Summary: The Dollar once again claimed “King” of currencies even as May US Retail Sales missed forecasts, rising 0.5% against an expected 0.7%. April’s Sales though were revised up to a gain of 0.3% against a fall of 0.2% as previously reported. A popular gauge of the Greenback’s value against a basket of foreign currencies, the Dollar Index was up 0.45% to 97.45 (97.05 Friday). New Zealand’s Dollar, otherwise known as the Kiwi (flightless bird) slumped 1.16% (0.6870 from 0.6920), worst performing currency. New Zealand’s Business Manufacturing Index in May plummeted to January 2013 lows (50.3 against the previous 53.0). The Kiwi economy has been hard hit by the slowdown in Asia, particularly Australia and China. The Australian Dollar dropped to 4-week lows at 0.6870 (0.6915), its fifth straight decline. China’s Industrial Production in May slowed to 5.0%, a 17-year low and missing forecasts of 5.4%. Sterling dropped to 1.2588 swept by the wave of overall Dollar strength.
Bond traders though continued to drive yields lower. The benchmark US 10-year yield slipped to 2.08%, near 2019 lows. Wall Street stocks edged lower. The S&P 500 ended 0.15% lower (2,890.00)
- EUR/USD – the Euro fell on the broad-based US Dollar strength to 1.1212 (1.1275 Friday) at the New York close on Friday. The ECB forum on Central Banking begins today at Sintra, in Portugal with President Mario Draghi delivering opening remarks.
- AUD/USD – slip-sliding away. Despite higher iron-ore prices and last week’s mixed Australian Employment report, the Aussie fell to 4-week lows to 0.68614 before settling back to 0.6875. Overall US Dollar strength and the ongoing trade China-US trade war has weighed on the Aussie which can’t seem to take a trick. Just yet.
- NZD/USD – The Kiwi plummeted to 0.6488 after New Zealand’s manufacturing activity nose-dived to the lowest level since 2013. NZD/USD fell to late May 2019 lows. New Zealand’s 10-year treasury sank 3 basis points to 1.63%.
On the Lookout: The week’s events and data reports are fast and furious, but they begin tomorrow. Today sees US Empire State Manufacturing and NAHB (National Association of Home Builders) Market Index. The week’s main event is the US Federal Reserve’s FOMC policy meeting (early Thursday morning in Sydney). The Fed is not expected to change its policy, but markets will be focussed on the US central bank’s economic projections and dot plot forecast. Federal Reserve President Jerome Powell will hold a press conference after with questions from the press fielded.
The week also sees the Bank of Japan and Bank of England policy meetings. Eurozone and Euro area Manufacturing PMI’s due on Friday will also be scrutinised.
Bond markets continue to whisper recession as they drive yields lower. FX markets think that the US is more resilient if the China-US trade war continues, and even worsens. Time will tell.
Trading Perspective: Without yield support, the Dollar will struggle to make further gains. US yield continue to edge lower. At some stage, the FX markets will take notice of where US yields are. While yields of global rivals are lower, US rates have a longer way to fall. Bond markets are already talking “recession”.
The latest Commitment of Traders/CFTC report for the week ended 11 June saw net total speculative long Dollar bets pared to +USD 54,900 contracts from +USD 89,900. While this is the case, in the four major currencies (EUR, GBP, JPY and AUD), speculative long USD bets against these currencies remained virtually the same. The big reduction in USD longs came from a big build in Mexican Peso longs (versus the USD) as Mexico-US trade friction eased.
- EUR/USD – it’s a big week for the Euro and the focus will still be on the US Fed. After the Euro’s failed attempt on the topside at the 1.1350 area, the Single currency has fallen to one-week support levels near 1.1200. Immediate support lies at 1.1200 (1.12025) followed by 1.1170. Immediate resistance can be found at 1.1260 and 1.1290. Speculative Euro short bets were basically flat at -EUR 86,800 from the previous week’s -EUR 87,600. Look to buy dips with a likely range today of 1.1205-1.1275.
- AUD/USD – Pressure mounted on the Australian Battler after China’s Industrial Production in May posted its worst reading in 9 years. AUD/USD hit an overnight low of 0.68614, near 2019 lows before rallying to settle at 0.6880 in early Sydney. The latest COT/CFTC report saw speculative Aussie short bets virtually unchanged at -AUD 63,200 bets from the previous week’s -AUD 63,300. The RBA releases its minutes from its latest meeting tomorrow. AUD/USD has immediate support at 0.6860 followed by 0.6830. Immediate resistance can be found at 0.6920 and 0.6950. Look to buy dips with a likely range today of 0.6860-0.6930. Prefer to buy dips.
- USD/JPY – Among the central bank meetings this week the BOJ is expected to be a non-event. The Dollar grinded higher against the Japanese currency to 108.55 from 108.40 on Friday. The latest COT/CFTC report also saw minute changes in JPY market positioning. Net speculative short JPY bets were increased to -JPY 45,200 from the previous week’s -JPY 44,400. With US 10-year yields near 2019 lows look to sell USD/JPY on rallies. Immediate resistance can be found at 108.60 (overnight high 108.586) and 108.90. Immediate support lies at 108.20 and 108.00.
Have a good week ahead all…Happy trading.