Summary: James Bullard, St. Louis Fed President, FOMC’s perennial dove tempered his rate cut call, saying he did not endorse an aggressive ease. The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of foreign currencies, rallied 0.19% to 96.159 (95.998), pausing from its 5-day slide. Earlier, Federal Reserve Chair Jerome Powell reiterated the case for somewhat lower interest rates but stopped short of signalling an imminent rate cut. The Euro eased 0.30% to 1.1370 from a 3-month high at 1.1412. Sterling slid to 1.2690 (1.2738) as concerns of a no-deal Brexit stemming from the Conservative Party’s leadership contest weighed on the British currency. USD/JPY lifted off 106.779, fresh January lows, to close at 107.15 from 107.32 yesterday. New Zealand’s Dollar, also known as the Kiwi, steadied near a two-week top to 0.6640 (0.6619), as traders await the RBNZ’s monetary policy decision today (12 pm, Sydney time). The benchmark US 10-year bond yield fell to 3-year lows at 1.98% from 2.02% yesterday. Two-year US yields were unchanged at 1.74%.
Wall Street stocks slid after Fed Chair Powell warned that the US economy faced “downside risks.” The DOW closed 0.7% lower to 26,557 while the S&P 500 lost 0.97% to 2,918 (2,948 yesterday).
US Conference Board’s Consumer Confidence Index fell to 121.5, missing forecasts of 132.0. New Home Sales and the Fed’s Richmond Manufacturing Index were below expectations.
- EUR/USD – The Single currency dropped back to 1.1370 (1.1398) after hitting fresh 3-month highs. Bullard’s comments that an aggressive 50 bp cut at next months Fed meeting “would be overdone” pushed the Euro back to the mid-1.13’s before steadying.
- USD/JPY – The fall in the US 10-year bond yield below 2% saw the Dollar slump to 106.779, January 2019 lows before steadying to 107.17 at the New York close. Bullard’s comments gave respite to the Dollar.
- NZD/USD – The Kiwi closed 0.16% higher to 0.6640 from 0.6620 on the broad-based Dollar weakness. New Zealand’s trade balance surplus beat median forecasts, rising to NZD 264 million (vs expected surplus of NZD 220 million). The RBNZ is widely expected to leave its Official Cash Rate unchanged at 1.50%. Policymakers are widely expected to deliver a dovish rate statement, following the lead of its global peers in supporting easier money.
On the Lookout: Bullard’s less dovish talk highlights the impact of Fedspeak to currency traders. The Dollar had fallen a little bit too fast too soon and a short-term pullback was inevitable.
Overlooked last night was another fall in US manufacturing with the Richmond regional index missing forecasts at 3 from an expected 7. The US economy is becoming less resilient with manufacturing bearing the brunt. Recent falls in regional manufacturing reports (New York and Dallas, Philadelphia the exception) point to a sizeable drop in the national ISM measure, due Monday, July 1 next week. According to ING Bank’s THINK ECONOMIC analysis, “the ISM manufacturing index has historically been one of the best lead indicators of GDP growth”. A trade deal between China and the US remains elusive despite the upcoming meeting of the two countries leaders at the G20 summit.
Today sees the RBNZ’s policy decision and rate statement, German GFC Consumer Climate, and Switzerland’s Credit Suisse’s Economic Expectations Index. The UK reports on its High Street Lending. US Headline and Core Durable Goods Orders (month and annual), US Goods Trade Balance, and Wholesale Inventories round up the days economic data releases.
Trading Perspective: Bullard’s less dovish talk highlights the impact of Fedspeak to currency traders. The Dollar had fallen a little bit too fast too soon and a short-term pullback was inevitable. Most of this week’s Fespeak is over with. The fall in the 10-year US bond yield below 2 % to 1.98%, 3-year lows ensures that the Greenback’s trend remains lower. Without yield support, the Dollar will struggle. Its legs come from its yield advantage. The bears are in control, but we can expect more two-way trading. Markets will consolidate ahead of the G20 summit at week’s end.
- EUR/USD – The Euro dipped to an overnight low of 1.13442 before steadying to close at 1.1370 in New York. EUR/USD has immediate support at 1.1340 which is pivotal. A fall below 1.1340 will see further correction to 1.1300 and 1.1280. Immediate resistance lies at 1.1385 and 1.1415. Look for a likely trading range today of 1.1350-1.1400. Look to buy dips.
- USD/JPY – the Dollar slumped to an overnight and January 2019 low at 106.779 before steadying to 107.15, for a net loss of 0.16%. The fall in the US 10-year bond yield by 3 basis points to 1.98% weighed heavily on USD/JPY. Japan’s 10-year JGB yield by contrast was flat (-0.16%). Geopolitics, trade concerns, and an overall risk-off stance will keep the Dollar’s topside limited against the Japanese currency. Expect more Japanese corporations with buying interests at or near last night’s lows. USD/JPY has immediate support at 107.00 followed by 116.80. The next support level lies at 106.50. Immediate resistance can be found at 107.40 (overnight high) and 107.70. Look for a likely trading range of 106.90-107.60. Just trade the range shag on this one.
- NZD/USD – The Kiwi remained stable into today’s RBNZ rate decision, closing at 0.6641 from 0.6618 yesterday. NZD/USD opens at 0.6633 in Asia this morning. In its last meeting, the RBNZ trimmed its OCR (Overnight Cash Rate) by 0.25% to 1.50%. Policymakers are expected to keep the OCR unchanged while issue a “standard’ dovish statement, following the rest of its global peers. The Kiwi’s price action suggests traders are expecting a less dovish stance. Recent economic data have been mixed with GDP beating forecasts, but manufacturing and spending were lower. Immediate resistance lies at 0.6660 followed by 0.6700. Immediate support can be found at 0.6620 followed by 0.6580. Broad-based USD weakness has seen the Kiwi rally strongly from 0.6485 up to current levels. Look for a likely range of 0.6570-0.6670. Look to buy dips under 0.66 cents.
Happy trading all.