Summary: The Dollar’s impressive gains came to a halt on Friday as economic divergence between the Eurozone and US reversed, favouring Europe. US Manufacturing and Services PMI’s underwhelmed, both under expectations with the Services reading the weakest since 2013. EMU composites fared better, stabilizing the Euro, enabling the shared currency to advance 0.53% to 1.0850 (1.0790 Friday). The Dollar Index (USD/DXY) a popular gauge of the Greenback’s value against a basket of six major currencies, slumped 0.53% to 99.337 from 99.866. Against the Yen, last week’s weakest currency, the Dollar slipped 0.39% to 111.57 (112.07). The Australian Dollar stabilized after plummeting to decade lows (0.65859), ending at 0.6627 amid broad US Dollar weakness. Sterling climbed to 1.2957 (1.2887), buoyed by firm UK PMI’s, reversing its four-day slide. The Swiss Franc finished as best-performing currency, up 0.57% against the Greenback. USD/CHF dropped to 0.9785 from 0.9845, the Swiss currency’s safe-haven status boosted by the spread of the coronavirus outbreak and its possible effects on global economic growth. Equities extended their slump. The DOW finished 0.57% lower to 29,005. (29,185). The S&P 500 fell 0.82% to 3,340 (3,370). US Treasury yields plunged. The benchmark 10-year US bond yield fell to 1.47% from 1.52%. The 30-year US bond rate dropped to its lowest level ever, at 1.91%.
Australia’s Manufacturing PMI rose to 49.8 in February, beating January’s upwardly revised 49.6.
Eurozone Composite Factory PMI climbed to 49.1, beating forecasts of 47.4 while Services rose to 52.8, against forecasts of 52.4. UK Flash Manufacturing PMI was up to 51.9, bettering expectations of 49.7. US Flash Manufacturing PMI’s fell to 50.8 from 51.9, missing forecasts of 51.5. US Services activity fell to 49.4, from 53.3, and missing median expectations of 53.3. It was the lowest read since October 2013.
The G20 finance ministers/heads agreed to monitor the impact of the coronavirus on global growth, ready to adopt appropriate policies if needed. The number of affected from the coronavirus rose in South Korea and Japan over the weekend. Reports this morning saw a rise of infected in Italy. The coronavirus epidemic is still the major influencing factor in FX for today. This time however, the US Dollar will not be the main beneficiary.
Trading Perspective: The Dollar’s broad-based rally was fuelled in part by the coronavirus as a sense of divergence lifted the Greenback to multi-year highs against the Euro and Aussie. The Euro hit lows not seen since April 2017. The Australian Dollar plunged to fresh 10-year and overnight lows at 0.65859 before steadying to 0.6627 at the New York close. The Dollar has begun a corrective move lower which could extend. The latest Commitment of Traders/CFTC report for the week ended 18 Feb saw speculators boost long US Dollar bets to fresh 7-week highs. We look at the currency pairs which should see some good moves in the week ahead.
EUR/USD – The Euro was pummelled by the market’s strong bearish sentiment on the shared currency. The better than forecast German, French and composite Eurozone PMI’s helped steady the Euro after falling to April 2017 lows at 1.0777 on Thursday. The weaker US PMI reports got the ball rolling in the Euro’s favour, rallying to its 1.0850 finish. The latest COT report saw speculative Euro short bets increase to -EUR 91.500 in the week ended 18 Feb from -EUR 85,700 the previous week. This provides more fuel for a stronger Euro rally. Immediate support on the day lies at 1.0820 and 1.0800. Immediate resistance lies at 1.0865 (overnight high 1.08626) followed by 1.0890 and 1.0930.
Look to buy dips around the 1.0830 level for a potential climb to 1.0970.
AUD/USD – The Australian Dollar was pummelled to fresh decade lows at 0.65859 on Friday following a rise in Australia’s Unemployment rate and the spread of the coronavirus outbreak. The Aussie has become the favourite whipping boy in FX due to Australia’s close ties with China. Overall US Dollar weakness allowed the AUD to bounce to 0.66387 before settling at 0.6627 at the NY close. The latest COT report saw an increase in net speculative short Aussie bets in the week ended 18 Feb to -AUD 37,500 from -AUD 32,700 the previous week. Look to buy Aussie dips, this currency is headed higher. Immediate support lies at 0.6610 followed by 0.6580. Immediate resistance can be found at 0.6645, a break of which should see the next resistance at 0.6675 tested. The potential for a short covering rally to 0.67 cents is on the cards. AUD/USD opened this morning at 0.6590 following the reports of more coronavirus infections in Italy. Use the dip to buy the Aussie.
USD/JPY – After soaring to near 10-month highs at 112.225, the US Dollar slumped to 111.57 from 112.07 on Friday. Broad-based Dollar weakness triggered by the dismal US factory and services activity which fell much deeper than median forecast, USD/JPY quickly reversed gains. US 10-year bond yields dropped 5 basis points to 1.47%, below the 1.5% and the lowest since September 2019. Safe-haven flows should find a home in the Yen once again. This morning, USD/JPY opened lower at 110.28. Look to sell rallies with a likely range today of 110.85-111.55.
GBP/USD – Sterling advanced to 1.2957 from 1.2887 on the broad-based US Dollar weakness as well as better UK economic data. British factory and services data beat expectations. UK economic reports have been generally bettered forecasts, and this should auger well for the British Pound. The latest COT report saw speculative GBP long bets pared to +GBP 21,100 in the latest week to 18 Feb from +GBP 29,300. GBP/USD opens at 1.2945 in early Sydney. Immediate support lies at 1.2925 followed by 1.2885. Immediate resistance can be found at 1.2980 (overnight high was 1.29809) followed by 1.3010. Look to trade a range today of 1.2885-1.2985. Am neutral, trade the range.
EUR/GBP – We look at this cross-currency pair because of the potential for a move north. With the speculative market positioning short of Euro, and long of GBP we could see a corrective move higher on the EUR/GBP. EUR/GBP closed at 0.8375, little changed from 0.8375 on Friday. The overnight high traded was 0.8385 which is today’s immediate resistance level. The next resistance level can be found at 0.8405. Immediate support lies at 0.8355 followed by 0.8325. Look to buy dips with a likely range today of 0.8355-0.8425.
USD/CHF – Like the Yen, the Swiss Franc should gain advantage due its own safe-haven status. The Dollar has immediate support at 0.9785 followed by 0.9755. Immediate resistance can be found at 0.9805 followed by 0.9825. Look to trade a likely range today of 0.9765-0.9815. Prefer to sell rallies.
NZD/USD – Like its bigger antipodean cousin the Aussie, the Kiwi rallied to 0.6355 from 0.6335 on the broad-based US Dollar weakness. Speculative NZD/USD market positioning is also short NZD bets. NZD/USD has immediate support at 0.6325 followed by 0.6305. Immediate resistance can be found at 0.6385 and 0.6405. Look to buy dips with a likely range today of 0.6315-0.6375.
Have a good week ahead all, happy trading.