Dollar Stilled, Traders Await G20; Currency Vols Stay Depressed

Michael Moran

Michael Moran is an experienced global markets professional who currently writes a daily markets commentary. Moran has traded currencies for over 30 years, having worked in dealing rooms of major banks all over the globe. He lives in Sydney with his wife, 5 children, 2 grandsons and another coming. He still loves trading and talking about the currency markets. All of them! Michael began his career as an assistant dealer in money markets and foreign exchange with Lloyds Bank. He has worked in Hongkong, Manila, Tokyo, Singapore and Sydney. He’s traded through the 1985 Plaza Accord, Paul Keating’s 1986 “banana republic” statement, the Asian Currency Crisis in 1997, and the 9/11 New York Twin Tower terrorist strike. He took the task of speaking to sales team of the banks he worked at (Lloyds, NAB, CBA) during the daily morning meetings. Other traders hated this job. But he developed a liking for commentating and putting forward his views on currencies, in the process helping others. Which he still does today. Moran wrote briefly for Invast Global before taking the position as senior analyst for Royal Financial Trading. He currently is a Responsible Manager in Compliance for Transferwise Ltd, Pty, a global money transfer firm where he advises the Treasury team. Having spent the last 10 years of his trading career managing the Emerging Markets and Asian currency desks of NAB and CBA, he formulates much of his market analysis from their movements. His favourite description for global markets today comes a 1968 hit tune from the group Blood, Sweat and Tears – “What goes up, must come down, spinning wheel got to go round.”

Dollar Stilled, Traders Await G20; Currency Vols Stay Depressed

June 28, 2019

Summary: The Dollar Index (USD/DXY) was unchanged at 96.214 as traders retreated to the sidelines ahead of this weekend’s G20 summit. Month and quarter end rebalancing, falling on a Friday kept currency vols low. Global treasury prices retreated. The US ten-year bond yield slipped to 2.01% from 2.05%. The Aussie (0.7007) and its southern cousin, the Kiwi (0.6700) extended gains as risk sentiment stayed optimistic for a China-US trade settlement. The Euro was unchanged at 1.1370. The Dollar climbed against the Yen above 108 for the first time this week before settling to close flat at 107.80. A Reuters report highlighted the plight of FX volatility in 2019 which remained in the doldrums close to 4.1/2-year lows.
US data releases were mixed. US Pending Home Sales beat forecasts while Weekly Unemployment Claims were bigger than expected. US Q1 Final GDP matched analyst’s expectations.

Reuter Graphics - Currency Vols Plunge - 28 June 2019
Reuter Graphics – Currency Vols Plunge – 28 June 2019
  • EUR/USD The Euro was largely unmoved, trading within a relatively tight 1.13476 to 1.13913 range. Germany’s Preliminary CPI rose slightly higher than forecast but this was offset by a slight fall in Eurozone confidence. The Euro closed unchanged at 1.1370 for the second day running.
  • USD/JPY – edged higher to trade above 108 for the first time this week boosted by the rebound in the US 10-year yield to 2.05% and positive risk sentiment. However, the Dollar slipped back to close at 107.80, matching yesterday’s finish.
  • AUD/USD – in true Aussie Battler form, the antipodean currency grinded higher to finish near it’s overnight and near 3-week high at 0.7007. The Aussie Dollar’s bearish sentiment has eased somewhat given the Greenback’s broad-based fall in June.

On the Lookout: Today’s economic data releases are the heaviest for the week. Which adds to a potential lively Friday, given the month and quarter finish as well as G20 summit start. Traders will hope that FX volatility picks up.
Japan starts off with reports on it’s Tokyo CPI, June Unemployment Rate, Preliminary Industrial Production, and Housing Starts for June. The BOJ Summary of Opinions (on the economy) is also released. Australian Private Sector Credit for June is reported next. Euro-area data include German Import Prices, French Consumer Spending and Eurozone Flash Headline and Core Q1 CPI. The UK releases its June Current Account and Final Q1 GDP reports. Canadian June GDP and Raw Material Price Index data follow. Lastly, US Core PCE Spending and Personal Income, Chicago PMI and Revised University of Michigan’s Consumer Sentiment Index round up Friday’s data releases.

Trading Perspective: The Dollar Index (USD/DXY) finished at 96.214, just above its trendline support around 96.00. US 10-year bond yield are hovering just above 2.0%. The much anticipated G20 meeting starts today with Xi-Jinping meeting Donald Trump on Saturday. Markets remain optimistic for a trade deal that will prevent further tariffs. Until then, it’s all speculative chatter.
The Reuters report on the low FX volatility remaining in the doldrums will not remain that way given the current political and economic uncertainties that abound. Get ready for a potential lively Friday FX trade.
Without yield support, the Dollar will remain vulnerable to further falls.

Daily FX EUR USD Chart - 28 June 2019

  1. EUR/USD – stayed within its 1.1340-1.1420 range this week, closing at 1.1370 for the second day running. EUR/USD has immediate support at 1.1340 which if broken could see 1.1310. Immediate resistance lies at 1.1385 followed by 1.1410. A break above 1.1420 should see 1.1450 tested. Look for a likely trading range today of 1.1355-1.1415. Prefer to buy dips.
  2. USD/JPY – The Dollar traded to an overnight and weekly high at 108.162 before settling to finish flat at 107.80. Immediate resistance can be found at 107.85 and 108.15. Immediate support lies at 107.55 and 107.25. With US 10-year yields close to 2.0%, look to sell rallies with a likely range today of 107.35-107.85
  3. AUD/USD – the Australian Battler grinded higher in true fashion, closing above 0.70 cents for the first time in 3 weeks. A week ago, AUD/USD was hovering around 0.6840. The latest COT/CFTC report saw an increase in Aussie short bets despite the overall US Dollar decline. Sentiment has been overwhelmingly bearish, and we have seen some of those shorts scrambling to cover. There are more to come. Look to buy dips with a likely trading range of 0.6975-0.7025.

Reuter Graphics - Currency VS Treasury Market Volatility - 28 June 2019

Happy trading and Friday all.

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