Summary: The US Dollar climbed mostly by default against its rivals as it emerged least vulnerable to a global trade fall-out. Trade talks between China and the US were reportedly stalled after Trump’s administration increased its scrutiny on China’s telecom companies. Elsewhere, the Australian Dollar was boosted above 0.69 cents from its NY close of 0.6868 following the surprise return of PM Scott Morrison and his conservative party to government in the weekend parliamentary elections. Over the weekend, Iron Ore prices surged to May 2014 highs, breaking through the $ 100/tonne level. The British Pound plummeted to 4-month lows at 1.2718 on growing Brexit fears while upcoming European Parliament elections weighed on the Euro, down 0.15% at 1.1163 (1.1175). Comments earlier in the week by Italy’s Deputy PM Salvini that the EU’s budget rules harm his country have hurt the Single Currency. Rising risk aversion lifted the Swiss Franc against the Greenback to 1.0105 (1.0120). The Dollar extended its gains versus the Offshore Chinese Yuan to 6.9495 (6.9300) even as China’s Central Bank pledged to intervene in the FX markets should the Yuan weaken past 7.00 to the US Dollar.
Stocks slid on Friday after initially rallying after trade negotiations between the US and China soured. The DOW finished down 0.76% to 25,782. The S&P 500 closed 0.59% down to 2,861.00.
Data releases on Friday were mostly in line with expectations.
- AUD/USD – The Aussie extended its drop to 0.6868 after a rise in Australia’s unemployment rate saw most participants expecting an RBA rate cut in June. Australia’s surprise election result (over the weekend) provide a needed boost for the Battler, which jumped 30 points in early Asia to 0.6900. Over the weekend, Iron Ore prices surged to May 2014 highs
- GBP/USD – Sterling was pounded further to fresh 4-month lows at 1.2718 (from 1.2795) after talks between the UK’s top 2 political parties collapsed without a Brexit agreement. May will now prepare the fourth attempt to get her Brexit deal through where another defeat would virtually ensure her resignation, and the impact it would have on Brexit.
- EUR/USD – slip sliding away. After Italian DPM Salvini’s negative comments on EU Budget rules last week, the Euro’s recovery failed. EUR/USD slipped to 1.1157 from 1.1175 Friday. Earlier the Euro got some support from Trump’s announcement that he would delay discussion on auto tariffs (mostly with the Eurozone) for 6 months. Deterioration on global trade after China-US talks turned sour pushed the Euro back down.
On the Lookout: Today’s economic calendar is light and should see consolidation with the Dollar staying on top of an ugly pile. Japan kicks off today with its Q1 Preliminary GDP and GDP Price Index report. Germany reports its Producer Price Index for April (both monthly and annually). Eurozone Current Surplus for March round up today’s reports.
Markets will look to Fed Chair Jerome Powell’s speech to a Financial Markets Conference in Florida (9 am Sydney time tomorrow, 21 May) for fresh inspiration. Questions from the audience will be entertained.
The RBA’s April Monetary Policy Meeting minutes are released on Tuesday morning.
Trading Perspective: While the Dollar finished strongest among the weak, it will need fresh impetus to extend its gains from here. On Friday, the benchmark 10-year bond yield closed flat at 2.39%. Market positioning remains long of US Dollar bets against 6 major IMM currencies.
Without fresh yield support and the market’s current positioning, further Dollar gains are limited.
- AUD/USD – The Aussie Battler lifted to on the surprise re-election of PM Scott Morrison and his Liberal conservative party in the weekend parliamentary elections. With final results yet to be tallied the Liberal Party have a total of 74 out of 76 seats needed to form a majority. Scott Morrison’s government will need to tackle the slowing economy. Higher Iron Ore prices will add support to Aussie. Current market positioning in the Battler is short. AUD/USD opens at 0.6892 after trading to 0.6914 highs when Asian markets opened. Immediate resistance lies at 0.6920 followed by 0.6950. Immediate support can be found at 0.6880 and 0.6865. Look for the Aussie to build a base around 0.6880 with a likely range of 0.6880-0.6930 today. Prefer to buy dips.
- GBP/USD – Sterling’s slide saw the British currency underperform it’s G10 rivals as concerns on a no-deal Brexit grow by the day. The cancellation of talks between the opposition Labour and ruling Conservative party on how to pursue Britain’s exit from the European Union pushed the Pound to 4-month lows at 1.27137. May now prepares for her 4th attempt to win support for her Brexit plan from UK lawmakers. Another failure will virtually ensure her resignation. If May goes, the risk of a no-deal Brexit increases. GBP/USD has immediate support at 1.2710 followed by 1.2680. Immediate resistance can be found at 1.2740 followed by 1.2780. Look for a likely range today of 1.2710-1.2790.
- EUR/USD – The Euro dipped to an overnight low of 1.1155 before settling at 1.1160 at the NY close. EUR/USD currently trades at 1.1163. EUR/USD has immediate support at 1.1150 (overnight low of 1.11552). The next support lies at 1.1140. Immediate resistance can be found at 1.1185 followed by 1.1205. Net speculative Euro short bets remain at multi-year highs. Traders have increased their shorts to the most bearish positions in over a year. Germany’s 10-year Bund rate was steady at -0.11%. Look for a likely trading range today of 1.1155-1.1215. Look to buy dips.
Have a good week ahead, happy trading all.