Summary: The Dollar bounced back despite cooling US inflation as traders remained content to keep to well-worn ranges. Investors were left guessing on the trade front as President Trump said he was optimistic over making a deal with China but threatened to increase tariffs if no agreement is reached. The Dollar fell briefly following the release of a softer-than-expected US CPI report. May CPI rose 0.1% as forecast, but annual growth printed at 1.8%, below expectations of 1.9%. The Euro failed another topside attempt at 1.13434 before easing to 1.1290, retracing this week’s gains. Sterling slipped back to 1.2690 from 1.2725. USD/JPY was little changed at 108.50. The Australian Dollar slumped 0.48% to 0.6930 as the weakest currency. Traders are forecasting a weak employment gain and a fall in the unemployment rate in today’s Jobs report. The Dollar Index (USD/DXY), a mirror of the Euro, bounced back to 97.00 from 96.72 yesterday, up 0.33%. FX volatility remained subdued. Wall Street stocks were modestly lower. The DOW (26,005) and the S&P 500(2,882) both lost 0.2%. US bond yields fell back, the 10-year to 2.12% (2.14%). The 2-year US treasury note dropped 5 basis points to 1.88%.
- EUR/USD – another failed attempt above 1.1340/50 saw the Single currency ease back to 1.1290. EUR/USD has traded between 1.1250 and 1.1350 this week and doesn’t look likely to break outside of it. Upcoming data releases from both sides of the continent today and tomorrow may do it.
- AUD/USD – The combination of risk-off, lower oil prices and an overall stronger US Dollar saw the Aussie trade sharply lower to 0.6925 from 0.6965. Australia’s Employment report, which most expect to fall short of expectations could put further pressure on the Battler.
- USD/JPY – The Dollar closed flat against the Yen at 108.50. The drop in the US 10-year yield to 2.12% from 2.14% limits the topside. Japanese importer buying support remains around the 108.20 area.
On the Lookout: Today’s data and event calendar springs to life, kicking off with Australia’s Employment Report. The economy is forecast to have created 17,500 jobs in May from 28,400 in April. The Unemployment rate is forecast to fall to 5.1% from 5.2%. While the labor market has been one of the bright spots for the Australian economy, the RBA made it clear that it would need to see big improvements or ease interest rates anew. Traders will also look at full-time and part-time employment. Chinese Foreign Direct Investment for May follows next. The Swiss National Bank rate policy meeting and announcement starts off the European day. Traders will be looking at the Eurozone’s Industrial Production report after falls in both Germany (sharp) and Italy.
Trading Perspective: FX markets will look to tomorrow’s US Retail Sales report to shake them off their complacency. Meantime bond markets continue to price in a Fed rate cut in July. US bond yields slipped back. The two-year yield fell back 5 basis points to 1.88%, just 5 basis points off its recent low (1.83%). A break of 1.8% could see late 2017 lows of 1.5%. Investors and traders alike never thought the Fed would cut rates in 2019. Bets are growing for at least 2 cuts this year.
Net speculative US Dollar longs remain at multi-year highs against the Major IMM currencies (EUR, JPY, GBP, AUD). Use opportunities of USD strength to sell into.
- EUR/USD – The Euro fell back after failure to clear above 1.1350 and expectations of a weak Eurozone Industrial Production report today. EUR/USD traded to an overnight low of 1.12825. Immediate support lies at 1.1280 followed by 1.1250. A weak Eurozone Industrial Production report could see 1.1250 tested. Markets will also keep their eye on tomorrow’s US retail sales report. Immediate resistance can be found at 1.1310 and 1.1350. Look to trade a likely range today of 1.1275-1.1325. Prefer to buy dips.
- AUD/USD – Slip sliding away, market sentiment remains bearish on the Aussie Battler. The Aussie traded to an overnight low at 0.69251 where immediate support lies. The next support level can be found at 0.6900 followed by 0.6880. Immediate resistance lies at 0.6960 and 0.7000. A weak Jobs number could see 0.6900 tested before buying support emerges. The risk may be for a good number, say a gain of over 30,000, which could see 0.7000. Look to trade a likely range of 0.6910-0.6990. Prefer to buy dips, the Aussie market is still short.
- USD/JPY – The Dollar closed flat against the Yen at 108.50. USD/JPY has been trading between 108.10 and 108.80 for a week now. Immediate resistance can be found at 108.60 followed by 108.80. Immediate support lies at 108.20 (overnight low 108.216) and 108.00. The US 10-year yield fall to 2.12% will keep USD/JPY topside limited. Japan’s 10-year JGB yield was unchanged at -0.12%. Japanese corporations and importers continue to be the main support for USD/JPY between 108.00/20. Look to trade a likely range today of 108.10/60. Prefer to sell rallies.
Happy trading all.