Summary: The Dollar rallied on Friday, surging against the Yen despite disappointing US Manufacturing PMI and Personal Spending data. Market’s risk appetite improved following upbeat China Caixin Manufacturing PMI (49.9 vs forecasts of 48.5) and new prospects of a trade deal. Wall Street stocks were up, yields rose. Benchmark US 10-year yield climbed to at 2.759% (2.73%), a 4-week high.
USD/JPY surged to fresh 10-week highs at 112.077 Friday night before settling at 111.93 at the New York close. The Euro slipped 0.08% to close at 1.1365 (1.1380), Sterling fell to 1.3210 (1.3270), while the Australian Dollar dropped to 0.7069, settling to close at 0.7080. Emerging Market currencies were lower against the Greenback. USD/CNH (offshore Chinese Yuan) rose to 6.72 from 6.70 on Friday. The Dollar Index (USD/DXY) ended 0.22% higher at 96.436 (96.18).
On Saturday, President Trump criticised the US Federal Reserve and its monetary policy, saying it led to a strong Dollar, which hurts US competitiveness.
- USD/JPY – the rise in the benchmark US ten-year yield to 2.759% (from 2.73%) saw USD/JPY surge to fresh 10-week and overnight highs at 112.077. The Dollar closed at 111.95 against the Yen. Japan’s 10-year JGB yield was up one basis point to -0.02%. Japanese data releases mostly beat forecasts on Friday. President Trump’s criticism of Fed policy and the resulting strong US Dollar hurting competitiveness should cap USD/JPY today.
- EUR/USD – The Euro slipped back to 1.1363 on the generally stronger US Dollar. The ECB meets on policy later in the week (Thursday). Most traders and analysts are expecting a dovish hold as policy from Mario Draghi and his colleagues.
- AUD/USD – Despite upbeat risk profile and better than forecast Chinese manufacturing PMI data, the Aussie slipped 0.35% to 0.7080 (0.7095 Friday). The RBA Cash Rate, policy meeting and rate statement is due tomorrow. Despite what will most probably be a neutral RBA, markets are looking for a rate cut in the second half of this year.
On the Lookout: Expect a bumpy start today ahead of a busy week ahead with lots of events and data to shake things up. On Saturday, US President Trump, speaking at the annual Conservative Political Action Conference in Maryland, took the opportunity to criticise the Federal Reserve and its monetary policy. Trump blasted Fed President Jerome Powell, saying that “we have a gentleman that likes a very strong Dollar at the Fed”. Trump added “I want a strong Dollar, but I want a Dollar that is great for our country, not a Dollar that is so strong that it is prohibitive for us to be dealing with other nations”. The trade war is also very much about the currencies.
An eventful and important week ahead is in store for us. Today starts off light on the economic data front. Australian Building Approvals and Company Operating Profits kick off today’s data for Asia. The Euro-Zone Sentix Investor Confidence Index follows. UK Construction PMI rounds up today’s data.
The RBA rates policy meeting is on tomorrow. The week ahead also sees the Bank of Canada (Wednesday evening GMT), and European Central Bank (Thursday evening GMT) policy meetings.
Australian Q4 GDP is out Wednesday with Retail Sales on Thursday. Friday sees China’s Trade data followed by the US Employment report for February, the most important and market moving event. With a big number from the previous report, there is much anticipation for this one.
Trading Perspective: Trump’s weekend rant against Fed policy and a strong Dollar should see initial selling in Asia today. On Friday the weak Emerging Market currencies were pointing to a stronger Dollar against the Majors. The benchmark US 10-year bond yield finished up at 2.759%. It was at 2.65% a little over a week ago. We should see a top between 2.78-2.8% given the mostly weaker-than-forecast US data on Friday and this week’s Employment report. This will limit overall Dollar strength, particularly against the Yen and Emerging Market currencies.
- USD/JPY – The Dollar hit fresh 10-week highs at 112.077. Immediate and strong resistance lies at 112.30. Japanese economic data (Tokyo Core CPI, Capital Spending, and Final Manufacturing PMI) beat forecasts, while the Unemployment Rate rose to 2.5% from 2.4%. Immediate support can be found at 111.35-50. The next support level lies at 111.00. Look for a likely range today of 111.05-112.05. Look to sell any rallies above 111.00
- AUD/USD – The RBA is expected to remain on hold with a neutral balance when they meet tomorrow. However, the market is looking for a rate cut in the 2nd half of the year. Last Friday, Westpac’s Bill Evans forecast up to 2 rate cuts for H2 2019. This came after a much-stronger-than expected Australian Employment report. This has weighed on the Aussie which has remained soggy, failing to rise above 72 cents despite last week’s generally softer US Dollar. The bears are in for a surprise. Expect the Australian Dollar to grind higher into the RBA. Immediate support at 0.7060/70 is strong and should hold off any fresh selling. Immediate resistance can be found at 0.7100 and 0.7130. Look for a trading range of 0.7070-0.7140 today. Look to buy dips.
- EUR/USD – The ECB is expected to keep rates unchanged with a dovish hold. EUR/USD traded to an overnight high of 1.14085 before settling lower on the overall stronger US Dollar at 1.1365. The Euro has immediate resistance at 113.85 followed by 1.1405. Immediate support can be found at 1.1350 and 1.1335. At the end of the day, the direction of the US Dollar will determine the Single Currency’s plight. Look for a likely range today of 1.1350-1.1400. Prefer to buy dips.
- GBP/USD – Sterling slid 0.5% to finish at 1.3212 in New York. The broad-based US Dollar rally took some steam out of the British currency which saw profit-taking and trimming of longs. GBP/USD has immediate support at 1.3200 and 1.3180. Immediate resistance can be found at 1.3260 and 1.3310. Look for the Pound to find a base today at 1.3210. Looking for a likely range of 1.3210-1.3290. Just trade the range shag on this one.
Have a good week ahead. Happy trading all