Dollar Maintains Broad-based Strength; Powell Testimony Next

Summary: The Dollar maintained its broad-based strength, after Friday’s stronger-than-expected increase in US jobs for June. Traders scaled back expectations of a sharp Fed rate cut at the end of this month, opting to bid the Greenback. Markets had a quiet start to the week with currencies trading in relatively tight ranges. The big risk event is Jerome Powell’s testimony to Congress (Wednesday) will offer guidance for a rate decrease. Last month 8 FOMC members forecast a rate cut this year which saw a slump in the Dollar and bond yields. The Euro was modestly lower to 1.1212 from 1.1227 after a soft Eurozone investor confidence report outweighed stronger German Trade. Both the Yen (108.73 from 108.50) and Swiss Franc (0.9942 from 0.9917) underperformed on their wide yield gap with the Greenback. Sterling slipped to 1.2515 from 1.2525 while the Aussie ended little-changed at 0.6975 from 0.6980. The Turkish Lira slumped 2.05% (USD/TRY 5.74 from 5.64) following the sacking of the Turkish Central Bank head by PM Erdogan. EM Currencies were mostly lower.

DAILY FX USD TRY Chart - 09 July 2019
DAILY FX USD TRY Chart – 09 July 2019

US bond yields were a touch higher with the 10-year at 2.05% (2.04%) and 2-years at 1.89% (1.87%).
Wall Street stocks extended their decline following Friday’s strong Payrolls report, which reduced expectations of rate cuts for the rest of this year. The Dow was 0.3% down to 26,797.00.
Mostly second tier data saw Japanese Core Machinery Orders and Bank Lending miss forecasts while the current account beat expectations. US Consumer Credit climbed above forecasts to 17.1 billion against 15.2 billion.

Daily FX - Hourly EURUSD Chart - 09 July 2019
Daily FX – Hourly EURUSD Chart – 09 July 2019
  • EUR/USD The Euro was marginally lower to 1.1212 from 1.1227 after trading in a tight 28- point range. ECB Governing Council member Benoit Coeure said the central bank needed to be more accommodative.
  • USD/JPY – The Dollar settled 0.28% higher to 108.75 after trading to 108.808 overnight and three-week high. Higher US bond yields continued to support USD/JPY.
  • GBP/USD – The Pound slipped to 1.2515 from 1.2525 on the generally stronger US Dollar. Short GBP bets increased in the latest COT/CFTC report which prevented Sterling from sliding further.
  • AUD/USDThe Australian Battler held against broad-based stronger US Dollar, finishing little-changed at 0.6975 from 0.6980. Second tier Australian ANZ Job Ads were up in June while May’s advertisements were revised higher.

On the Lookout: The main risk event for the week is Jerome Powell’s semi-annual testimony to Congress on Wednesday (early Thursday Sydney). Powell will attempt to explain why they believe an increase in uncertainty builds a case for a rate cut. This week’s price action so far shows that the strong Jobs report seems to matter more to FX traders than to the Fed. We shall see.
Meantime, Federal Reserve heads Bullard (St Louis) and Quarles (Boston) are due to deliver speeches tonight. Powell opens a Federal Reserve function in Boston with a speech of his own. Today’s data releases are mostly second-tier with Australia’s NAB Business Confidence Index the lone first-tier report. The rest are: Japanese Average Cash Earnings, Swiss Unemployment rate, UK BRC Retail Sales, Canadian Housing Starts and Building Permits and US JOLTS Job Openings.

Trading Perspective: The Dollar flexes its muscles at the start of the week. US bond yields have steadied for now. It’s difficult to see any big moves ahead of Powell’s testimony on Wednesday. Market positioning saw speculative net speculative long USD bets increase to +USD 86,500 (week ended July 2) from +USD 51,900 the previous week. As we mentioned yesterday, the build was due to an increase in Euro, Sterling, and Aussie Dollar shorts. The only currency to see a decrease in shorts is the Japanese Yen. A dovish leaning Powell could see a big move back down in the Greenback.

  1. EUR/USD – The Euro traded to an overnight low at 1.12069 after trading in a tight range. The Single currency closed slightly above those lows at 1.1212. While it remains poised to test lower, we should see the 1.1180-1.1200 immediate support hold. Immediate resistance lies at 1.1230/40, with the next line at 1.1270-1.1280. The latest COT/CFTC report saw Euro short bets climb to -EUR 56,300 contracts from -EUR 52,300. Look for a likely, similar-type trade between 1.1205-1.1245. Prefer to buy dips.
Daily FX - USD JPY Hourly Chart - 09 July 2019
Daily FX – USD JPY Hourly Chart – 09 July 2019
  1. USD/JPY – The Dollar kept its bid tone against the Yen, closing at 108.75 as US 10-year yields stayed firm (2.05% from 2.04%). USD/JPY has immediate resistance at 108.80 followed by 109.00. Immediate support can be found at 108.50 and 108.20. The latest COT report (week ended 02 July) saw speculative JPY shorts trimmed further to -JPY 10,100 bets from -JPY 16,600. That’s the smallest total of short JPY bets this year. Bearish JPY sentiment has fallen which could see a lower USD/JPY. Look to sell USD/JPY with trade a likely range of 108.35-108.85.
  2. AUD/USD – the Australian Dollar traded in a narrow 0.6967-0.6994 range overnight, closing little-changed at 0.6975. Immediate support can be found at 0.6960 followed by 0.6930. Immediate resistance can be found at 0.6990-0.7000. The next resistance is found at 0.7030. The latest COT/CFTC report saw speculative short Aussie bets increase to -AUD 66,300 from -AUD 64,900. While the increase is miniscule, net short Aussie bets have stubbornly remained large. Look to trade a likely range of 0.6960-0.7010 range today. Prefer to buy dips.

Happy trading all.