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Dollar Flat, Powell Faces a Divided Fed; Jackson Hole Speech Eyed

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , , ,

Summary: It was a market where the Dollar Index (USD/DXY) closed little changed (98.207) ahead of today’s Jackson Hole, Wyoming central bank symposium. However, there was lots of movement in FX. The British Pound soared 1% against the Dollar to 1.2255 (1.2125), hitting one-month highs after German Chancellor Angela Merkel said a solution to the Irish border could be found ahead of the October 31 Brexit deadline. Against the beleaguered Euro, Sterling was up 1.08%. EUR/GBP plummeted to 0.9043 (0.9145). EUR/USD was modestly lower at 1.1080 (1.1087) despite better-than-expected rises in Euro area PMI’s. The Dollar dipped against the Yen to 106.42 (106.62). The Aussie fell 0.42% to 0.6760 (0.6780) while the Kiwi dropped 0.62% to 0.6370 (0.6403) after China’s offshore Yuan slumped 0.3% against the Greenback to 11-year lows (USD/CNH 7.0885 vs 7.0700). Asian currencies were all lower against the Dollar. Welcome to the good old world of FX!

FOREX FACTORY - US Manufacturing PMI - 23 Aug 2019

FOREX FACTORY – US Manufacturing PMI – 23 Aug 2019

US Bond yields rose while stocks ended with moderate gains. The US 10-year bond yield climbed to 1.61% (1.59%). The spread between the US 2-year and 10-year yield moved to flat after briefly hitting negative territory. The Dow climbed 0.17% to 26,225.
Fedspeak revealed a deep divide amongst US policymakers on interest rates. Amidst a worsening global economic outlook two Fed officials said they saw no need for easing at this time.
Australia’s Flash Composite PMI’s missed forecasts at 49.5 from 51.5. French, German and Eurozone Flash Manufacturing and Services PMI’s were all better than expected. US Flash Manufacturing PMI’s fell to 49.9 in August from 50.4 and a forecast of 50.9. US Flash Services PMI also underperformed. US Weekly Jobless Claims improved to 209,000 from 220,000.

  • GBP/USD – The British currency jumped after Angela Merkel lifted invertor’s hopes that a solution to the crucial Irish border could be found before the October 31 Brexit deadline. Sterling soared to 1.2273, one-month highs before settling at 1.2255 as spec shorts scrambled for cover.
  • EUR/USD – The Euro remained on the backfoot closing near at 1.1080 (1.1087) despite better-than-expected Euro area PMI data. Sentiment toward the shared currency remains bearish with the ECB expected to announce fresh stimulus measures in September.
  • AUD/USD – The Aussie dropped after the Chinese Yuan hit its weakest since March 2008. USD/CNH jumped 0.3% to 7.0885 (7.0700) while Asian currencies fell. AUD/USD retreated to 0.6760 at the close.

On the Lookout: All eyes on Jerome Powell due to deliver a keynote speech at the Jackson Hole symposium in Wyoming (12 midnight Sydney 23 August). Powell’s speech will be on the “Challenges of Monetary Policy”. He faces a divided Fed after two key policymakers said they saw no need for easing at this time. Kansas City Federal Reserve president Esther George (a noted hawk) said that the July rate cut was not needed, and that further stimulus measures are not needed. Patrick Harker, Philadelphia Federal Reserve Head said that there was no need for another rate reduction. Dallas Fed President Kaplan backed the July rate cut. Powell will want to be seen not bowing to repeated attacks from President Donald Trump for not easing policy further. Markets are expecting the US central bank head to clarify the July meeting minutes “mid-cycle adjustment” message and re-affirm an easing stance. The risk is that Powell downplays any rate cut chances.
The US 2-year against 10-year bond yield spread closed flat (1.61%).  A move to negative territory, the market’s most feared recession signal, will put pressure on the US Dollar.

Forex Factory - Jackson Hole, Wyoming Economic Policy Symposium Description - 23 AUG 2019

Forex Factory – Jackson Hole, Wyoming Economic Policy Symposium Description – 23 AUG 2019

Trading Perspective: It all boils down to Jackson Hole, the annual Wyoming symposium hosted by the Kansas City Fed which is attended by global central bankers, finance ministers and academics and financial market participants. In the past, Jackson Hole has moved FX and this year is no different. Be ready for a volatile ride in FX tonight.

LIVECHARTS.CO UK - GBP USD 1H Chart - 23 AUG 2019

LIVECHARTS.CO UK – GBP USD 1H Chart – 23 AUG 2019

  1. GBP/USD – Yesterday’s move in Sterling saw the impact of market positioning in FX. While Angela Merkel’s comments offered hope for a Brexit backstop solution, the reality is that the UK and EU remain far apart on the issue. French President Macron was sceptical after a meeting with Boris Johnson. For weeks, Sterling has been under pressure on fears that Johnson would take the UK out of the EU without a deal. Net speculative short GBP bets increased to multi-year highs according to the latest COT/CFTC report. GBP/USD jumped to an overnight high at 1.2273 from 1.2125 yesterday before settling at 1.2255. Immediate resistance lies at 1.2270-1.2300. Immediate support can be found at 1.2220 and 1.2180. From here it will depend much on where the US Dollar heads. Look for a volatile 1.2200-1.2300 range today.
  2. EUR/USD – The Euro slid to 3-week lows at 1.10636 before settling at 1.1080 in New York. The shared currency traded to an overnight high at 1.11132. The immediate resistance at 1.1120/30 is strong and would have to see a clean break to push the Euro higher. Immediate support at 1.1060 should hold, otherwise we will see EUR/USD test this year’s low at 1.1025. The next support level lies at 1.0980. Market sentiment is decidedly bearish, but the specs are short. Look to trade a likely range of 1.1060-1.1110 until Powell speaks at Jackson Hole.
  3. AUD/USD – Like the Euro, market sentiment is bearish on the Australian Battler. Net speculative Aussie shorts increased to -AUD 62,912 contracts, an increase of 13% from the previous week. Spec shorts are now at 83% of 2019’s biggest total. The Australian Dollar TWI is at lows now seen since 2008. All supportive factors. On the other hand, continuing weakness in the Chinese Yuan and Asian currencies will weigh on the Australian currency. The locals are decidedly bearish which makes this writer want to buy Aussie dips. An overly bearish domestic market has almost always been a reverse indicator. AUD/USD closed at 0.6760 from 0.6780 yesterday. Immediate support lies at 0.6750 (overnight low 0.67509). The next support level lies at 0.6730 and 0.6700. Immediate resistance can be found at 0.6790 (overnight high 0.67872) followed by 0.6810. Look to buy dips with today’s range likely 0.6750-0.6800.

Put those tin helmets on and get ready to rumble. Happy Friday and trading all.

Fed Signals Flexibility on Rate Cut Path, US Yields, Dollar Advance

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , ,

Summary: The Dollar advanced against its rivals, climbing most against the safe-haven Yen and Swiss Franc. US bond yields rose after Fed minutes signalled that policymakers preferred flexibility when it came to the path of further rate cuts. In its July meeting FOMC members discussed a 50-basis point rate cut but decided on 25 basis points, seen as a mid-cycle adjustment. Yields on US treasuries rose after the minutes were published. The benchmark 10-year yield bond yield climbed to 1.59% (1.56%). Two-year US rates rose to 1.57% from 1.51%. Risk appetite increased, stocks rallied, paring gains at the New York close. The Dollar gained 0.37% against the Yen to 106.64 from 106.22. USD/CHF was up 0.47% to 0.9830 from 0.9778. The Euro slipped back to 1.1082 (1.1100) while Sterling retreated 0.345% to 1.2122. The Australian Dollar was little changed, finishing at 0.6780 (0.6778).
The DOW finished up 1.4% at 26,260, while the S&P 500 ended up 1.25% to 2,932.
Canada’s July Headline CPI beat forecasts, up 0.5% against an expected 0.1%.

CNBC US Bond Yield Table - 22 AUG 2019

CNBC US Bond Yield Table – 22 AUG 2019

  • EUR/USD – The Euro slipped against the generally stronger US Dollar to close at 1.1085. The shared currency traded within a familiar 30-point range between 1.1080 and 1.1110.
  • USD/JPY – the Dollar advanced against the safe-haven Yen to 106.65, up 0.32%. The rise in the US 10-year yield once again the main support for the Greenback. The increase in risk appetite also weighed on the Yen and the other safe-haven Swiss Franc.
  • GBP/USD – The British currency slipped back to 1.2125 from 1.2170. Traders were cautious about an upcoming meeting between Boris Johnson and Angela Merkel on Brexit. While both leaders intend to make the divorce as smooth as possible, market sentiment on Sterling remains bearish. On the other hand, market positioning is well short on Pounds.
  • AUD/USD – The Australian Dollar finished little changed at 0.6780 against the backdrop of broad-based USD strength. Trade tensions between the US and China have eased with the recent US concessions. And the RBA has signalled a wait-and-see stance for now.

On the Lookout: The Jackson Hole, Wyoming Symposium begins late Thursday in the US. Fed Chair Jerome Powell’s speech takes on added significance following the signal from the Fed’s later meeting minutes and constant criticism from President Trump.
Today sees a data dump with the latest Manufacturing and Services PMI’s from several major economies.
Australia’s Flash Manufacturing PMI beat forecasts (51.3 vs 51.0) however Services underwhelmed (49.2 vs 51.8). Japan reports its Flash Manufacturing PMI (10.30 am Sydney). Japanese All Industry Activity Index is also released today. The Euro area begins with French, German and Eurozone Flash Manufacturing and Services PMI’s with most expected to be close to the previous month’s results. Eurozone Consumer Confidence (August) is also due for release later in the day. The ECB releases its monetary policy meeting accounts. UK CBI Realised Sales precede Canada’s Wholesale Sales report (June). The US releases its Flash Manufacturing and Services PMI followed by US Conference Board Leading Industry Index.

Trading Perspective: The Dollar should stick within its recently established ranges ahead of Jackson Hole. The climb in US bond yields will provide short term support for the Greenback. Bonds though have been behaving more like currencies. The Dollar has since retreated in early Asia following its advance on the less dovish Fed. Jackson Hole this year could be huge for FX. The next 48 hours will be crucial for the US Dollar and its rivals.
Jackson Hole also coincides with the conclusion of the northern hemisphere August summer holidays. This writer can remember Jackson Hole meetings in the past where a speech from the Fed Head (Yellen, Bernanke) moved FX in extremely volatile fashion. The importance of Jerome Powell’s speech cannot be underestimated.

  1. EUR/USD – The Euro trading range has narrowed as we approach Jackson Hole. Despite the resignation of Italian PM Conte yesterday EUR/USD traded in a tight 27-point range between 1.1080 and 1.1107. Today’s Euro area PMI’s will be the first test for the shared currency. Median expectations are for slightly weaker numbers than the previous release. Euro area economic data has been mostly weaker in Q2. Meantime market positioning is still short Euro but not at extremes. EUR/USD has immediate resistance at 1.1110 and 1.1130. Immediate support can be found at 1.1080 and 1.1060. Weaker than expected PMI’s could see 1.1060 tested but expect that to hold into Jackson Hole. Look to trade both sides for today with a likely range at 1.1060-1.1110.
CNBC US Bond Yield Table - 22 AUG 2019

CNBC US Bond Yield Table – 22 AUG 2019

  1. USD/JPY – The Dollar traded to an overnight low at 106.213 before rallying on the Fed minutes to 106.65 at the New York close. The rise in US 10-year yields to 159% and increase in risk appetite boosted the Dollar against the Yen. Overnight high was 106.65 which is immediate resistance for today. The next resistance level is found at 106.80 and 107.00. Support can be found at 106.20 followed by 105.80. Look to trade both sides with a likely range today of 106.25-106.75. Prefer to buy dips.
  2. AUD/USD – The Aussie Battler held against the overall stronger Dollar finishing little changed at 0.6780 (0.6778). AUD/USD has immediate resistance at 0.6800 followed by 0.6830. Immediate support can be found at 0.6770 (overnight low 0.67729) followed by 0.6750. Emerging Market currencies were stronger against the US Dollar last night which is Aussie supportive. Speculators are also short Aussie bets. And the Australian Dollar TWI (Trade Weighted Index) is still near multi-year lows. Look to trade a likely 0.6760-0.6810 range. Prefer to buy dips.

Happy trading all.

US Dollar, Yields Dip, Aussie Climbs as RBA Holds Steady

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , , ,

Summary: The US Dollar and bond yields dipped as optimism on new stimulus measures from global central banks faded just days ahead of the Jackson Hole, Wyoming gathering. Fed Chair Jerome Powell will open annual symposium with a speech where several other central bank heads are expected to speak. Markets were cautious but remained calm. US President Trump stepped up his attacks on the Federal Reserve, saying Jerome Powell should cut rates 100 basis points and add QE as well. The Dollar Index (USD/DXY) a popular gauge of the currency’s value against 6 majors, dipped 0.18% to 98.171. US bond yields retreated. Benchmark US 10-year rate finished at 1.56% from 1.61% yesterday, trading more like a currency. In Italy PM Giuseppe Conte resigned, opening prospects for new elections and adding to global uncertainties. The Euro recovered to 1.1100 after hitting near two-year lows. Earlier, Australia’s central bank, the RBA revealed a “steady as she goes” policy from its latest meeting minutes. The Australian Dollar bounced off its lows to close at 0.6777, up 0.3% (0.6752). Risk aversion led to a lower Dollar versus the haven sought Yen to 106.20 from 106.62 and Swiss Franc, 0.9778 from 0.9817.

BloombergMarkets US 10-Year Bond Yield Hourly Chart - 21 AUG 2019

BloombergMarkets US 10-Year Bond Yield Hourly Chart – 21 AUG 2019

Wall Street stocks gave back most of their gains. The DOW dipped 0.83% to 25,897, from 26,115. The S&P 500 lost 0.9% to 2,895. (2,922.)

  • EUR/USD – managed to rally on the back of weaker US Dollar to 1.110 (1.1080 yesterday) despite Italy’s growing political turmoil. In his resignation Conte accused Deputy Minister Mateo Salvini of breaking up the government and putting the country at risk. Earlier the Euro dropped to near 2-year lows at 1.10656.
  • AUD/USD – The Australian Dollar rallied against the Greenback to 0.6777 from 0.6752 after the RBA latest meeting minutes revealed a “steady as she goes” policy. Market sentiment though remains bearish on the Battler. AUD/USD kept within a two-week trading range.
  • USD/JPY – the Dollar dipped against the Yen weighed by lower 10-year bond yields and a more risk-averse market stance. USD/JPY closed at 106.20 from 106.62 yesterday.
  • GBP/USD – The British Pound rallied against the generally weaker Greenback to 1.2170 (1.2130 yesterday). Sterling was aided by comments from German Chancellor Angela Merkel who said that the EU would think about practical solutions to the backstop, which is the agreed insurance policy for the Irish border. Boris Johnson’s UK government wants it scrapped.

On the Lookout: Yesterday saw a light economic calendar while in Italy, politics heated up. The trade front produced little headway which traders will keep a lookout for in Asia today. China has yet to respond to the recent US moves.
Today data releases pick up. Australia opens with its M1 Leading Index followed by New Zealand’s annual Credit Card Spending (August).  The UK reports on its Public Sector Net Borrowing, the difference between government spending and income. Canada reports on its inflation numbers with Headline August CPI, Annual Trimmed CPI, August Core CPI data. The US Existing Home Sales report rounds up the day’s data. The FOMC’s latest meeting minutes are released in the North American evening (early Sydney Thursday 4 am). Which will give traders a clearer guide of future Fed interest rate policy.

Trading Perspective: Ahead of the FOMC’s release of its meeting minutes and Jackson Hole, Wyoming global central bank symposium, expect the recent trading ranges to hold. We highlighted that net speculative US Dollar longs were very much unchanged. However speculative shorts in Sterling and the Australian Dollar continued to build, which may see further short-covering support. Against the Yen, it is a totally different ball game. Among the majors, the Yen is the only currency where speculators are net long the currency (ie short US Dollars).

Saxo Bank Bloomberg - Non-Commercial USD vs 9 IMM Currencies - 21 AUG 2019

Saxo Bank Bloomberg – Non-Commercial USD vs 9 IMM Currencies – 21 AUG 2019

President Trump’s attacks on the Fed and some of his solutions, ie cutting taxes on payrolls will erode support for the US Dollar. It is no secret now that he prefers a weaker Dollar. Watch the bond yields, they are trading like currencies and will give us a guide.

  1. EUR/USD – The Euro rallied on the back of the generally weaker US Dollar. The latest drama in the Italian political scene leaves the shared currency vulnerable. EUR/USD closed at 1.1100 after trading to an overnight and near 2-year low at 1.10656. The overnight high traded was 1.11066 which leaves the immediate resistance at 1.1110. The next resistance level lies at 1.1130. Immediate support can be found at 1.1080 and 1.1060. A clean break of 1.1060 could see 1.1027, early August and two-year lows. The latest COT report saw a small increase in net speculative Euro shorts to -EUR46,649 contracts. Which is about 45% off the biggest shorts recorded in a year. Expect a likely trading range today of 1.1060-1.1110.
  2. USD/JPY – The Dollar retreated against the Yen weighed by lower US bond yields and a rise in risk aversion. USD/JPY closed at 106.22 from 106.62 yesterday. Immediate support for today can be found at 106.10 followed by 105.80. Immediate resistance can be found at 106.70 and 107.00. The latest COT report saw net speculative long JPY bets increase by +JPY 14,181 bets to total +JPY 24,742 the biggest total since November 2016. This is a danger sign to getting too short of US Dollars near the 105.00 area. We also know that the Japanese authorities will be vigilant at those levels as well. Meantime we have not broken out of the 105-107 range. Look to trade a likely range today of 106.00-106.70. Prefer to buy dips.
  3. AUD/USD – The Australian Dollar dipped to an overnight low at 0.67546 ahead of the RBA meeting minutes release yesterday. Following the result where the Australian central bank signalled a steady as she goes policy, the Battler slowly grinded higher against the generally weaker Greenback. AUD/USD traded to an overnight high at 0.6495. Immediate resistance remains at 0.6800 followed by 0.6830. Immediate support can be found at 0.6755 followed by 0.6730. The latest COT report saw speculative Aussie shorts increase to -AUD 62,912 bets from the previous week’s -AUD 55,511. Look to trade a likely 0.6760-0.6810 range today, prefer to buy dips.
21 AUG 2019 - DAILY FX GBP USD 1D Chart -

21 AUG 2019 – DAILY FX GBP USD 1D Chart –

  1. GBP/USD – Sterling had a brief rally to 1.2180 after Merkel’s positive comments on the EU’s preparedness to think about practical solutions to the Irish backstop which is key to a Brexit agreement. This was short-lived and the Pound slipped back to 1.2160 in early Asia. GBP/USD has immediate resistance at 1.2180 followed by 1.2210. Immediate support can be found at 1.2130 followed by 1.2100. The latest COT report saw speculative short GBP bets trimmed to -GBP 95,820 contracts from the previous week’s -GBP 102,702. This is still a large number of shorts, and the risk is for a further short squeeze. Look to trade a likely range today of 1.2110-1.2180. Prefer to buy dips.

Happy trading all.

DXY Advances to 2019 Highs, Global Stimulus Hopes Boost Risk

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , , ,

Summary: Optimism on stimulus hopes from Germany and China boosted risk which lifted the Dollar, treasury yields and stocks. The Bundesbank’s (German central bank) latest monthly report stated: “there is a risk the German economy could shrink again in the third quarter.” German Finance Minister Olaf Scholz reportedly said that Berlin could make available EUR 50 billion of extra spending in case of a slowdown. This saw EUR/USD retreat for the 5th day in a row to close at 1.1080, down 0.11%. Elsewhere, China is preparing to announce today details of their new Loan Prime Rate program (approx. 11.30 am Sydney time). Which replaces their fixed benchmark lending rate (updated every 20th of the month). Markets expect the fixed rate (4.35%) to be set lower. Risk appetite increased with the Dollar, treasury yields and stocks climbing. The Dollar Index (USD/DXY) rose 0.23% to 98.372, approaching 2019 highs. Haven darlings the Yen and Swiss Franc retreated. USD/JPY was up 0.29% to 106.62 (106.35) while USD/CHF advanced 0.49% to 0.9817 (0.9787). The Australian Dollar eased to 0.6765 (0.6775) ahead of today’s RBA August meeting minutes release.
Wall Street stocks rallied with the S&P 500 adding 1.05% to 2,922. (2,892). The benchmark US 10-year bond yield climbed 6 basis points to 1.61%. Germany’s 10-year Bund yield closed at -0.65% from -0.69% yesterday. Japan’s 10-year JGB yielded -0.24%, unchanged from yesterday.
New Zealand’s PPI Input and Output beat expectations. The Eurozone’s Final CPI (annual) slipped to 1.0% from the previous 1.1% and forecasts of 1.1%.

TRADING VIEW - DXY Chart - 20 August 2019

TRADING VIEW – DXY Chart – 20 August 2019

  • EUR/USD – slip-sliding away. The Euro retreated for the 5th day in a row to finish modestly lower at 1.1080 (1.1090 yesterday). The Bundesbank’s monthly report findings and comments by the German Finance Minister weighed on the shared currency. However, there was little movement ahead of next week Euro area PMI’s and Friday’s Jackson Hole summit.
  • USD/JPY – The Dollar rallied against the haven sought after Yen following the rise in US treasury yields. Risk-on stance by the markets on global stimulus hopes also buoyed USD/JPY. The latest COT/CFTC report saw little change to the overall speculative long USD positioning. Against the Yen (and Sterling), there are highlighted changes.
  • USD/DXY- while mainly a mirror of the Euro, the Dollar advanced against the Yen, Sterling and Swiss Franc. USD/DXY closed 0.23% higher to 98.372 from 98.203 yesterday. DXY was boosted by the climb in US bond yields and within striking distance of 2019 highs at 98.93.
  • AUD/USD – the Aussie stayed weak ahead of today’s RBA August meeting minutes release (11.30 am Sydney time). AUD/USD finished at 0.6765, down 0.18% from 0.6775. While RBA speak has been less dovish and economic data brighter, market sentiment toward the Battler is still bearish. The risk, according to this writer, could be for an Aussie short squeeze.

On the Lookout: The main event today is the RBA’s August monetary policy meeting minutes release. Economic data releases start off with the Swiss Trade Balance followed by German Producer Prices. The UK reports its CBI Industrial Order Expectations. Canada reports its Manufacturing Sales for August. New Zealand’s Global Dairy Prices are also released early tomorrow morning.
Traders will be focussed on China today with the new interest rate mechanism paving the way for lower borrowing costs to businesses.
On the trade front, tensions eased with the announcement that the US is granting Chinese tech giant Huawei a 90-day extension with which to buy components from US companies to supply their customers.

Saxo Bank - Bloomberg COT CFTC REPORT - 20 AUG 2019
The Jackson Hole Symposium for the world’s central banks which begins on Friday with a speech by US Fed Chair Jerome Powell is the week’s big event.

Trading Perspective: Amidst the plethora of news items, FX stayed well within established ranges. The Dollar Index extended its grind higher, this time against a broader range of currencies. The bounce back in US treasury yields have been a solid support for the Greenback, and we would need to see more yield support for a move higher.

The latest COT/CFTC report (week ended 13 August) saw total net speculative US Dollar long bets pretty much unchanged. Speculators increased their net long US Dollar bets against the Euro, Aussie and Canadian Dollar. Versus the British Pound, specs cut their short Sterling bets. The biggest move came against the Japanese Yen where speculative long JPY bets increased +JPY 25,000 lots, to their biggest total since November 2016.

  1. EUR/USD – The Euro remains under pressure with all the stimulus rhetoric coming out of Europe of late. EUR/USD grinded lower top close at 1.1080, trading to a low of 1.10762. Overnight high for the Euro was 1.11138. Lately, Euro area economic data has underperformed. On Thursday, crucial Euro area and Eurozone Manufacturing and Services PMI’s for August are due. Should the PMI’s be weaker than expected, the Euro will test recent lows of 1.1027. Immediate support lies at 1.1070 followed by 1.1040. Immediate resistance can be found at 1.1100 and 1.1120. The latest COT report saw speculative short Euro bets increase to -EUR 46,649 bets from the previous week’s -44,010 bets. Look to trade a likely range of 1.1060-10. Prefer to buy dips.
  2. AUD/USD – the bearish sentiment on the Aussie stayed intact with the US Dollar gaining strength on a broad base. While risk rallied, Emerging Market currencies ended lower against the Greenback. Higher US yields contrast with market expectations of lower Australian rates. Markets are still looking for a dovish bent from the RBA. AUD/USD closed at 0.6765. Immediate support on the day can be found at 0.6740 followed by 0.6710. Immediate resistance lies at 0.6800 and 0.6840. The latest COT/CFTC report saw speculative Aussie short bets increased to -AUD 62,912 bets (week ended 13 Aug) from last week’s -55,571. That’s a decent rise. Let’s not forget that the Aussie Dollar TWI is at multi-year lows. The risk is for a short squeeze soon. Today’s likely range will be 0.6745-0.6795. Prefer to buy dips.
DAILY FX - USD JPY Chart - 20 AUGUST 2019

DAILY FX – USD JPY Chart – 20 AUGUST 2019

  1. USD/JPY – The Dollar rose to finish at 106.62, up 0.29% on higher US yields and a more positive market risk profile. USD/JPY traded to an overnight high at 106.697. Immediate resistance lies at 106.70 followed by 107.00. Immediate support can be found at 106.30 (overnight low 106.244) and 106.00. The latest COT/CFTC report (week ended 13 August) saw speculative JPY long bets increase by a hefty +JPY 14,181 contracts to total +JPY 24,742 bets, the biggest net long JPY total since November 2016. Which isn’t surprising given current market sentiment. Look to trade a likely range today of 106.25-106.95. Prefer to buy dips.

Happy trading all.

Euro Extends Drop, ECB Stimulus Bets Rise, Dollar Steadies

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , ,

Summary: The Euro extended its drop for the 4th straight day to 1.1090 (1.1115) on rising bets of a bold stimulus package from the ECB in their next meet (September 12). On Thursday, ECB Governing Council Member Olli Rehn suggest that the Europe’s central bank could restart its QE program. Sterling rallied 0.4% to 1.2145 (1.2105) as growing opposition to PM Boris Johnson’s promise to take Britain out of the EU with or without a deal forced crowded shorts to cover. The Dollar Index (USD/DXY) steadied to 98.203 (98.096) after a jump in US Building Permits offset a fall in Housing Starts. On Sunday, White House Economic Adviser Larry Kudlow said that there is little risk of a recession despite a volatile week for bond markets. Treasury yields stabilised with the benchmark 10-year rate finishing up 2 basis points at 1.55%.
Wall Street stocks gained with risk appetite with the Dow finishing the week up 1.2% to 25,920. (25,600). The S&P 500 gained 1.4% to 2,892.
The Eurozone’s Trade Surplus narrowed to EUR 17.9 billion in July. US Building Permits rose to 1.34 million units from 1.23 million while Housing Starts dropped to 1.19 million from 1.25 million the previous month.

BLOOMBERG US TREASURY YIELD TABLE - 19 AUGUST 2019

BLOOMBERG US TREASURY YIELD TABLE – 19 AUGUST 2019

–          EUR/USD – slip-sliding away, the Euro extended its retreat to finish at 1.1090 from 1.1115. The shared currency fell for the fourth day in a row as market bets grow for an ECB stimulus move in their upcoming September policy meeting.

–          GBP/USD – Sterling rallied as crowded shorts ran for cover on growing opposition from political parties to Boris Johnson’s pledge to take Britain out of the European Union with or without a deal. The British Pound climbed against both the US Dollar (1.2145 from 1.2105) and Euro (0.9130 from 0.9183).

–          USD/JPY – The Dollar edged higher against the Japanese currency to 106.35 (106.05 Friday) as US treasury yields steadied. The 10-year US yield climbed 2 basis points to 1.55% while Japan’s 10-year yield was at -0.24% from -0.25% Friday.

–          AUD/USD – The Aussie finished little changed at 0.6775 (0.6778) after the risk of a September rate cut was lessened by RBA speak last week.

On the Lookout: Trade tensions will still drive the markets as we look to the week in front of us. Latest media releases saw President Trump accuse Chines tech giant Huawei as a national security threat. Trump also warned China of negative trade impacts should they use force on Hongkong protesters.
Today’s economic report releases are mostly second tier, but they will pick up starting tomorrow. The week’s big event is Friday’s annual Kansas City Fed’s Jackson Hole, Wyoming global central bank symposium where Jerome Powell is scheduled to open the gathering. Markets will be looking to Powell to gauge if US policy makers will add to July’s rate reductions.
New Zealand PPI input and output start today’s reports. Japan’s Trade Balance follows. The Eurozone’s Current Account Balance, Final Headline and Core CPI reports round up today’s data releases.

Trading Perspective: The latest Commitment of Traders/CFTC report saw speculative US Dollar longs trimmed further. Which gives more room for a Dollar rally, particularly against the Euro. We look at the breakdown of currencies in tomorrow’s report. The Dollar Index (USD/DXY), a mirror of the Euro, gained for 4 out of 5 trading days closing at 98.20. On Friday, China fixed its Yuan weaker against the Greenback which saw Emerging Market currencies mostly weaker. This is also mildly Dollar supportive.

1.       EUR/USD – The Euro traded to an overnight and eight-day low at 1.10663 before steadying to close at 1.1090. Immediate support can be found at 1.1060 and 1.1040. A break could see us down to 1.1025, July 31 lows. Immediate resistance can be found at 1.1110 and 1.1140. Tomorrow sees the release of Euro area Manufacturing and Services PMI data which could pile on more pressure on the single currency if they point to a Euro area recession. For today look for a likely trading range of 1.1070-1.1120. Can’t go wrong trading that range.

2.       GBP/USD – The British Pound extended its gains as shorts scrambled to cover when the currency didn’t rall any further. We reported last week that speculative GBP shorts rose to multi-year highs which is a danger sign to any further shorts. GBP/USD closed at 1.2145. Immediate resistance lies at 1.2175, overnight highs. The next resistance level can be found at 1.2210 and 1.2250. Immediate support can be found at 1.2110 followed by 1.2075. Look for a likely trading range today of 1.2120-1.2180, prefer to buy dips.

CNBC USD DXY (Dollar Index) 1 Y Chart - 19 AUGUST 2019

CNBC USD DXY (Dollar Index) 1 Y Chart – 19 AUGUST 2019

3.       USD/JPY – The Dollar has traded between 105 and 107 for the past three weeks and held both levels well. No reason to see any change in that for now. USD/JPY closed at 106.35 (106.05 Friday). Overnight high traded was 106.50, which is immediate resistance. The next resistance level can be found at 106.70 and then 107.00. Immediate support lies at 106.00 (1060.025 overnight low) and 105.85. Look to trade a likely range of 106.00-106.60 today. Just trade the range shag on this one today.

4.       AUD/USD – The Australian Dollar ended little changed at 0.6775 (0.6778 Friday). Overnight low traded was 0.670 which is today’s immediate support. The next support level lies at 0.6740. Immediate resistance can be found at 0.6800 (overnight high was 0.67951). The next resistance level is at 0.6820. The RBA’s latest meeting minutes are released tomorrow. There has been less negative rate cut chatter since after two policymakers (Kent and Lowe) poured cold water on the possibility. We reported last week that with the Australian Dollar TWI so low, there was less likelihood of that possibility. Like Sterling, Aussie net short speculative bets continue to grow. This supports the downside. Look to trade a likely range today of 0.6770-0.6820. Prefer to buy dips.

Have a good week ahead, happy trading all.

Strong Sales Data Lifts US Dollar Even as Bond Yields Extend Drop

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , ,

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).

Forex Factory US Core Retail Sales Chart - 16 August 2019

Forex Factory US Core Retail Sales Chart – 16 August 2019

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).
DAILY FX STERLING CHART - (1H) - 16 AUG 2019

DAILY FX STERLING CHART – (1H) – 16 AUG 2019

  • 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.

  1. 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.
  2. 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.
RBA - AUD TWI Table of Currency Weights - 16 August 2019

RBA – AUD TWI Table of Currency Weights – 16 August 2019

  1. 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.

US Bond Yield Plunge Raise Recession Fears, Stocks Sink

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , ,

Summary: “What a difference a day makes, 24 little hours..” Yesterday’s risk-on move proved short-lived as US bond yields plunged anew. Ten and two-year yields ended at parity (1.58%), heading toward a yield inversion which screams recession. President Trump’s move to de-escalate the trade war with China was discounted by traders and investors alike. Recent past initiatives have proved ineffectual. This time Trump took aim once again at Fed head Jerome Powell, blaming the near inversion curve on Fed policy. Adding to market woes was a shocking read in China’s trifecta of economic data, all of which had big misses. China’s July Industrial Output rose 4.8%, its slowest in 17 years, widely missing forecasts of 6.0%. Eurozone Industrial Production fell to –1.6% from forecasts of -1.4% in June. Germany, Italy and the UK are likely headed for a recession according to some analysts. The Euro lost 0.41%, retreating to fresh two-week lows at 1.11308, settling at 1.1138 (1.1172 yesterday). The Yen re-asserted its uptrend, with USD/JPY losing 0.7% to 105.82 (106.72). Sterling was little changed at 1.2052 (1.2057) despite a rise in the UK Consumer Price Index to an annual 2.1% in July from 2.0% in June. Sentiment on the British currency remained weak on the likelihood of a no-deal Brexit on October 31 with Boris Johnson in power. Global recession fears and a risk-off stance led the Australian Dollar lower to 0.6750 (0.6793 yesterday). China’s Offshore Yuan dipped (USD/CNH 7.0550 from 7.0150 yesterday). EM currencies were lower.

CNBC US BOND YIELD TABLE - 15 AUGUST 2019
China’s Retail Sales missed forecasts of 8.6%, falling to 7.6% while Fixed Asset Investment was down to 5.7% from 5.9% forecast.

  • USD/DXY – despite the plunge in US bond yields, the Dollar Index, which often mirrors the Euro, climbed 0.18% to 97.991 (from 97.837). While an inversion of the US bond yield curve signals a recession, fundamentals in other G10 countries look worse. Which boosts the Greenback’s appeal.
  • EUR/USD – The Euro retreated further to fresh two-week lows at 1.11308, settling at it’s current 1.1143 in early Sydney. Eurozone data released yesterday mostly underwhelmed and weighed on the Single currency.
  • AUD/USD – The Aussie Battler, always a loser in a risk-off environment dipped anew to 0.67454 overnight before settling at 0.6750 this morning. Dismal Chinese economic data also pulled the Aussie down.
  • USD/JPY – the Dollar reversed its gains, dropping to 105.95 from 106.72 yesterday and a high at 106.977 Tuesday night. The benchmark US 10-year yield plunged 12 basis points to 1.58% while Japan’s 10-year JGB yield was up two basis points to -0.23%.

On the Lookout – FX will continue to monitor the asset markets and their reaction in Asia. The Hongkong protest crisis is getting worse and the likelihood of China’s intervention is high. Which will add damage to the already fragile relationship with the US. Already there are reports of a Trump initiative to dialogue with Chinese President Xi.
Economic data releases today will also affect FX and risk.

Australia starts off with its July Employment report (11.30 am Sydney). Japanese Industrial Production and Capacity Utilisation follow.  Euro area data sees UK Headline and Core Retail Sales (July). The US finishes off our trading day with a plethora of data: Headline and Core Retail Sales, New York Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index, US Capacity Utilisation, Industrial Production and Weekly Jobless Claims.

Trading Perspective: The Dollar will eventually succumb against it’s rivals without yield support. While a risk-off environment will benefit certain currencies, we can expect the Greenback to decline overall.  Market volumes continue to be low this month but expect a pick-up toward the end. Next week’s Jackson Hole annual global central bank symposium (August 24) is highlighted by a speech from Fed Chief Jerome Powell. Who has stayed quiet despite Trump’s accusations. Interference by the White House through Trump’s tweets are only adding to the market’s risk-off mood.


The latest COT/CFTC on the nine IMM currencies saw speculators increase long bets against the Yen (first time this year) and Canadian Dollar. Speculative shorts against Sterling and  the Australian increased while Euro shorts were pared further. Biggest moves in market positioning came in the Yen and British Pound.

  1. USD/JPY – The haven sought Japanese currency continues to outperform, against the US Dollar and many other currencies. The risk-off, recession fearing market sentiment favours the Yen. USD/JPY fell back to 105.652 overnight before settling currently at 105.92. Immediate support for today lies at 105.65 followed by 105.25. Immediate resistance can be found at 106.30 and 106.70. The latest COT report saw speculators turn their short JPY positions into long JPY for the first time this year. Net speculative JPY longs (week ended July 6) totalled +JPY 10,561 bets from the previous week’s -JPY 4,218. That’s a turnaround of JPY 14,779 contracts. And while the numbers aren’t big on the surface it’s a significant change. Traders are now short USD/long JPY which should see the psychological 105.00 level hold. Look for a likely range of 105.60-106.60. Prefer to buy dips.
  2. GBP/USD – Sterling continues to trade within a range of 1.2020 and 1.2120 while all the chaos goes on in the asset markets. It’s wedged in between an overall weaker US Dollar and bearish Brexit sentiment with new PM Boris Johnson calling the shots. UK economic data has been at par of slightly better than forecast this week. And the latest COT/CFTC report saw speculative GBP shorts increase to their highest in a year. Net speculative GBP shorts increased to -GBP 102,702 contracts from the previous week’s -GBP 90,150. That’s huge. GBP/USD has immediate support at 1.2040 (1.2045 overnight low) and 1.2010. Immediate support can be found at 1.2080 and 1.2120. Prefer to buy dips near 1.20.

RBA AUD TWI CHART 2 – 15 AUGUST 2019

  1. AUD/USD – The Australian Battler faces a risk-off environment with sentiment still heavy at current levels. We reported last week that the Aussie TWI is near lows not seen since 2008. That’s huge. Net speculative Aussie Dollar shorts increased in the latest COT report (week ended July 6) to -AUD 55,511 bets from -AUD 53,442 the previous week. AUD/USD has immediate support at 0.6740 and 0.6710. Immediate resistance lies at 0.6780 and 0.6810. Australian Employment data today will drive the currency in the short term. Watch for the breakdown in Full-time (+21,100 last month) against Part-time Jobs (-20,600). Prefer to buy AUD on dips with a likely range today of 0.6740-0.6790.

Tin helmets on, happy Thursday and trading all.

Trump Delays Some China Tariffs, Haven Trades Unwound

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , ,

Summary: Haven trades were unwound after US President Trump delayed 10% tariffs on some Chinese products scheduled to begin next month. The move resulted in a massive squeeze on long Yen and Swiss Franc trades built up in the past few days. USD/JPY soared to 106.72 (105.28) at the NY close, up 1.28% while the Dollar gained 0.73% against the Swiss Franc to 0.9765 (0.9693 yesterday). The Euro slid to 1.1172 from 1.1215 after a big miss on Germany’s ZEW Economic Sentiment Index last month. USD/DXY (Dollar Index), usually a mirror of the Euro, rose to 97.837 from 97.420, up 0.47%. Despite a robust UK Wages report, Sterling dipped to 1.2057 (1.2075) with Brexit still weighing on sentiment. Resource and Emerging Market currencies led by the resurgent Aussie Battler, up 0.47% to 0.6795 (0.6752 yesterday), rebounded.  Flight-to-safety Treasuries fell while stocks rallied, and yields climbed. The US 10-year bond rate was up 5 basis points to 1.70%. Wall Street stocks soared led by the S&P 500, up 1.72% to 2,933.00.

FOREX FACTORY UK Wages Chart - 14 AUGUST 2019

FOREX FACTORY UK Wages Chart – 14 AUGUST 2019

The Dollar was also supported by a rise in US Consumer Prices. US July Core CPI was up 0.3% against forecasts of 0.2%. Headline CPI matched expectations at 0.2%. Germany’s ZEW Economic Sentiment Index slumped to -43.6 against a forecast of -21.7. UK July Average Earnings (Wage growth) climbed to 3.7%, (3.5% in June) the strongest in 11 years.

  • USD/JPY – reversed on the return of risk appetite as Yen longs ran for cover. The Dollar soared to 106.977 before settling at 106.72 in late New York. USD/JPY traded to a low at 105.05 yesterday.
  • AUD/USD – The Aussie rallied with risk to close at 0.6795 from 0.6752 yesterday. RBA Assistant Governor Kent said in a breakfast speech yesterday that the central bank is not targeting unemployment, pouring cold water on the possibility of negative interest rates.
  • EUR/USD – The Euro dipped to 1.1172 from 1.1215 yesterday. The climb in the US 10-year bond yield contrasted with that of Germany’s which fell 2 basis points to -0.61%. EUR/USD topped out around the 1.1230 (1.12285) area again.
  • GBP/USD – Sterling eased back to close at 1.2057 from 1.2075 yesterday despite the robust Wage report. The Bank of England will put off any interest rate moves until the Brexit deadline which limits the Pound’s topside.

On the Lookout: The trade concession by President Trump is significant in that it is the first positive move in the trade conflict between Washington and Beijing. The US Trade Representative said it would delay 10% tariffs on some Chinese products (laptops and cellphones) scheduled to begin next month. Whether this leads to anything more substantial, or this becomes the new normal in today’s tariff world remains to be seen.
Meantime economic data releases resume today. Australia’s Wage Price Index and the Westpac Consumer Sentiment Index start off today’s report. China’s trifecta report of Industrial Production, Retail Sales and Fixed Asset Investment, including China’s Jobless rate follow. Euro area data see German Preliminary GDP (Q2), French Final CPI (July), Eurozone Flash Employment Change, Flash Q2 GDP, and July Industrial Production. The UK reports on its Headline and Core CPI, PPI Input and Output. US Import Prices round up the day’s reports.

Trading Perspective: The reverse move in the asset and haven markets are the result of a large unwind of trades in low volume August trading. While the trade concessions are significant, the headlines may be a case of I’ve seen that scene before. What happens next will be closely monitored.
Market positioning from last week has not changed much among the IMM currencies except for Sterling. The latest COT/CFTC report (week ended 6 August) saw net speculative short GBP bets have increased significantly over the past week. We take look at a breakdown of the individual currencies in tomorrow’s report.

FOREXLIVE USD JPY Hourly Chart - 14 AUGUST 2019

FOREXLIVE USD JPY Hourly Chart – 14 AUGUST 2019

  1. USD/JPY – The Dollar saw a big short-covering move in low volume to 106.977 overnight highs before settling at 106.72 in late New York. Yesterday, USD/JPY slumped to a low of 105.05 before settling. Haven trades were unwound which was the biggest factor in the Dollar’s strong bounce. The US 10-year bond yield bounced to 1.70% from 1.65% yesterday while Japan’s 10-year JGB rate was down two basis points to -0.25%. Which also supported the Greenback. It seems like the USD/JPY 105.00 psychological support level is the BOJ’s line-in-the-sand for now. Immediate support today lies at 106.40 followed by 106.00. Immediate resistance can be found at 107.00 and 107.30. Look to trade a likely range today of 106.20-106.90.
  2. EUR/USD – The single currency failed once again at the 1.1230 level, topping out at 1.12288. The Euro slid to an overnight low at 1.11702 before settling at 1.1174 at the New York close. Immediate support for the Euro lies at 1.1160 (3-week low) followed by 1.1130. Immediate resistance can be found at 1.1200 and 1.1230. Look to trade a likely range today of 1.1160-1.1220. Prefer to buy dips from current levels.
  3. AUD/USD – The Aussie got a further boost on the US trade concessions for some Chinese goods. AUD/USD closed at 0.6795 after trading to an overnight high at 0.68183. Yesterday the comments of RBA Assistant Governor Kent, who heads the Finance committee of the central bank, supported the currency. Kent saw no immediate need for negative interest rates, something that the local press has been highlighting this week. We reported that the Australian Dollar TWI is at multi-year lows. The RBA is aware of that and will not put the currency under more pressure with negative interest rates. AUD/USD has immediate resistance at 0.6820 and 0.6850. Immediate support lies at 0.6770 and 0.6740. Look to buy dips with a likely range today of 0.6775-0.6825.

Happy trading all.

Treasury Yields Plunge on Geopolitical Tensions, FX Becalmed

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , , ,

Summary: Geopolitical tensions arising from Hongkong protests and a primary election defeat of a pro-business President in Argentina boosted US treasuries. Hongkong authorities cancelled departure flights that were not checked in as protestors occupied the terminal. Argentinian voters scorned market-friendly President Mauricio Macri, handing the left-leaning opposition victory. Bond yields plunged in low volume trading. The US 10-year bond yield plunged 9 basis points to 1.65%. The Argentinian Peso sank 15%, weighing on Emerging Market currencies. Wall Street stocks sold off. Major FX was becalmed amidst the August lull, with many traders on holiday. The Dollar Index (USD/DXY) slipped 0.14% to 97.42, weighed by lower US bond yields. Japan’s Yen extended its rally against the Dollar to 105.05, it’s highest this year, settling at 105.28 at the close. The Euro rallied 0.2% to 1.1215, while Sterling gained 0.49% to 1.2075 (1.2025 yesterday). Continuing risk-off sentiment and weak Emerging Market currencies weighed on the Australian Dollar, down 0.47% to 0.6752 (0.67850). Gold prices increased by 0.99% to US$1,511.50, above the 1,500 USD level and highest this year. The DOW was down 1.43% to 25,900. (26,277. Yesterday).

BLOOMBERG MARKETS SPOT GOLD PRICE CHART - 13 August 2019

BLOOMBERG MARKETS SPOT GOLD PRICE CHART – 13 August 2019

  • USD/JPY – The Dollar slide to 105.05, fresh lows since earlier this year when the flash crash occurred. Risk-off sentiment continued to favour the haven-sought Yen. USD/JPY rallied off the lows to close at 105.28 in New York. Volumes were low as Tokyo enjoyed a holiday yesterday.
  • EUR/USD – The Euro shrugged off Italy’s political woes, climbing 0.2% against the Dollar to finish at 1.1215 from 1.1185 yesterday. Germany’s 10-year Bund yield fell one basis point to -0.59%, narrowing the rate gap with its US counterpart.
  • AUD/USD – Risk-off sentiment and weaker Emerging Market currencies continued to weigh on the Aussie Battler. The Australian Dollar fell 0.47% to 0.6752 from 0.6785 yesterday. In a speech this morning at a Finance and Treasury Breakfast in Sydney RBA Assistant Governor Christopher Kent (Financial Markets) said that the RBA is not targeting unemployment, suggesting that negative rates are not necessary.

On the Lookout: With Tokyo back into the fray today, volumes should pick up. However, the influence from the Northern Hemisphere August vacation period is still in play. Economic data releases pick up today and tomorrow. Traders will continue to monitor events in Hongkong.
Earlier this morning New Zealand’s Food Price Index climbed 1.1% in July from June’s fall of -0.7%.
Australia releases its NAB Business Confidence Index (July) with Japanese Tertiary Activity following.
The Euro area starts off with Germany’s Final CPI (July) and Wholesale Price Index and its ZEW Economic Sentiment Index. The UK’s Employment report for July comes next with Average Earnings Index (3m/year), Claimant Count Change, and Unemployment rate. US Headline and Core CPI data (July) round up the day’s reports.

Trading Perspective: The fall in US treasury rates have not been matched by its counterparts in terms of extent. Which narrows the differentials and weighs on the Greenback. The 10-year US bond yield plunged 9 basis points to 1.65%. In contrast, German, UK, Japanese and Australian 10-year rates were much unchanged. The US 30-year rate fell to 2.13%, the lowest of this year.

CNBC US 30-Year Bond Yield Chart - 13 AUGUST 2019

  1. USD/JPY – The Yen should continue to be sought after in the current environment. Lower US 10-year rates will keep USD/JPY pressurized. However, the 105.00 psychological level held last night. With Tokyo back from it’s holiday yesterday, we can expect more two-way trade with the 105.05 overnight and yearly low to hold. Japanese corporates will be buyers on dips. The next support level can be found at 104.70. Immediate resistance lies at 105.70 and 106.10. Look to buy dips with a likely range today of 105.10-105.90.
  2. EUR/USD – The Euro drifted higher as the Dollar weakened against most of the major currencies. The narrowing rate gap between German and US rates should keep the Euro supported. German’s ZEW Economic Sentiment is released today. Immediate support for the Euro lies at 1.1200 followed by 1.1180. Immediate resistance can be found at 1.1230 (overnight high was 1.12306). The next resistance level is found at 1.1260. Look to buy dips in a likely 1.1200-1.1260 range today.
DAILY FX - AUD USD CHART - 13 AUGUST 2019

DAILY FX – AUD USD CHART – 13 AUGUST 2019

  1. AUD/USD – The Australian Dollar climbed off its lows after RBA Assistant Governor Kent suggested that negative interest rates were not necessary when he said in a speech this morning that they are not targeting unemployment. AUD/USD moved up a mere 10 pips to 0.6760 from 0.6750 before settling at 0.6750. Risk-off sentiment continues to weigh on the Aussie Battler and will likely keep a lid on the topside. Immediate resistance can be found at 0.6785 and 0.6805. Immediate support lies at 0.6740 (overnight low 0.6745) followed by 0.6710. Kent, who heads the RBA’s Financial Markets division is aware that the Australian Dollar is near long term lows on a Trade Weighted basis. While the RBA have stated their preference for a weaker currency a few years ago, today is a different story. An Aussie Dollar which is too low is not ideal for the country either. Look to buy dips with a likely range today of 0.6740-0.6810.

Happy trading all.

Pound Sinks as Economy Shrinks, Trade Fears Lift Yen, Swiss

by Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: , , , , , ,

Summary: The Yen and Swiss Franc outperformed in the currency markets as trade concerns, weak global economic data, renewed calls by President Trump for a weaker Dollar boosted the two safe havens. In Britain, the Pound plummeted to 1.20239, lows not seen since January 2017 as the UK economy shrank for the first time since 2012. The US Dollar dropped to 105.267 against the surging haven Yen before settling to close at 105.65, down 0.3%. In Europe, political uncertainty in Italy had little effect on the Euro, which managed a 0.2% climb against the Dollar to 1.1202 (1.1182). The Dollar Index, a popular measure of the Greenback against 6 major currencies, dropped to 97.03 from 97.65 Friday. US President Trump repeated his call for a weaker currency to help American manufacturers. The USD/CNH rallied to 7.0970 from 7.0785 despite a lower Dollar PBOC Fix on Friday. The Australian Dollar dipped, falling back 0.45% to 0.6785 (0.6805) after RBA Governor Philip Lowe told Parliament on Friday the bank might be willing to do “unconventional things” like drop the cash rate to zero if the global economy doesn’t smooth out soon. Deteriorating US-China trade relations, North Korean missile tests and escalating protests in Hongkong weigh on risk appetite and the Aussie.

FOREX FACTORY UK Q2 GDP - 12 AUGUST 2019

FOREX FACTORY UK Q2 GDP – 12 AUGUST 2019

Wall Street stocks slipped while Treasury yields climbed. The US 10-year rate settled 2 basis points higher at 1.74%. The DOW slipped 0.4% to 26,277 at the NY close on Friday.
Japan’s Preliminary Q2 GDP beat estimates, up 0.4% from 0.1%. China’s PPI slipped to -0.3% in July from 0.0% June. The UK economy shrank to -0.2% in Q2 2019 below forecasts and the first contraction since 2012.

Reuters Graphics - Yen Surge As China US Trade War Escalates - 12 August 2019

Reuters Graphics – Yen Surge As China US Trade War Escalates – 12 August 2019

  • GBP/USD – Sterling was pounded by traders to 1.2023, its weakest since January 2017 after the unexpected contraction of the UK economy in Q2 2019. The Pound has already fallen 3.7% against the US Dollar after no-Brexiter Boris Johnson took over the Prime Minister’s role. GBP/USD opens at 1.2030 in early Sydney.
  • USD/JPY – The Dollar saw another fall against the haven sought Yen to 105.267, fresh 7-month lows before settling at 105.65. Japan’s Ministry of Finance has stepped up it’s verbal intervention as the Dollar approaches the psychological 105.00 level
  • AUD/USD – After rallying on Friday to 0.6822 the Aussie fell back to finish at 0.6785 after RBA Governor Graeme Lowe’s suggestion of zero interest rates. This has emboldened the Aussie Dollar bears, already predicting a slide to 10-year lows at 0.65 cents.

On the Lookout: Markets will continue to monitor China-US tensions which has been the dominant driver of risk assets and currencies. President Trump has repeatedly tweeted accusations of China’s manipulation of the Yuan. Traders will keep their eyes on the PBOC Daily Fix today and moves in the USD/CNH rate.
There are no major economic data releases or events scheduled for today. But the week ahead is loaded. And will likely impact the FX markets.
Japanese banks will be closed in observance of its Mountain Day holiday. But that doesn’t mean the Japanese authorities will not be monitoring the Yen, given the proximity of USD/JPY to the psychological 105 level.
The week ahead sees further British data the UK Employment report on Tuesday. Germany releases its CPI report as well tomorrow. Tomorrow also sees the US Headline and Core CPI report which is the highlight.
Wednesday sees Australian Wage data and China’s trifecta reports of Industrial Production, Retail Sales and Fixed Asset Investment. Euro-area sees Germany’s Q2 GDP. UK CPI and PPI reports for July are also due for release on Wednesday. The EU reports its Q2 GDP which is the highlight. On Thursday, Australia releases its Employment report which will determine what the RBA does next with interest rates. US July Retail Sales are also released.

Trading Perspective: Every currency has a story to tell with the China-US trade rhetoric and the PBOC’s Daily Fix today shaping those stories. The risk aversion them will continue to underpin the Yen and Swiss Franc. However, with USD/JPY close to the psychological 105 level, Japan’s Ministry of Finance will be closely monitoring the market, despite today’s Japanese holiday.
The Dollar Index, where the Euro, JPY, Swiss Franc carry 74.8% of the weight fell to 97.034, which is no wonder. The Dollar’s relatively strong performance despite the China-US trade war is starting to cause economic harm and worry analysts of a possible recession.

  1. USD/JPY – The Dollar Yen had a decent bounce off its fresh 2017 lows at 105.267 following President Trump’s ratcheting of tariffs against China have seen demand for haven Yen grow. The Dollar has dropped from 107.40 at the start of this month to Friday’s low. USD/JPY bounced back to 105.65 as US bond yields climbed. The US 10-year rate was up 2 basis points to 1.74% while Japan’s 10-year JGB yield fell 3 basis points to -0.23%. Expect Japanese corporate USD buying orders (which are placed with Japanese banks overseas given today’s Tokyo bank holiday) to support the Greenback at 105.20-30. Immediate resistance can be found at 105.80 and 106.20. Prefer to buy dips with a likely range of 105.25-105.85.
  2. AUD/USD – The Aussie drifted lower after the RBA’s meeting minute release and Governor Graeme Lowe’s testimony to Parliament on Friday. AUD/USD traded to an overnight low at 0.6778 before settling at 0.6785 at the close. AUD/USD has immediate support at 0.6770 and 0.6750. Immediate resistance can be found at 0.6800 and 0.6830. When the Aussie press starts to get bearish on the currency near its short-term lows, it may be time to buy. Likely range today 0.6770-0.6820.
  3. EUR/USD – The Euro grinded higher despite the political uncertainty in Italy. The Single currency slipped to 1.11782 before rallying to close at 1.1202. In early Asia, the Euro continued its drift higher to 1.1208. Immediate resistance can be found at 1.1230 (overnight high traded was 1.1223). The next line of resistance is found at 1.1280. Immediate support can be found at 1.1185 followed by 1.1155. Look to buy dips with a likely range today of 1.1190-1.1240.
Daily FX USD DXY Chart - 12 August 2019 (1)

Daily FX USD DXY Chart – 12 August 2019 (1)

  1. USD/DXY – The Dollar Index closed just above its immediate support at 97.00 (97.034). USD/DXY has its next support at 96.70. Immediate resistance lies at 97.30 followed by 97.60. The higher US bond yields should provide some support in the short term. However, the deteriorating US economic data and escalating trade war with China will continue to weigh on the Greenback. Look to sell rallies with a likely rang today of 96.80-97.30. ‘

Happy trading all.

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