Dollar Rebounds Off Lows, Aussie, Yuan, EM, Asian Currencies Slide

Trading View CBOE VIX (Volatility Index) Chart – 12/24/2018

Summary: The US Dollar bounced off its lows amid persistent investor fear even as Wall Street stocks extended their slump to 17-month lows. The S&P 500 plummeted 2.99% to 2411 (2477 yesterday). The VIX (CBOE Volatility Index), also known as the Fear Gauge, a measure of market risk and investor sentiment, jumped to 6.1 % to 30.11 February highs.
The Dollar Index (USD/DXY) rallied to 96.95 (96.268) as US treasury yields stabilized. The benchmark 10-year yield rose to 2.79% from 2.78%. Risk and Emerging Market currencies slid led by the Australian Dollar, down 1.16% to 0.7035 at the close. Signals of an easier monetary policy stance from China lifted the USD/CNH rose to 6.9250 (6.8950). The safe-haven Yen was little-changed.

  • AUD/USDThe Aussie suffered from a double whammy of extended poor risk sentiment and a rebounding US Dollar. AUD/USD slid to an overnight low of 0.7034, finishing on a soggy note at 0.7037.
  • USD/JPYThe Dollar was little-changed against the Yen, finishing at 111.22 (111.20 Friday). The Japanese currency remained buoyant as investors fears remained elevated. USD/JPY slid to 110.933 overnight before rallying at the New York close.
  • USD/CNH – The offshore Chinese currency slid after Chinese authorities said significant tax cuts would be enacted next year. They also signalled an easier monetary policy stance. China’s economy has seen a slowdown following the trade war with the US. USD/CNH closed at its highs at 6.9250, it’s the highest close this month.

On the Lookout: Markets will continue to focus on the latest drama in Washington with the likelihood of government shutdown. While this is nothing new to traders, particularly during December, it comes at a time of heightened investor fear and poor risk appetite. Most dealing rooms will close early on the 24th and stay shut until the 27th. Expect low trading volumes and wider pricing which would risk volatile markets.
Data released on Friday saw US Final Q3 GDP miss forecasts at 3.4% against 3.5%. US Durable Goods Orders fell below expectations at -0.3% from the previous months 0.2%. With most centres on holiday, there will be no data releases until the 27th of this month.

Trading Perspective: The possibility of a US shutdown in the past has always occurred at this time of the year. The currency markets have not been affected much. A shutdown this time though could see the US Dollar hold its strength at current levels. The Aussie, Loonie, EM and Asian currencies could suffer further.

FXCM AUD USD 1 Year Chart – 12/24/2018
  1. AUD/USD – This currency suffered the brunt of the risk-off sentiment and heightened fear factor. The Aussie slid down to 070343, close to October lows. AUD/USD closed at 0.7035, not far from the lows, with the possibility of a test of the psychological 0.7000 cent mark. AUD/USD has good support at the 0.7010 level. Further support can be found at 0.6980, not seen since February 2016. Immediate resistance can be found at 0.7080 and then 0.7120. The latest CFTC report (week ended 18 December) saw speculators trim their Aussie short bets to -AUD 35,100 contracts from -AUD -46,000. The Aussie was at 0.74 cents at the beginning of this month. While a test of 0.700 cents cannot be ruled out, the Aussie is a decent buy at current levels.
  2. USD/JPY – The Dollar finished flat against the Yen, despite a stronger overall Dollar. The Yen gained on the crosses against other global currencies. The safe-haven Japanese currency will continue to gain support given the markets current environment. Speculators remain short of JPY bets. The latest CFTC report saw net speculative JPY shorts increased to-JPY 102,800 contracts to -JPY 98,000. Immediate support lies at 111.00 followed by 110.80. Immediate resistance can be found at 111.40 and 111.60. Look to sell any Dollar rallies rather than buy dips on this currency pair. It is headed further south.
  3. EUR/USDThe Single currency slumped back to 1.1368 from 1.1468 on Friday morning. The Euro traded to a low of 1.13561. Immediate support lies at that 1.1350/55 level. The next support level is 1.1320. Immediate resistance can be found at 1.1400 and then 1.1430. The latest COT/CFTC report saw net speculative Euro short bets trimmed to -EUR 53,100 from the previous weeks -EUR 56,000. Look to buy Euro dips to 1.1330 ideally with the Greenback gaining back lost ground. Prefer to buy dips near 1.1300 given the current events in the marketplace.
  4. USD/DXY (Dollar Index) – The Dollar Index rallied off its lows yesterday after falling to 96.268 on Friday. USD/DXY rebounded to close at 96.950. Overnight high was 97.047 which is where today’s resistance lies (97.00/10). Immediate support can be found at 96.50 followed by 96.20. Expect further short-covering of Dollars against its Peers in Asia. Look to trade between 96.30-97.30 for now.