Harry Xu

Euro Slips on “Cautious” Lagarde; Dollar Gains, Aussie Weak

Summary: The Euro dropped to a fresh 7-week low at 1.10364 after the ECB kept rates unchanged and President Christine Lagarde struck a cautious tone on inflation and Eurozone growth. Germany’s 10-year Bund yield fell 5 basis points to -0.31%. EUR/USD closed 0.36% lower at 1.1055 (1.1095). Risk appetite remained fragile even after the World Health Organization avoided declaring an international virus alarm. China’s stock market (Shanghai Composite Index) plunged 2.75% yesterday. Demand for the safe-haven Yen kept the Japanese currency bid, USD/JPY dipped to 109.50 (109.90). Global treasury yields were lower. The US 10-year bond yield fell 4 basis points to 1.73%. The Dollar Index (USD/DXY) which is virtually 60% Euro weight, was up 0.18% to 97.702 (97.541). The Australian Dollar was at 0.6840, unchanged from yesterday’s opening. Upbeat Australian Employment data lifted the antipodean currency to 0.68787 before slipping on the market’s risk-off stance. New Zealand’s Kiwi jumped 0.36% to 0.6618 from 0.6595 Ny close following the release of stronger-than-forecast NZ Q4 CPI, up 0.5% (vs 0.4% median). Wall Street stocks edged higher amid the virus fallout. The DOW was up 0.06% to 29,169 (29,162) while the S&P 500 rose 0.25% to 3,325 (3,322).

Australian Employment Report Chart – FX Factory – 24 January 2020

Data released yesterday saw Australia create 28,900 jobs, beating forecasts at 15,500. Australia’s Unemployment rate dipped to 5.1% from 5.2% and the lowest since April 2019. Japan’s All Industry Activity climbed 0.9%, beating expectations at 0.4% while its Trade Deficit improved to -JPY 0.10 trillion (f/c -JPY 0.24 trillion). US Weekly Unemployment Claims was steady at 211,000 from 204,000 the previous week.

  • EUR/USD – The Euro fell to an overnight and 7-week low against the US Dollar to 1.10364, bouncing to 1.1055 at the New York close. Traders interpreted Christine Lagarde’s cautious stance as slightly dovish while risk-off didn’t aid the shared currency either.
  • AUD/USD – The Aussie had a brief rally to 0.68787 on the upbeat Australian Employment report before slipping to close flat at 0.6842. As London entered the markets, the Australian Battler was sold down on the risk-off stance as concerns on the spread of the coronavirus remained.
  • USD/JPY – Against the haven Yen, the Dollar closed at 109.50, down 0.21% from yesterday. The Yen was the best performing currency in the risk off environment. Earlier this week, BOJ Governor Haruhiko Kuroda struck a slightly optimistic outlook.

On the Lookout: The effect from the Wuhan coronavirus is likely to last a few months, not days. Nevertheless, it is an important story for the markets. Traders will continue to monitor press releases on the event.
The World Economic Forum in Davos continues today. New Zealand Q4 CPI (just released) rose to 0.5% from 0.7% in Q3, beating forecasts at 0.4%. The Kiwi jumped 0.36% to 0.6618 from its NY close at 0.6597. Global Manufacturing and Services PMI are the focus for data releases today.
Australia kicks off with its Manufacturing and Services PMI report followed by Japan’s Flash Manufacturing PMI. The BOJ’s latest meeting minutes are due for release shortly after. Japanese National Core CPI data rounds up the Australasian reports.
Euro area data kick off with French, German, and Eurozone Flash Manufacturing and Services PMI reports. The UK releases its Flash Manufacturing and Services PMI.
Canadian Headline and Core Retail Sales kick off data reports for North America. US Flash Manufacturing and Services data round up the day’s reports.

Trading Perspective: Expect the Yen to keep its best-performing currency crown in the current market environment. Risk aversion will remain as concerns mount on the spread of the coronavirus in the rest of the world. While data reports will take a lesser role, traders will still monitor them. The global PMI’s released today could move FX.

  1. EUR/USD – Christine Lagarde’s cautious tone was regarded by most FX as slightly dovish. German 10-year bond yields and the Euro fell. However, US and global treasury yields were also lower as market’s kept a risk-off stance. Euro area data continues to see improvements and tonight’s manufacturing and services PMI’s will be monitored. EUR/USD has immediate support at 1.1035 followed by 1.1005. Immediate resistance lies at 1.1085 and 1.1105.
    The speculative market is still short Euro. Look to buy dips in a likely range today of 1.1040-90.
USD JPY DAILY CHART – Investing.Com – 24 January 2020
  1. USD/JPY – The Dollar slumped to an overnight and two-week low at 109.266 before rallying to finish at 109.50. The Yen will continue to see haven demand and the speculative market is currently short JPY bets. USD/JPY has immediate resistance at 109.70 followed by 109.90. Immediate support can be found at 109.25 followed by 109.05. Look to sell rallies in a likely range today of 109.15-109.75.
  2. AUD/USD – Despite the upbeat Australian Employment report, the Aussie stayed under pressure, failing to gain ground against the US Dollar and other rivals. AUD/USD closed flat at 0.6842, trading to an overnight low at 0.68293, just 2 pips higher than it’s monthly low (0.6927). Like Europe, Australian data has continued to improve even with the recent bushfires, some of which are yet to be put out. Immediate support for the Aussie Battler lies at 0.6825 followed by 0.6805. Immediate resistance can be found at 0.6880 (overnight high 0.68787) followed by 0.6910. Look to buy dips in a likely 0.6830-0.6880 range today.

Finally from today’s Australian Business Insider. Wuhan Pandemic :  Health experts issued an ominous warning about a coronavirus pandemic 3 months ago. A scientist at Johns Hopkins last year modelled what would happen if a deadly coronavirus reached a pandemic scale. His simulated scenario predicted that 65 million people could die within 18 months. Hmm. Concerning.

Happy trading all.