Summary: Finally, things are beginning to move. Yes! The Dollar lost ground against it’s Major Rivals weighed by lower US bond yields. Jerome Powell in his testimony to the US Senate said that the Fed is in no hurry to adjust its neutral stance. US bond yields fell with the benchmark 10-year down to 2.64% from 2.67%. The Dollar Index (USD/DXY) dropped 0.48% to 95.95 (96.415). Meantime a proposal by British PM Theresa May that offered lawmakers an opportunity to vote on delaying Brexit sent the Pound soaring 1.1% to 1.3288 from 1.3103, fresh 5-month highs. The offer further avoids a NO-DEAL departure from the EU. GBP/USD outperformed. The EUR/GBP cross slumped to .85621, its lowest since April 2017.
Wall Street stocks started the day down, eventually rising to finish the session flat. The DOW was down -0.07%. The S&P 500 ended marginally lower at 2795 (2800).
Economic data was mixed yesterday. US Housing Starts in January fell to their lowest in 2 years, to 1.08 million units against a forecast of 1.25 million. The Consumer Board US Consumer Confidence beat forecasts, rising to 131.4 from an upward revised 121.7.
- GBP/USD – The May proposal sent Sterling soaring to an overnight and 5-month high of 1.3288 from its 1.3205 opening in Europe. May’s proposal increases the likelihood of avoiding a NO-DEAL Brexit. As this is being written, GBP/USD has slipped almost 30 points to 1.3157 from its opening of 1.3282. Can Sterling sustain itself up here?
- EUR/USD – the broad-based Dollar weakness (against the Majors) saw EUR/USD trade above 1.14 resistance level to an overnight and 3-week high at 1.14028. EUR/USD settles currently at 1.1390.
- AUD/USD – the Battler rallied to 0.71946, almost back to where it started from following last week’s volatile jump to 0.7207 on the solid Australian Jobs Gain. AUD/USD then slumped to 0.7070 on reports China had banned the country’s coal imports. A broad-based weaker US Dollar will continue to support the Aussie. Any set-backs on the China-US trade talks are a barrier to sustained gains above 0.7240.
- USD/JPY – slip-sliding away. The Dollar dropped 0.47% against the Yen weighed by the fall in the US 10-year bond yield to 2.64%. Japan’s 10-Year JGB yield rose one basis point to -0.04%. Which will keep the USD/JPY topside limited.
On the Lookout: Today sees further data releases. US data of late has failed to beat forecasts, overall. The data has been mixed. Fed Chair Jerome Powell also said in his testimony that “economic cross-currents require a patient approach” to monetary policy. Bond traders took this to mean risk remain skewered lower rates eventually. They took the US 10-year bond yield down 3 basis points to 2.64% from 2.67% yesterday. Others believe that rates are still skewered higher. Whatever the outcome, the Fed will be in a prolonged period of policy stability. Economic data releases in the days ahead will give us a clue. Today sees more economic data releases which include: New Zealand January Trade Balance; Australian Construction Work Done (January); Canadian Headline, Core and Median CPI; US Goods Trade Balance; US Factory Orders and Pending Home Sales.
Bundesbank President Weideman speaks at the Bundesbank Annual Report in Frankfurt. Fed President Jerome Powell addresses the US House Financial Services Committee in his second testimony on the semi-annual Monetary Policy report in Washington DC.
Trading Perspective: As we have said before, the Dollar needs yield support to move higher. The US Ten-year bond yield is approaching 2.60%, which needs to hold to provide the Dollar some support. The low reached in 2019 was around 2.56% in early January.
One thing in the Dollar’s favour though is the fact that the Emerging Market currencies did not sustain their gains versus the Greenback yesterday. USD/CNH ended marginally higher, as did the Dollar against the South African Rand, Indian Rupee and Russian Ruble.
- GBP/USD – Can Sterling sustain its gains up here. Last night the UK 10-year bond yield rallied 3 basis points which contrasts the fall in the US 10-year yield. This should be Sterling supportive overall. However, we would be hard-pressed to see further substantial gains from above 1.33 given the uncertainty that still surrounds Brexit. Immediate resistance at 1.3290 should cap any gains. The next resistance level can be found at 1.3320. Immediate support lies at 1.3250, followed by 1.3225 and 1.3185. I wouldn’t be surprised to see some upside gaps filled back to 1.3180. Prefer to sell rallies toward 1.3300 today.
- USD/JPY – The Dollar is truly slip-slidin away against the Yen. Given the fall in the US 10-year yield to 2.64%, USD/JPY should be lower. The last time this happened, with the Japanese 10-year currently at its -0.05% was in early January. USD/JPY was at 108.55 then. In this environment, USD/JPY is a sell with 110.80 and 111.10 capping. Immediate support can be found at 110.40. A clean break of 110.40 should see 110.20 and then 109.80. Continue to sell USD and Cross JPY rallies.
- AUD/USD – The Aussie Battler closed at 0.71946, just short of 0.72 cents. Immediate resistance lies at 0.7200 followed by 0.7240. A break above 0.7200 cents could see 0.7240. The Australian Dollar has current support at 0.7140 and 0.7110. The Aussie looks to grind higher with 0.72 cents in its sights once again. Would look to trade a range today between 0.7160-0.7210.
- USD/DXY – The Dollar Index broke through supports at 96.20 and 96.00, closing at 95.95. A chunk of that move came from Sterling’s strong rally. GBP/USD contributes 11.9% weight among the basket of foreign currencies that make up the Dollar Index. The Dollar Index has immediate support near its lows at 95.90 and 95.80. The next support level is found at 95.50. Immediate resistance can be found at 96.20 and then 96.50. Lower bond yields will keep the Dollar Index on the defensive with a likely range today of 95.85-96.25. Prefer to sell rallies.
Happy trading all.