Summary: The Euro managed to climb off the floor after trading to a 30-month low at 1.09047, to 1.0943. Month and quarter-end adjustment flows which initially supported the US Dollar faded, together with liquidity and interest on Friday to a “moribund” close (as aptly described by CMC Markets Sydney analyst, Michael McCarthy). The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against 6 foreign currencies, was little changed at 99.126 after trading to 99.308, its highest level since early September. Sterling slumped to new 2-week lows at 1.2271, finishing at 1.2290 after a Bank of England policy maker hinted at looser monetary policy should Brexit uncertainty prolong. The Australian Dollar held its gains, closing modestly higher at 0.6767 ahead of tomorrow’s RBA policy meeting where Graeme Lowe and fellow policymakers are widely expected trim its cash rate by 0.25% to fresh all-time lows at 0.75%.
Wall Street stocks dipped as risk-off continued to dominate asset markets at the close. US treasury yields were much unchanged with the 10-year bond rate steady at 1.68%, near its weekly low. Sentiment was hurt by news that the US is considering putting limits on American investors portfolio flows into China and delisting Chinese companies from US Stock exchanges. The DOW slipped 0.33% to 26,820.00. The S&P 500 finished 0.54% lower at 2,963.00.
- EUR/USD – After trading to 1.09047, lows not seen since March 2017, the Euro rebounded to finish 0.1% higher at 1.0942. Month and quarter end demand for the US Dollar weighed on the Euro. US data was mixed ahead of a data deluge from China and Europe today.
- GBP/USD – Sterling slumped to an overnight and fresh 2-week low at 1.22710, settling a touch higher at 1.2290 in New York. UK Prime Minister Boris Johnson vowed to stay put in his position as UK leader to hit the October 31 Brexit deadline even if he fails to secure a Brexit deal to leave the EU. Johnson insists that his government is the only one can deliver Brexit on October 31.
- AUD/USD – The Aussie held its ground, lifting from an overnight low at 0.67434 to 0.6767 at the New York close. Eighty percent of traders and most analysts expect the RBA to trim its Cash rate to 0.75% (from 1.0%), its lowest on record. Hopes of a new round of high-level talks between China and the US where both sides would find ways to resolve their differences buoyed the Battler.
On the Lookout: With September and Q3 out of the way, expect a tentative start to today’s markets in preparation for a data deluge. New Zealand starts off with its Building Consents (September) which is followed by the ANZ Business Confidence Index. Japanese data kicks off with the Bank of Japan Summary of Opinions (BOJ’s projection for inflation and economic growth), followed by Japanese Retail Sales and finally Housing Starts. Australia reports its M1 Inflation Gauge and Private Sector Credit data.
China starts off its data with the Official Manufacturing and Non-Manufacturing PMI’s. The National precedes today’s Caixin Manufacturing PMI (which is smaller in scope, but often carries more weight). Markets will be focussing on how the trade war has impacted both Chinese Manufacturing PMI gauges. Keep an eye on the Caixin Production Gauge.
Euro area reports see Germany’s Retail Sales, Preliminary CPI reading, and Unemployment Change. Spanish Annual CPI for September follows. The Eurozone Unemployment rate rounds up Euro area data. The UK reports on its Q2 Current Account and Final GDP data as well as Net Lending to Individuals (new credit). US Chicago PMI report rounds up todays data deluge.
Trading Perspective: The data reports today should set the tone for trading in Asia and the rest of the week. This week sees the RBA rate policy meeting, US ISM Manufacturing report, and Employment report at the end of the week.
On Friday, US bond yields ended pretty much near weekly lows. Global Rival bond yields were steady with the yield differential in their favour. This will erode Greenback support, particularly with the Dollar Index near 2-week highs. Without yield support, the US Dollar will find further gains difficult.
We take a look at the latest market positioning tomorrow and see what October has in store for FX.
- EUR/USD – Technically the Euro may have hit a short-term bottom near the 1.0900 support level. That’s not to say that another test is unlikely. It is. The strong support level at 1.0900 should hold, and if US bond yields stay where they were, the likely move for the shared currency is higher. EUR/USD has immediate resistance at 1.0960 (overnight high was 1.09587) followed by 1.0980 and1.1010. Immediate support can be found at 1.0940 followed by 1.0920, and 1.0900. Look to trade a likely range today of 1.0930-80. Prefer to buy dips.
- AUD/USD – The Aussie Battler held against the Greenback, closing at 0.6767, up 0.10% even with the RBA is widely expected to trim its cash rate by 0.25% at the conclusion of its meeting tomorrow (11.30 am Sydney time). This will be the 3rd rate cut from the RBA this year, likely its last. AUD/USD has immediate support at 0.6740/50. The next support level likes at 0.6710. Immediate resistance can be found at 0.670 (overnight night high 0.67793). The next resistance level lies at 0.6810. Look to buy dips with a likely range today of 0.6750-0.6800.
- GBP/USD – Sterling bounced off new two-week lows at 1.22710 to finish at 1.2290, 0.41% lower. The British currency has been weighed by negative news of Boris Johnson and his handling of the Brexit process. Much of the negative news may be out of the Pound and the next set of data from both the UK and US will determine Sterling’s next move. Ten-year UK Gilt yields were a touch lower to 0.49%. GBP/USD has immediate support at 1.2270 followed by 1.2240. Immediate resistance lies at 1.2310 followed by 1.2340. Look to trade a likely range of 1.2270-1.2370. Prefer to buy dips at current levels.
Have a good week ahead all, happy trading.