volatility

Aussie Falls, Sterling Gains as May Seeks Further Brexit Delay

Summary: The Dollar ended mixed against its Rivals despite an unexpected fall US February Durable Goods Orders. Sterling rallied against the Dollar to 1.3128 after British PM May said she would ask the European Union for a further delay to Brexit. May plans to sit down with the opposition Labour party to find a compromise and break the Brexit deadlock. The Aussie fell to fresh 3-week lows at 0.70526 against the Greenback after the RBA held rates steady but tweaked its statement which some analysts interpreted as a dovish tilt. The Euro ended at 1.1200 from 1.1212 yesterday. The Dollar Index (USD/DXY) was marginally higher at 97.336 (97.245). Emerging Market currencies were mostly weaker. The Turkish Lira slumped 1.35% against the US Dollar.
Wall Street stocks
reversed gains to end modestly lower. The DOW was down 0.35%. Treasuries rose while bond yields slipped back. The benchmark US 10-Year bond yield fell 3 basis points to 2.47%.
Eurozone PPI for March missed forecasts at 0.1% against expected 0.2%. UK Construction PMI matched forecasts at 49.7. US Headline Durable Goods Orders underwhelmed falling 1.6% in February after a 0.3% rise the previous month. Orders for Core Durable Goods also missed forecasts at 0.1% from 0.3%.

  • EUR/USD the Single currency traded to an overnight and near one-month low at 1.11835 before recovering to close at 1.1200. EUR/USD has been grinding lower every day for a week after data showed Euro area PMI’s had their weakest month in almost 6 years. Immediate support at 1.1170/80 is strong.
Daily FX.COM - AUD USD Daily Chart - 03 April 2019Daily FX.COM - AUD USD Daily Chart - 03 April 2019
Daily FX.COM – AUD USD Daily Chart – 03 April 2019
  • AUD/USD – slip-sliding away following the RBA’s dovish tilt. AUD/USD fell to 0.70526 overnight, near 3-week lows before steadying at 0.7070. AUD/USD steadied to 0.7070 at the New York close.
  • GBP/USD – Sterling gained to 1.3127 from 1.3110 after PM May sought a further Brexit delay beyond the April 12 deadline. GBP/USD closed near its highs in New York.
  • USD/JPY – the Dollar slipped against the Yen post-New York close as US 10-year bond yields slipped back. USD/JPY settled at 111.37 from 111.41 yesterday.

On the Lookout: The spotlight falls on China today with the release of it’s Caixin Services PMI report for March. Analysts are expecting an improvement from February to 52.3 from 51.1. The Australian government downgraded its growth forecasts after the release of the Annual Federal Budget last night. The Australian government also said that it expects the economy to enter its third decade of recession-free growth. Australian Retail Sales and Trade Balance for March are released today.
Euro-area and Eurozone Services PMI reports start the European data roll. Eurozone Retail Sales for March follows. The UK reports on its Final Services PMI. US ADP Non-Farms Employment Change, and ISM Non-manufacturing PMI round up a busy data day. We could be in for some surprises which may jolt the markets and hopefully “shake-it-up”.

Trading Perspective: Saxo Bank highlighted that latest Commitment of Traders/CFTC report saw a decrease in total net US Dollar long bets by $1 billion to $24.4 billion in the week ended 26 March. Most of that reduction came from a further paring of GBP shorts and a build-up of Mexican Peso and Russian Rouble longs. In the other majors, speculators added to their net Euro, Aussie and Yen shorts. Net speculative Euro shorts increased to a 27-month high. Very interesting.

Saxo-Bank Bloomberg COT-CFTC Report - 3 April 2019
Saxo-Bank Bloomberg COT-CFTC Report – 3 April 2019
  1. EUR/USD – the immediate support at 1.1170/80 is strong and should hold any strong selling interest. Total net speculative Euro shorts increased in the latest COT report (week ended 26 March) to -EUR 80,278 contracts from -EUR 77,704 the previous weeks. These are at highs not seen since January 2017. Immediate resistance can be found at 1.1220 followed by 1.1260. Markets will scrutinise the Euro area Services PMI’s released later today. Given current market positioning it doesn’t make sense to be short Euro at current levels. Prefer to buy dips with a likely range of 1.1185-1.1235 range today.
  2. AUD/USD – Once again the Aussie always looks heaviest near it’s base. AUD/USD has good support at 0.7050 and 0.7020. Immediate resistance can be found at 0.7100 and 0.7130. Today sees the release of Australian Retail Sales for March (forecast 0.3% from 0.1%). Australia’s trade Surplus is expected to have narrowed to +AUD 3.7 billion from +AUD 4.55 billion. According to CBA Head Currency Strategist Joseph Capurso (whom I worked with at the CBA FX trading desk), “The RBA made a very subtle change to the final paragraph of its statement that could be interpreted as a dovish tilt,” “[The board said it] will ‘continue to monitor developments and set monetary policy to support sustainable growth in the economy’. The word ‘set’ could be interpreted as the RBA considering a policy setting change if the Australian and global economic data and risks to the outlook deteriorates.”
  3. USD/JPY – The Dollar saw modest gains to 111.37 from 111.32 after trading to an overnight high at 111.455. Immediate resistance lies at 111.50 followed by 111.80. Immediate support can be found at 111.10 110.80. The latest COT report saw speculative JPY shorts increase to -JPY 62,121 contracts from -JPY 59,221. US 10-year bond yields slipped back 3 basis points to 2.47%. Japanese 10-year JGB yields were up one basis point to -0.08%. Look to sell rallies with a likely range of 111.00-50 today.

Happy trading all.