Dollar Grinds Higher as Hongkong Strife Weighs on Trade

Summary: The Dollar edged higher against most of it’s Rivals supported by a rise in US bond yields. Benchmark US 10-year Treasuries yielded 1.77% (1.75%). Two-year US bonds were up 2 basis points to 1.60%. The Dollar Index (USD/DXY) edged up 0.06% to 97.89 after hitting an overnight high of 98.033. The Euro retreated to 1.1060 from a peak of 1.10969, managing to hold above 1.0950. Sterling eased 0.19% to 1.2905 while the Australian Dollar slipped to 0.6787 from 0.6814. The Aussie hit a high of 0.6835 after the RBA kept its key interest rate unchanged at 0.75% on Tuesday. Data released yesterday revealed a pick-up in factory activity in the mid-Atlantic region.

FX FACT. – US Philly Fed Manufacturing PMI – 22 Nov 2019

US November Philly Fed Manufacturing PMI rebounded off October’s 5.6 level to 10.4, beating forecasts of 7.0. Claims for Unemployment benefits though rose higher than expected which tempered Greenback gains. Meantime, political tensions between China and the US over Hongkong threatened trade negotiations. China accused the US of applying a double standard after President Trump threatened to sign legislation backing Hongkong protestors. Wall Street dipped 0.16%, the third straight day of losses in the equity markets. The Dow finished down 0.16% at 27,772. The S&P 500 lost 0.19% to 3,104.

TRADING VIEW – IG Hourly EUR USD Chart – 22 Nov 2019
  • EUR/USD – The Euro retreated against the overall stronger Greenback to 1.1060 after trading to an overnight and near 3-week high at 1.10969. The shared currency hit an overnight and 3-week low of 1.10523, before settling.
  • USD/JPY – The Greenback fell to a one-week low at 108.278 as optimism on trade talks between China and the US waned. Strong bipartisan support for US legislation supporting the Hongkong protests was labelled by Chinese officials as “interference” in internal affairs. The Greenback rallied to 108.697 as US bond yields rose on the better than expected pickup in US factory activity.
  • GBP/USD – Sterling slipped 0.2% to 1.2905 from 1.2940. The broad-based US Dollar rally weighed on the British currency. The Pound failed to break above the 1.30 psychological level with profit-taking following its impressive rally extended.
  • AUD/USD – The Aussie backed off 0.68 cents (trading to a high at 0.68140) to close at 0.6787, down 0.20%. The Battler also struggled against overall USD strength.

On the Lookout: Having just returned from a month-long holiday in Europe, not much has changed in FX. My last commentary, written on October 18 saw the Dollar Index (USD/DXY) trading at 97.70. Ten-year US bond yields were at 1.75%. The US and China were trying to put together fundamental issues even as both protagonists rolled back tariffs. Hongkong protests were ongoing but for the most part ignored by the markets. Increased tensions generally provided support for the Greenback.
On the data front, today sees global Manufacturing and Services PMI’s.
Australia starts off with its Flash Manufacturing and Services PMI report. Japan follows next with National Core CPI and Flash Manufacturing PMI. European markets open with France and Germany and the Eurozone reporting their flash Manufacturing and Services PMI’s.
The UK follows with its Manufacturing and Services PMI report. Canada sees its Headline and Core Retail Sales report. The US Flash Manufacturing and Services PMI report as well as the University of Michigan Consumer Sentiment round up today’s reports.
Global PMI’s are generally forecast to have improved in November from October.

Trading Perspective: Hongkong protests have escalated and the ongoing strife is weighing on trade. A deadline to reach a deal has been fixed to December 15. The Dollar has generated support through increased tensions as the US economy is viewed by most investors to be in better shape than other economies to weather a trade war. Expect the Dollar to remain supported in this environment.

  1. EUR/USD – The Euro managed to trade to 1.10969 before retreating to close 0.14% lower to 1.1060. The resistance at 1.1100 looks formidable. On the day, immediate resistance can be found at 1.1080. On the downside, there is good and immediate support at 1.1050 (overnight low at 1.10523). A downside break through 1.1050 could see 1.1020 and 1.1000 which should attract buyers. Look for a likely range today of 1.1035-1.1085. Just trade the range shag on this one with Euro area PMI reports out today.
  2. USD/JPY – The Dollar had a good bounce off 108.278, overnight and one week low, closing at 108.60. The Greenback got support from higher US bond yields. Overnight high was at 108.697. With the trade news far from optimistic, expect strong resistance in USD/JPY to be between 108.70 and 109.00. Immediate support can be found at 108.30 followed by 108.10. Prefer to sell USD/JPY rallies to 109.00 given the current FX environment.
AUD TWI – Still at multi-year lows – 22 NOV, 2019
  1. AUD/USD – The Australian Dollar edged down to 0.6787 at the New York close, just above its overnight low at 0.6783. The Battler hit a high at 0.6835 after the RBA kept its key Cash rate unchanged at 0.75%, which was expected by traders. The Australian Trade Weighted Index remains on the low side, and while this is the case, the RBA is not likely to cut rates. Some economists though have forecast a rate cut in December. A deterioration in trade will keep the Aussie topside limited to 0.6810-40 region. On the day, immediate resistance lies at 0.6810 followed by 0.6840. Immediate support can be found at 0.6780 and 0.6750. Look for a likely trading range today of 0.6765-0.6805. Just trade the range shag on this one.

It’s great to be back in FX even if it’s Friday. Happy Friday and trading all.