Summary: Global Fixed Income markets extended their relentless rally on increased concerns of an economic slowdown. The benchmark US 10-year bond yield dipped under 1.5% for the first time since 2016, steadying to close at 1.53% (1.58% yesterday). Better-than-forecast US Retail Sales soothed fears that the US could be headed for a recession and lifted the Dollar, which had earlier fallen. The Dollar Index (USD/DXY) rose to 98.096, up 0.11%. A call for a “significant and impactful policy package” in September by rate setting committee member Ollie Rehn pushed the Euro 0.35% lower to 1.1113 (1.1136). The Dollar steadied against the Yen to close at 106.03 (105.95 yesterday). Sterling rallied to its highest close in a week to 1.2105 (1.2055) on news that the Labour Party was preparing a bid to oust Boris Johnson and stop him from leaving the EU without a deal. Better UK inflation and retail sales data have eased concerns of a weakening economy. The Australian Dollar finished 0.25% higher at 0.6778 (0.6750) after the economy created a robust +41,100 Jobs in July (against a forecast rise of 14,200).
Wall Street stocks managed gains after another volatile session. The DOW was up 0.67% to 25,615 while the S&P 500 rose 0.5% to 2,851.
President Trump signalled better chances of a trade deal with China while repeating his criticism of the US Federal Reserve. Meanwhile, Fed policymakers and noted doves Kashkari (Minneapolis) and Bullard (St Louis) kept their bearish views intact while keep a watch and wait stance.
- EUR/USD – The Euro fell after ECB policy maker and Bank of Finland Governor Ollie Rehn said that the “ECB needs to come up with a significant, impactful policy package” in September. EUR/USD dipped to 1.10915 before settling to close at 1.1110 (1.1137).
- GBP/USD – After two days of solid economic data (inflation and retail sales) the British Pound climbed to over one-week highs at 1.21509 before settling at 1.2105 from 1.2055 yesterday. The UK Labour Party said that it would call for a no confidence vote in Boris Johnson’s government as soon as it believes it can win it and form a government to delay Brexit. A paring of short GBP bets, running at multi-year highs added to the Pound’s support.
- AUD/USD – The Aussie Battler rebounded 0.75% to 0.6778 after the economy added a robust 41,100 Jobs in July beating median forecasts of +14,100. The Unemployment rate was unchanged at 5.2%
- USD/JPY – The Dollar held against the Yen, managing a modest gain of 0.15% to 106.03 (105.93 yesterday). Safe haven flows into the Japanese currency slowed after President Trump tweeted he thinks that the trade war with China will be fairly short.
On the Lookout: Markets will focus on upcoming economic data reports as we head to the second half August where data and events will pick up. Traders will be watching the rhetoric from China in reaction to Trump’s latest tweet that he thinks the trade war will be fairly short.
Economic data releases today are light with most of them coming from the US.
Earlier today, New Zealand’s Business NZ Manufacturing Index dipped to 48.2 in July from 51.3. Japanese Investment in Japanese Stocks and Foreign Bonds round up Asia data.
Euro area data follows with the Euro zone’s Trade Balance. US data reports today start with US Building Permits and Housing Starts. Finally, the US reports on its Preliminary University of Michigan Consumer Sentiment and UOM Inflation Expectations.
Trading Perspective: The fall in US bond yields was matched by those of it’s Rivals. This provided support for the Dollar, enabling the USD/DXY to climb 0.11%. Which should be mildly supportive of the Greenback in Asia today. Germany’s 10-year Bund yield slumped to -0.72% (-0.65% yesterday). Japan’s 10-year JGB yield was down 2 basis points to -0.25%. Australian 10-year treasuries were yielding 0.88%, 6 basis points lower than yesterday.
It’s a Friday and an ideal day to trade ranges. There will be opportunities on both sides. Bullish or bearish, choose your levels well.
- USD/JPY – The Dollar finished in New York at 106.02 steadily climbing to 106.10 this morning. The rate differentials between the US 10-year and its Japanese counterpart narrowed however the risk-off stance has eased. This should provide trading opportunities in this puppy to trade either or both sides. Immediate support lies at 106.00 followed by 105.70 (overnight low 105.703). We could be forming a consolidative range between 105. and 107. Work your levels on those parameters. Look to trade a likely range between 105.90-106.90. Prefer to buy on dips. Remember that speculators have now turned long JPY (COT/CFTC) report yesterday.
- EUR/USD – The Euro retreated following ECB policymaker Rehn’s comments on the need for significant ECB stimulus at their meeting next month. The Euro rallied to a high at 1.11583 before settling at 1.1115 this morning. Immediate support lies at 1.1090 (overnight low 1.10915) followed by 1.1070 (strong). Immediate resistance can be found at 1.1140 and then 1.1180. Look for a likely range today of 1.1090-1.1160. Prefer to buy dips.
- AUD/USD – The Aussie Battler survived massive bearish sentiment that saw the Australian Dollar Trade Weighted Index slide to over a decade low. This is the currency measure preferred by RBA when considering policy (as opposed to AUD/USD). The main trading AUD TWI currencies are Chinese Yuan, Japanese Yen, Euro and the US Dollar (roughly 58% of the AUD TWI weight). Other currencies are the South Korean Won, Indian Rupee, New Zealand Dollar, Singapore Dollar and the British Pound (as at 2018). From this writer’s trading experience, the RBA will not lower rates if things stay the same given the low AUD TWI. The Aussie has immediate support at 0.6740 followed by 0.6710. Immediate resistance can be found at 0.6800 and 0.6840. Look for a likely range today of 0.6755 and 0.6815. Prefer to buy dips.
Happy Friday and trading all.