Summary: The Chinese Yuan climbed to 3-week highs, up 0.6% to 6.7150 (6.7450) against the Dollar as the US pressed for a stable CNY as part of a trade deal. Emerging Market currencies extended yesterday’s gains, pushing the Dollar to 2-week lows against the Majors. A patient Jerome Powell reiterated that the FOMC remains on hold while the economic outlook is uncertain. The Fed also signalled that it may slow or finish reductions to its USD4 trillion balance sheet. The Dollar Index (USD/DXY) then rallied off its lows to close little-changed at 96.491 (96.53 yesterday). Bond yields were flat while stocks edged higher.
- EUR/USD – The Euro climbed to an overnight and 2-week high at 1.13711 before easing post-FOMC, closing little-changed at 1.1338 in New York. Today sees the release of Euro-area and Eurozone PMI’s.
- USD/JPY – This Japanese Yen stayed relatively weak in all of this. USD/JPY rallied, against the trend to a high of 110.949 from its opening of 110.67 before closing at 110.85, up 0.23%. BOJ President Haruhiko Kuroda said they were not targeting exchange rates (following US demands on China and its currency). The Yen however has remained weak after Kuroda himself said earlier this week that a strong Yen could force the BOJ to boost stimulus.
- AUD/USD – The Aussie Battler continued to grind its way higher, boosted by the strong Yuan and EM currencies. Commodities have also risen with Sliver and Copper both up around 1.0%. AUD/USD rose to 0.7182, just over 2-week highs before easing to close at 0.7170 (0.7165 yesterday). Australian Employment data is released today.
- USD/CNH – The offshore Dollar/Yuan rate slid to 6.7069, Jan 31 lows following the report that the US wants a stable Chinese Yuan to be part of any trade agreement. USD/CNH opens at 6.7180 in early Sydney.
On the Lookout: After the FOMC release of its January meeting minutes, the Dollar stabilised. The Fed’s desire to announce a plan later this year to slow or stop reducing the balance sheet supported the Greenback, enabling a broad-based rally off lows. Today sees the release of more first-tier data economic data.
First up is the Japan’s Foreign Investment in Japanese Stocks for January. Australian Employment report for January follows. Forecasts are for a median Employment Gain of 15,000 (21,600 previous). The Unemployment rate is expected to remain at 5.0%. Japanese All Industrial Index is next. Europe sees Germany’s Harmonised CPI as well as Markit Composite, Manufacturing and Services PMI. French and Euro-Zone Manufacturing and Services PMI follow. The US releases the Philly Fed Manufacturing PMI data as well as Weekly Jobless Claims.
Trading Perspective: With the US now pressing for a “stable” Yuan to be part of any trade agreement, we can expect this with the other trade partners and their respective currencies as well. Bank of Japan Governor Haruhiko Kuroda tried to avoid unwanted attention from the US with his statement that current policy was not to weaken the Yen. In the 90’s the Asian nations all had the policy of depreciating their currencies to spur exports.
The US has always wanted a weaker Dollar to offset its trade deficit. In this writer’s eyes, nothing has changed from the early days. In the 90’s the Asian nations all had the policy of depreciating their currencies to spur exports. Interesting to see how this plays out with market sentiment on the Dollar.
- EUR/USD – The Single Currency has rallied basically from 1.1270 to 1.1370 since a week ago. The overall weaker US Dollar has benefited the Euro. Topside momentum eased after the FOMC meeting minutes revealed a less dovish Fed than most had expected. Euro area PMI’s are expected to remain flat or show a small improvement from last month. EUR/UISD has immediate resistance at 1.1370/80 followed by 1.1400. Immediate support can be found at 1.1325 (overnight lows) followed by 1.1300. Expect consolidation with a likely trading range today of 1.1310-70.
- USD/JPY – BOJ Head Kuroda may have diverted the US attention from the Yen for now. The Japanese central bank may have been gearing for and outright easing following the global economic slowdown and change in tact from other global peers. However, trade remains paramount in the Trump agenda, and this may yet impact the Yen. For now, USD/JPY will stay supported with the market’s risk-on stance and slipping Yen bond yields. USD/JPY has immediate resistance at 111.00 followed by 111.30. Immediate support can be found at 110.60, with 110.30 next. Expect a likely trading range of 110.50-111.00. Prefer to sell any rallies to 111.00
- AUD/USD – Aussie battler defied the doomsday pundits who were looking for a clean break of the 0.7000 level not too long ago. Apart from a weaker overall US Dollar, Emerging Market currencies have stayed stable, and this is Aussie supportive. There have been gains in the Asian EM currencies such as the Singapore Dollar and Thai Baht. Metals have been strong. Today’s Australian January Employment data will impact the currency. December’s part-time Job gains will disappear, however full-time Employment should remain stable in January. Immediate resistance between 0.7180-0.7200 remains strong. However, a clean break of 0.7200 could sees stops triggered with 0.7230 next resistance. The 0.7230 should be good selling levels for Aussie bears. Immediate support can be found at 0.7150 followed by 0.7120. Looking like at 0.7130-80 trading day, which is the ideal for today.
Happy trading all.