Summary: Increased expectations of a Fed rate ease at the end of this month continued to plague the Dollar and lift stocks. US data on Friday showed that Producer Prices increased 0.1% in June as most analysts had forecast. This followed Thursday’s stronger-than-expected climb in US Core CPI to 0.3% in June, its largest rise since early 2018. The Dollar Index (USD/DXY), a popular gauge of its value against a basket of foreign currencies, fell 0.34% to 96.722 from 97.056 Friday. Japan’s Yen outperformed. USD/JPY slumped 0.65% to 107.90 (108.52). The Euro advanced to 1.1269 (1.1253) The Australian Dollar rallied to 0.7024, up 0.32% while the Kiwi was up 0.36% to 0.6697 (0.6664).
US treasury yields eased. The benchmark 10-year rate closed at 2.12% from 2.14%.
Wall Street stocks extended gains. The DOW finished 0.83% higher to 27,310. From 27,090.
Japanese Revised Industrial Production underwhelmed at 2.0% against a forecast 2.3%. China’s Trade Surplus in June climbed to CNY 345 billion from the May’s CNY 279 billion.
Germany’s Wholesale Price Index slumped to -0.5% in June from the previous month’s 0.3%.
Eurozone Industrial Production beat forecasts, climbing to 0.9% against an expected 0.2% rise.
Fed speakers John Williams (New York) and Charles Evans (Chicago) both weighed in their preference for monetary policy accommodation in the short term.
- USD/JPY – The Dollar lost 0.66% against the surging Yen to 107.87 in late New York from its opening of 108.52. In contrast to the 2 basis-point fall in US 10-year yields, Japan’s 10-year JGB yield climbed 2 basis points to -0.13%.
- EUR/USD – The Single currency advanced to 1.1270 at the NY close, near it’s overnight highs (1.12749). The Euro’s rally remained constrained by market expectations that the ECB will cut the discount rate in its September meeting.
- AUD/USD – The Aussie rallied above 70 cents to finish at 0.7024, up 0.47% (0.6975 Friday). The Aussie’s corrective rebound took it to highs seen a week ago. Aussie traders will look out for today’s Chinese trifecta of top-tier data released later today.
- USD/DXY – The Dollar Index closed 0.34% lower to 96.722, not far off from its overnight and one-week lows. The Greenback’s was broad-based. Only a few Emerging Market currencies managed lost ground versus the US Dollar.
On the Lookout: A Japanese bank holiday should see a slow start to markets today in Asia. At least until Chinese releases its trifecta of first tier data beginning with Q2 GDP, Fixed Asset Investment (June), Industrial Production and Retail Sales. China will also release its Unemployment Rate for June. Swiss PPI is the lone European report. US Empire State Manufacturing round up today’s reports.
Tomorrow sees a busy start to the week with New Zealand’s Q2 CPI report, the RBA Meeting Minutes release, and US Headline and Core Retail Sales.
Fed speak will also figure prominently throughout the week. The highlight will be Wednesday’s speech by Fed Chair Jerome Powell in Paris, France on “Aspects of Monetary Policy in the Pro-Crisis Era”. Powell is a guest at the France G7 2019 Presidency ceremony.
Trading Perspective: The Dollar’s next move depends much on where US yields head. On Friday, the benchmark US 10-year yield slipped 2 basis points to 2.12%. Other global yields were higher (by contrast) or flat. This pressured the Greenback. The Dollar Index (USD/DXY) lost 0.34% to 96.722, just above immediate supports. With a 0.25% rate decrease from the Fed at the end of this month pretty much priced in, we would need to see a slide in US yields for more Dollar losses. Market positioning will also have an impact. Data released tomorrow on the latest COT/CFTC report will be interesting. And definitely worth looking at.
- USD/JPY – The Dollar fell most against the Yen, by 0.66%, as a slip in US 10-year yields contrasted with a climb in Japanese 10-year JGB yields. The net differential narrowed 4 basis points. USD/JPY traded to an overnight and 1-week low at 107.805 before settling at 107.90 this morning. USD/JPY has immediate support at 107.70/80 followed by 107.50 and 107.20. Immediate resistance can be found at 108.10 followed by 108.40. With Japan out for a bank holiday (Marine Day), expect a relatively quiet day with tight ranges. Prefer to buy dips with a likely trade between 107.70-108.30 today.
- AUD/USD – The Aussie Battler has bounced back strongly in true fashion from 0.6925 a week ago to 0.7025 on Friday. AUD/USD opens in Sydney at 0.70195. AUD/USD has immediate resistance at 0.7040 followed by 0.7070. Immediate support can be found at 0.7000 and 0.6975. Aussie traders will be watching China’s trifecta of first tier releases today. Tomorrow sees the release of the RBA’s latest meeting minutes. Look for a likely range today of 0.6980-0.7030. Just trade the range shag on this one.
- EUR/USD – The Euro grinded higher from 1.1240 to 1.12749 overnight, settling at 1.1268. The Single currency has been stuck in a relatively tight range 1.1200 and 1.1400 for most of 2019. Broad based US Dollar weakness has failed to boost the Euro, constrained by a dovish ECB, which seems to be a step just behind the Fed. Short speculative Euro bets have continued to dwindle which makes the currency less likely to rebound strongly. EUR/USD has immediate resistance at 1.1280 followed by 1.1310. Immediate support can be found at 1.1250 and 1.1220. Look to trade a likely 1.1240-1.1290 range today.
- USD/DXY – The Dollar Index has good support at 96.50 followed by 96.20. Immediate resistance can be found at 97.00 and 97.30. Looking like a range trade today between 96.60-97.10. Just trade the range shag on this puppy too.
Have a good week ahead all, happy trading.
