibly 1.5460, 1.5400-10. USD/CHF went up to test the resistance around 1.0430, but faced heavy shorting pressure and proceeded to bounce 60 pips downward. Next bull targets around 1.0460 then 1.0500. GBP/USD fell to 1.9620, but then rebounded back up to 1.9800.
Thursday:
UK PMI manufacturing 0830 GMT
US PCE deflator, personal spending 1230 GMT
US ISM manufacturing 1400 GMT
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