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Dollar Slips, Yields Fall, Brexit Fears Hound the Pound

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

Summary: The Dollar eased against most of its rivals following softer June Housing Starts and Building Permits data. Expectations that the Fed would lower interest rates led to a fall in US bond yields. Stronger-than-forecast US retail sales data had lifted the Greenback yesterday. Fears of a no-deal Brexit continued to hound the Pound, which hit fresh 27-month lows at 1.2382 before rebounding to 1.2430. UK Brexit Secretary Steve Barclay said that the risk of a no-deal split with the European Union is “under-priced.” The Euro hit a one-week low at 1.11998 before climbing back to 1.1225, at the lower end of its recent range. Expectations of an easing by the ECB has kept the Single Currency on the defensive. The Australian Dollar was little changed at 0.7010 (0.7013 yesterday). USD/JPY slipped to 107.99 from 108.27 on lower US yields. The benchmark US 10-year treasury yield was down 6 basis points to 2.05%. Japan’s 10-year JGB yield was unchanged at -0.13%.

Forex Factory US Building Permits - 18 July 2019

Forex Factory US Building Permits – 18 July 2019

Wall Street stocks fell on weaker than expected earnings.
US June Housing Starts missed forecasts at 1.25 million from 1.26 million. June Building Permits fell to 1.22 million from 1.29 million, and against an expected 1.30 million.
The Fed’s Beige Book economic report saw that the longest US economic expansion remained intact amidst trade risks.

Daily FX EUR USD Chart - 18 July 2019

Daily FX EUR USD Chart – 18 July 2019

  • EUR/USD – The Euro finished slightly higher at 1.1225 after trading in a narrow 1.11998 to 1.123336 range overnight. German 10-year bond yields were 4 basis points lower to -0.29%. The one week low of 1.1200 is providing solid support.
  • GBP/USD – Sterling slumped to a fresh 27 week low at 1.23820 before rebounding to 1.2430. Traders continued to sell the Pound on the perception that risks are growing for the UK to leave the EU without a transition deal in place. The latest Commitment of Traders report saw speculators dump the Pound for the 4th straight week.
  • USD/JPY – The Dollar eased against the Yen to 107.99 from 108.27 yesterday, down 0.22%. Lower US bond yields continue to drag the Greenback lower. Speculative JPY shorts were trimmed by a large USD 1 billion.
  • AUD/USD – the Aussie Dollar was little changed at 0.7013 (0.7010 yesterday). Australia’s June Employment report is released later today. The dovish leaning RBA kept the Aussie Battler in check, while speculative Aussie short covering supported the currency.

On the Lookout: Today sees Japan’s Trade Balance and Australia’s June Employment report in Asia. The lone European report today comes from Switzerland, reporting its June trade balance.
UK data follow with June Headline and Core Retail Sales, (month and annual). Finally, US Weekly Unemployment Claims and Philadelphia Fed Manufacturing Index finish the day’s reports.

Trading Perspective: With FX trading in tight summer ranges we look at market positioning. Saxo Bank’s Bloomberg Commitment of Traders/CFTC report for the week ended July 2 (delayed due to the US 4th of July holiday) saw continued reduction of total net USD longs by speculators. According to Saxo Bank, bullish Dollar bets have now been cut by 65% from the late April peak. The bulk of these cuts have been against the Euro, Canadian Dollar and Yen. The main exception among the major currencies was Sterling (not surprising) where net GBP shorts have increased for the 4th straight week.

Saxo Bank - Bloomberg COT Report - 18 July 2019

Saxo Bank – Bloomberg COT Report – 18 July 2019

  1. EUR/USD – The Euro held the support level around 1.1200 before rallying to close at 1.1225. This morning the Single Currency opens at 1.1229. Immediate resistance lies at 1.1240 (overnight high traded 1.12336). The next resistance level can be found at 1.1280. Immediate support at 1.1200 should hold with the next support level at 1.1180. The latest COT report was net short Eur bets cut further to -EUR 31,733 from the previous week’s -EUR 56,295. Look for a likely range today of 1.1210-1.1260. Prefer to buy dips.
  2. GBP/USD – Sterling continues to trade heavy with the risk skewed to the downside. That said, Sterling short bets for the week ended July 2 increased to -GBP 64,244 contracts from the previous week’s -GBP 58,937. This is the 4th straight week of GBP selling. Total short GBP short contracts stand at US$5.69 billion. That is a danger sign despite risks of the Pound grinding lower. Immediate support lies at 1.2380 (overnight low at 1.2382) followed by 1.2340. Immediate resistance lies at 1.2460 and 1.2500. Look for a likely range today of 1.2385-1.2485. Prefer to buy dips.
  3. USD/JPY – The Dollar fell against the Yen on the lower US 10-year yield. USD/JPY closed at 108.00 after trading to 107.971 overnight. Immediate support lies at 107.80 followed by 107.60. Immediate resistance can be found at 108.30 and 108.60. The latest COT report was net speculative JPY shorts cut to -JPY 1,227 (week ended July 2) from the previous week’s -JPY 10,147. That’s virtually square. Look for a likely range today of 107.80-108.30. Just trade the range shag on this one.
  4. AUD/USD – The Aussie was little changed, closing at 0.7013. The dovish tone from the RBA meeting minutes failed to push the currency any lower as shorts continue to support the Battler. Australia is forecast to have created 9,000 jobs in June from May’s 42,300 while the Jobless rate is expected to remain at 5.2%. The latest COT report saw speculative Aussie shorts trimmed to -AUD 58,735 contracts (week ended July 2) from -AUD 66,320. AUD/USD has immediate support at 0.6990 (overnight low 0.69962) followed by 0.6960. Immediate resistance can be found at 0.7030 (overnight high 0.70249) and 0.7060. Look to trade a likely range of 0.6990-0.7040. Prefer to buy dips.

Happy Thursday and trading all.

Dollar Rallies on Strong Sales Data, Pound Plummets

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

Summary: A strong rise in June US Headline and Core Retail Sales, up 0.4%, easily median forecasts of 0.1%, lifted the Dollar Index (USD/DXY) 0.47% to 97.391. The British Pound plummeted to April 2017 lows (1.23964) as risks build for a no-deal Brexit from the two top candidates for the UK prime ministership. A fall in Germany’s ZEW Economic Sentiment, due in part to the China-US trade conflict, pulled the Euro 0.44% lower against the Greenback to 1.12019, one-week lows. The Australian Dollar retreated to 0.7010 from 0.7040 yesterday, weighed by broad-based US Dollar strength and President Trump’s latest trade tariff threat. Trump said that he could impose additional tariffs on Chinese imports if he wants. And a trade agreement with China had a long way to go. USD/JPY rallied to 108.27 from 107.90 yesterday. EM currencies were mostly lower against the Greenback.
Wall Street stocks slipped at the close. The DOW was modestly lower at 27,325 (27,345) while the S&P 500 dipped 0.38% to 3,003 (3,014 yesterday). US bond yields rose with both the 2-and 10-year treasury rates up a couple of basis points.

Forex Factory - US Retail Sales - 17 July 2019

Forex Factory – US Retail Sales – 17 July 2019

The UK’s Unemployment Rate matched expectations at 3.8% although Claims for Unemployment benefits rose to 38,000 against a median forecast of 18,900.

  • EUR/USD – slip-sliding away, the Single currency dipped further to 1.1208 (NY close) after a deterioration in sentiment from German investors. Dovish expectations from the ECB have prevented the Euro from taking advantage of US Dollar weakness earlier this week.
Forex Factory - UK Claimant Count Change (Unemployment Claims) - 17 July 2019

Forex Factory – UK Claimant Count Change (Unemployment Claims) – 17 July 2019Forex Factory – UK Claimant Count Change (Unemployment Claims) – 17 July 2019

  • GBP/USD – The British Pound extended it’s decline, falling to fresh 27-month lows against the Dollar to 1.23964 before settling at 1.2410. Leading candidates for UK leadership, Boris Johnson (Conservative) and Jeremy Corbyn (Labour) are both pushing for a hard Brexit stance. Sterling also fell against the Euro to the lowest this year.
  • AUD/USD – The Aussie gradually lost ground against the strengthening US Dollar, closing at 0.7010, down 0.37%. Trump’s latest tariff threat didn’t help the Australian Dollar. RBA meeting minutes released yesterday revealed that the Aussie central bank was willing to adjust policy “if needed” to support growth and inflation.

On the Lookout: Following two sets of better-than-expected US economic data, expectations of deep Fed rate cuts have been watered down. Meantime, data from Europe and the UK continue to underwhelm and pressurise their currencies. We go back to the theme that the Dollar is the best performer among an ugly bunch. Data releases and comments from officials from here on in will take on added significance. We are also in the middle of the Northern Hemisphere summer holiday break. Which leads to the lack of FX volatility. Expect that to pick up next month, after the Fed July 30-31 policy meet.
Today presents a data dump from the UK, Europe and the USA. Australia’s Westpac June Leading Index of Economic Activity is Asia’s only report. The UK reports on its June Headline and Core CPI (y/y), PPI input and output (June), and Retail Price Index. The Eurozone reports on its Final Headline and Core CPI for June (annual). Canadian Headline and Trimmed Means CPI and Manufacturing Sales kick of North American data. The US reports on its Building Permits, Housing Starts and the Fed’s Beige Book Economic Report.

Trading Perspective: The Dollar ended on a strong note, supported by both fundamental and technical factors. Market positioning has seen a chunk of Dollar long bets cut. A Fed rate cut of 0.25% at their July 30-31 meeting is virtually priced in. This lends support to further short-term Dollar strength. US bond yields have stabilised with the 10-year yield around 2.10%. Overlooked last night were comments by Chicago Fed President and FOMC member Charles Evans. Evans said that there was an argument for a 0.50 basis point decrease in interest rates before the end of the year to get inflation up. While Evans is a noted bear, and his view run contrary to another regional Fed head (Dallas’s Robert Kaplan), Fedspeak should also be monitored.
The latest COT/CFTC report (week ended 9 July) saw total net long Dollar bets much unchanged. The stronger-than-expected US Jobs (5 July) report renewed selling of EUR, GBP and JPY. We look at the breakdown in tomorrow’s commentary.

  1. EUR/USD – The Euro slid back to an overnight and one week low at 1.12019 before a slight bounce to 1.1210 in early Asia. Immediate support can be found at 1.1200 followed by 1.1180. Immediate resistance lies at 1.1230 and 1.1260. Apart from overall US Dollar strength, the Euro has been pulled lower by the British Pound. Traders are also expecting the ECB to push rates, already in negative territory lower later this year. Overnight German 10-year Bund yields stood at -0.25%, unchanged from yesterday. While US 10-year rates climbed 2 basis points. Expect the Euro to stay under pressure with a likely range of 1.1200-1.1240. Prefer to buy dips.
DAILY FX - GBPUSD Chart - 17 July 2019

DAILY FX – GBPUSD Chart – 17 July 2019

  1. GBP/USD – “The Pound is sinking”, sang Paul McCartney in 1982. Sterling slumped to lows not seen since April 2017, lower than its flash-crash earlier this year. And the move has been more of a slower grind this time round. The British Pound crumpled under the building risk of the UK leaving the EU without a trade deal. Both leading candidates in the leadership race seem to be vying for who has a harder Brexit stance. Which traders see as leading the BOE to have to lower interest rates to stave off an economic disaster. GBP/USD has immediate support at 1.2390 (overnight low of 1.23964). The next support level can be found at 1.2360 followed by 1.2320. Look for a likely range of 1.2385-1.2485 today. Prefer to buy dips with a tight stop near current levels.
  2. AUD/USD – The Australian Dollar retreated to just above 0.70 cents on the overall stronger US Dollar. RBA meeting minutes revealed the Australian central bank as dovish leaning. Trump’s latest tariff threats also weighed on the Battler. AUD/USD closed at 0.7010. Immediate support can be found at 0.7000 followed by 0.6970. Immediate resistance can be found at 0.7030 and 0.7050. The latest COT/CFTC report saw a further trimming of AUD shorts by speculators to -AUD 54,007 in the week ended 9 July from -AUD 58,735 the previous week. Look to trade a likely range today of 0.6990-0.7030. Prefer to sell rallies.

Happy trading all.

Dollar Steadies on Upbeat Empire State Manufacturing

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

Summary:  The Dollar steadied in slow, featureless trading supported by upbeat US Empire State Manufacturing report that bettered forecasts. Expectations of a Fed interest rate cut next week plus another reduction in September continued to weigh on the Greenback. The Dollar Index (USD/DXY) a popular measure of the currency’s value against a basket of foreign currencies, advanced a modest 0.15% to 96.947 (96.722 yesterday). Sterling slid 0.40% to 1.2516 from 1.2576 as prospects of lower interest rates and a new leader weighed on the currency. The Euro retreated to 1.1258 (1.1270). The ECB also meets on interest rates on July 25 and markets expect a dovish statement.

Forex Factory US Empire State Manufacturing Index - 16 July 2019

Forex Factory US Empire State Manufacturing Index – 16 July 2019

USD/JPY was little changed at 107.90 (107.88 yesterday). The Australian Dollar rose to near two-week highs at 0.7038 from 0.7022. Earlier, China’s GDP grew 6.2%, the slowest in nearly 3 decades, partially driven by the country’s trade war with the US. Chinese Retail Sales beat forecasts, up 9.8% in June from May’s 8.6%, offsetting the slow growth report. Domestic sales of consumer items (cosmetics) lifted the retail number.
Global bond yields eased. The US 10-year treasury yield closed at 2.09% from 2.12% yesterday. Germany’s 10-year Bund yield fell 5 basis points to -0.26%.
The DOW finished up 0.14% (27,344) while the S&P 500 closed at 3,014, up a modest 0.08%.

  • EUR/USD – slip-sliding away, the Euro retreated to 1.1258 after failing to clear above 1.1280. The Single currency has not been able to benefit from the overall US Dollar weakness as dovish expectations from the ECB are matching those of the Fed.
  • USD/JPY – the Dollar was little changed against the Yen, closing at 107.90 after trading in a narrow 107.798-108.109 overnight range. Japan’s 10-year JGB yield was unchanged at -0.13%. Traditional summer thin trading affects this currency most.
FOREX FACTORY - China Annual GDP Q 2 - 16 JULY 2019 (1)

FOREX FACTORY – China Annual GDP Q 2 – 16 JULY 2019

  • AUD/USD – The Aussie, as well as the Kiwi continued to benefit most from US Dollar weakness. AUD/USD was up at 0.7038 from 0.7022 yesterday, near 2-week highs. Both antipodean currencies fell the most from the Dollar’s ascent. Previous Aussie sellers have turned buyers.

On the Lookout: Economic reports pick up today and the data dump may see attempts to break out of these low volatility summer trading.
New Zealand’s Q2 CPI just released matched expectations at 0.6%, higher than Q1’s 0.1% and kept a bid on the Kiwi (0.6722 from 0.6718). Aussie traders will be looking out for the release of the RBA’s latest meeting minutes (11.30 am Sydney). Italy reports its June Trade Balance. The UK reports its Average Earnings Index (Wages), Claimant Count Change (Unemployment benefits) and Unemployment Rate. Germany’s ZEW Economic Sentiment Index and Eurozone Trade Balance round up Europe’s data. Bank of England Mark Carney speaks at the France G7 Presidency meeting in Paris.
The US reports on Headline and Core Retail Sales, Import Prices, Capacity Utilisation Rate, Industrial Production. Finally, Fed Chairman Jerome Powell addresses the France G7 Presidency meeting in Paris with a speech on “Aspects of Monetary Policy in the Post-Crisis Era”.

Trading Perspective: The Dollar should hold the support levels as the yield differentials slightly in favour of the Greenback. While the US 10-year yield slipped 3 basis points, those of its global counterparts either matched (UK) or fell further (Germany). A fed rate cut of 0.25% at the end of this month is widely expected and looking like a done deal. However, another interest rate reduction by the Fed in September is far from certain, and still a bit away. Data released today could excite with the spotlight on US Retail Sales.

  1. EUR/USD – The Euro traded to an overnight high at 1.12839 before easing back to 1.12533. With the yield differentials still in favour of the Greenback, the Euro has struggled to take advantage of overall USD weakness. The Single currency is plagued by its own inherent weakness which is due to the dovish ECB. Market positioning has also seen a large reduction in Euro shorts which constrains the Euro’s topside. Immediate resistance lies at 1.1280 followed by 1.1310. EUR/USD has immediate support at 1.1250 (overnight low 1.12533) and 1.1220. Look for a likely trading range today of 1.1250-1.1290. Just trade the range shag on this one.
  2. AUD/USD – The Aussie continues to benefit most from broad-based US Dollar weakness. Today’s RBA meeting minutes release will determine the next short term moves in the Aussie. AUD/USD has immediate resistance at 0.7050 followed by 0.7080. Immediate support can be found at 0.7020 and 0.7000. Mostly upbeat Chinese retail sales and industrial production data were offset by continued weak GDP growth due in part to the trade war. Unless a trade deal is done, China’s economic growth will suffer. And so will Australia and the Aussie. Look for a likely trading range today of 0.7010-0.7050. Prefer to sell rallies above 0.7050.
  3. USD/JPY – The Dollar closed little-changed against the Yen at 107.90. Immediate support can be found at 107.70/80 followed by 107.40. Immediate resistance lies at 108.00 and 108.30. Expect Japanese corporations to be on the bid lower down as Tokyo returns today (holiday yesterday). Look to trade a likely range of 107.70-108.20 today. Prefer to buy dips.
Daily FX GBP USD Chart - 16 JULY 2019

Daily FX GBP USD Chart – 16 JULY 2019

  1. GBP/USD – Sterling emerged as worst-performing currency after climbing to an overnight high at 1.25778 and slumping to 1.25103 before settling at 1.2517. Sentiment remains bearish on the British Pound. Although market positioning is currently short, having increased from the last COT report, sentiment remains overwhelming bearish. The Pound has lost value against other currencies, the Euro, Yen and Aussie. Recent UK data have missed forecasts (Manufacturing and Industrial Production) and the next likely move in interest rates is not up but down. Politically the country remains hamstrung with a new Prime Minister expected to be announced at the end of this month. GBP/USD has immediate support at 1.2500/10 followed by 1.2460. Immediate resistance can be found at 1.2550 followed by 1.2580. UK data released later today will see how the British Jobs market is holding up. Look to trade a likely range of 1.2490-1.2590. Prefer to buy dips as shorts GBP bets build.

Happy trading all.

Fed Rate Cut Euphoria Lifts Stocks, Plagues Dollar

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

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).

Forex Factory US Core CPI Table - 15 July 2019

Forex Factory US Core CPI Table – 15 July 2019

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.
Trading View - USD DXY Chart - 15 July 2019

Trading View – USD DXY Chart – 15 July 2019

  • 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.

Daily FX USD JPY Chart - 15 July 2019

Daily FX USD JPY Chart – 15 July 2019

  1. 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.
  2. 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.
  3. 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.
  4. 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.

Dollar Ends Mildly Lower, Inflation Rises, Bond Yields Climb

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

Summary: The Dollar Index (USD/DXY) ended marginally lower (97.056 from 97.127) despite a stronger-than-expected rise in US underlying consumer prices. In the second part of his testimony to the US Congress, Jerome Powell generally reiterated comments he made the previous day. Which affirmed market expectations of a 0.25% rate cut this month, offsetting the stronger-than-forecast rise in June US Core CPI to 0.3% against 0.2%. The Euro was unchanged at 1.1252 as expectations grew that the ECB would ease policy. USD/JPY closed marginally higher at 108.52 from 108.47, supported by higher US bond yields. The Australian Dollar firmed 0.22% to 0.6975 (0.6962) while it’s southern cousin the Kiwi climbed to 0.6662 from 0.6645. Both currencies continued to outperform on dovish comments from Fed officials. Federal Reserve Presidents Williams (NY) and Bullard (St Louis) and Kashkari (Minneapolis) added dovish support while Bostic (Atlanta) and Barkin (Richmond) saw no need to ease policy. US Bond Yields climbed further on the stronger-than-expected inflation number. Benchmark 10-year yield was up 8 basis points to 2.14%. Two-year yields firmed to 1.87% from 1.83% as the gap between short-term and long-term rates continued to deepen.

CNBC YTD 10-Year Bond Yield Chart - 12 July 2019

CNBC YTD 10-Year Bond Yield Chart – 12 July 2019

Wall Street stocks hit fresh record highs at the close. The Dow was up 0.85% to 27,090 while the S&P 500 gained 0.26% to 3,000. (2,993).
Euro area final CPI (Germany and France) both matched forecasts. US Headline CPI rose to 0.1% beating forecasts of 0.0% and matching May’s 0.1%. US Jobless Claims fell to 209,000 (f/c 220,000).

  • EUR/USD – the Single currency finished flat at 1.1252 after trading to an overnight high of 1.12857. The ECB’s latest meeting accounts revealed that policymakers are ready to ease further as appropriate, reminding traders that the ECB is also on a dovish path.
  • USD/JPY – The Dollar edged higher against the Yen to 108.52 from 108.46 as US bond yields climbed sharply on the stronger-than-expected US Core Inflation report.
  • AUD/USD – The Aussie and Kiwi continued to be the main beneficiaries of overall US Dollar weakness. AUD/USD rallied to 0.6975 at the close, up 0.22%. The trade truce between China and the US may be supportive to the Chinese economy and has buoyed the Aussie. Chinese Trade Balance is released later today.

On the Lookout: The Dollar fell back into familiar ranges which should extend to today. The US Federal Reserve has joined the RBA, RBNZ and ECB on the monetary policy easing path which evens the playing field. Last night’s US data reports were better than expected yet failed to lift the Greenback. Markets are broadly expecting a Fed rate reduction toward the end of this month.
Today’s data releases are light. New Zealand kick off today with their Business New Zealand Manufacturing Index.  China reports it’s June Trade Balance (surplus) in both Yuan and USD terms. Japanese Revised Industrial Production (June) follow. Europe sees German Wholesale Price Index.
European Finance Ministers meet in Brussels on the economic policies of the Eurozone.
US Headline and Core Producer Price Index (June) round up the day’s reports.

Trading Perspective: While the Dollar held its lows, there is still room for depreciation against its Rivals. Jerome Powell reiterated in his testimony earlier today that the Fed is on an easing path keeping his focus on global risks. Although Core CPI rose yesterday, beating forecasts, Powell reiterated that inflation is well below the Fed’s target of 2% and the US expansion may need an added boost.

Saxo Bank Bloomberg COT CFTC Report Table - 12 JUL 2019

Saxo Bank Bloomberg COT CFTC Report Table – 12 JUL 2019

Market positioning from the latest Saxo Bank COT/CFTC report (week ended 2 July) showed that speculators cut their net long US Dollar bets against 9 IMM currencies by a massive US$ 7.4 billion to just $12.4 billion, the smallest total since June 2018. The Dollar cuts were broad-based but concentrated against the Euro, Yen and Canadian Dollar. The exception was the Pound and Mexican Peso. This is an interesting development. As the long US Dollar market positioning corrects, it paves the way for less resistance for an overall USD rally. Specially against the Euro, Yen and Canadian Dollar.

  1. EUR/USD – The Euro reversed its up move that started yesterday to finish unchanged at 1.1252. EUR/USD traded to an overnight high at 1.12857 before easing at the New York close. Germany’s 10-year bond yield climbed 8 basis points to -0.23%, matching that of its US counterpart. According to latest Saxo Bank COT/CFTC report, speculative Euro short bets were further cut to a net total -EUR 31,733 (week ended 2 July) from the previous week’s
    -EUR 58,458. That’s huge. EUR/USD has immediate support at 1.1240 followed by 1.1210. Immediate resistance can be found at 1.1290 and 1.1320. Look to trade a range between 1.1240-1.1290 today.
  2. USD/JPY – The Dollar gained 0.15% against the Yen to 108.52. Higher US 10-year bond yields supported USD/JPY. Japan’s 10-year JGB yield was 2 basis points lower to -0.15%. Overnight high traded was 108.532. USD/JPY dropped to a low at 107.859 following Powell’s dovish testimony yesterday. The latest Saxo Bank CFTC report saw speculative JPY short bets cut further to a net total of -JPY 1,227 contracts (week ended 2 July) from the previous week’s
    -JPY 7,039. The net total is virtually square. USD/JPY has immediate resistance at 108.65 and 108.85. Immediate support lies at 108.30 and 108.10. Look for a likely trading range of 108.10-80. Prefer to buy dips near 108.00
  3. AUD/USD – The Aussie continued to benefit from the broad-based USD weakness, even as it slowed. AUD/USD closed at 0.6975 after testing a high at 0.6988. Traders will keep their eye on China’s June trade balance which is released later today. The latest Saxo Bank CFTC report saw speculators trim their short AUD bets to -AUD 58,735 contracts (week ended 2 July) from -AUD 66,320 the previous week. Unlike the Euro and Yen, Aussie market positioning is still short. Immediate resistance lies at 0.7000 and 0.7030. Immediate support can be found at 0.6950 and 0.6920. Look to buy dips in a likely 0.6950/7000 range today.
Daily FX GBP USD Chart - 12 JULY 2019

Daily FX GBP USD Chart – 12 JULY 2019

  1. GBP/USD – Sterling bounced off it’s lows yesterday following the dovish assessment of Fed President Jerome Powell. GBP/USD traded to a high at 1.25713 before settling to close at 1.2525 (1.2505 yesterday). On Wednesday the Pound slumped to 1.24438 as weaker UK economic data was seen to sway the BOE to consider their interest rate policy. Brexit jitters continue to dog the British Pound. The latest Saxo Bank CFTC report saw a further increase in net GBP short bets to -GBP 64,244 contracts (week ended 2 July) from -GBP 57,349. GBP/USD has immediate resistance at 1.2550 and 1.2580. Immediate support lies at 1.2500 and 1.2470. Look to buy dips with a likely range today of 1.25-1.26.

Happy Friday and trading all.

Powell, Fed Reinforce Rate Cut Stance, Dollar Sinks

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Summary: Federal Reserve Chairman Jerome Powell boosted expectations of a near-term rate cut, saying the US central bank was “ready to act” to sustain the decade long economic expansion. The FOMC’s June meeting minutes confirmed Powell’s outlook struck at his testimony before Congress.
Traders sold the US Dollar across the board, expecting the Fed to deliver a 0.25% cut at their July meeting. The Euro advanced 0.43% to 1.1252, while Sterling rallied to 1.2505 from 1.2465. USD/JPY fell to 108.47 from 108.87. The Aussie climbed 0.43% to 0.6960. New Zealand’s Kiwi jumped 0.62% to 0.6645 from 0.6608, finishing as best-performing currency among the majors. Emerging Market currencies saw the biggest gains with South Africa’s Rand soaring 1.5% against the Greenback (USD/ZAR 13.9885 from 14.1850). The Dollar dropped to 6.8720 Chinese Yuan from 6.8920.

CNBC US 2-Year Bond Yield - 11 July 2019

CNBC US 2-Year Bond Yield – 11 July 2019

Short-dated US treasury yields sank with the 2-year yield down 8 basis points to 1.83%. The yield curve widened as 10-year rates were unchanged at 2.06%. Wall Street stocks rallied with the S&P 500 trading above 3,000 before easing to 2,993 at the close. The Dow was up 0.26% to 26,860.
China’s Annual CPI in June was unchanged at 2.7% while annual PPI was lower than forecast at 0.0% from 0.3%. French and German Industrial Production data both bettered expectations. UK June GDP matched forecasts while Manufacturing and Industrial Production underwhelmed.
The Bank of Canada left its key interest rate unchanged at 1.75%, as expected.

  • EUR/USD – the Euro advanced to 1.12643 before settling at 1.1252 in New York late afternoon. Broad-based US Dollar weakness boosted the Single Currency.
  • USD/JPY – The Dollar retreated against the Yen after failing to trade above 109.00. USD/JPY settled at 108.47 from 108.87, 0.48% lower. The lower short-dated US bond yields weighed on the Dollar.
  • AUD/USD – The Aussie Battler jumped off it’s low at 0.69105 to 0.6969 before settling at 0.6960, up 0.43%. The overall weaker Greenback lifted the Aussie off it’s base as the buyers came in full force.
  • GBP/USD – Sterling rallied 0.31% to finish just above 1.2500 at 1.2505. The British currency also benefitted from overall USD weakness although the rally was limited with the miss in both Manufacturing and Industrial Production data yesterday.

On the Lookout: Jerome Powell delivers the second instalment of his testimony before the US Senate Banking Committee (12 am Sydney, 12 July). RBA Assistant Governor Guy Debelle speaks at the FX Week USA event in New York (11.10 pm Sydney time). Prior to that, the US reports it’s June Headline and Core CPI. Markets will focus on the data after Powell cited weak inflation as one of his concerns.
Australia starts off today’s reports with second tier M1 Inflation expectations and June Home Loans reports. Euro area Final CPI (France and Germany) data follow. The Bank of England Financial Stability Report and ECB’s latest Monetary Policy Meeting Accounts are due to be released. US Weekly Unemployment Claims round up today’s data releases.
On the trade front, Dow Jones reported that the US blacklisting of Chinese tech giant Huawei has become a stumbling block in talks. And according to the Wall Street Journal, US Treasury Secretary Mnuchin has urged US suppliers of Huawei Technologies to seek licenses to resume sales to the blacklisted company.

Trading Perspective: The Dollar fell across the board after Powell boosted expectations of a rate cut which was backed by Fed minutes. The Dollar Index (USD/DXY), which is really a mirror of the Euro, fell to 97.127 (97.50 yesterday). Which is still higher than last week, just prior to the release of the US Payrolls report. FX ranges are still intact, but a likely downside USD break is in the making.

Trading View USD DXY 6 M CHART - 11 JULY 2019

Trading View USD DXY 6 M CHART – 11 JULY 2019

Benchmark US 10-year bond yields were unchanged at 2.06%. However, rival yields climbed. Germany’s 10-year Bund yield was up 5 basis points to -0.31%. Japan’s 10-Year JGB yield was at -0.13% from -0.15%. UK ten-year gilt rates were up 4 basis points to 0.76%. As the yield differentials between the US and its Rivals narrow, the Greenback will retreat.

  1. EUR/USD – The Euro bounced off the 1.1200 support level after trading briefly to 3-week lows at 1.1193 earlier this week. The Single currency was also boosted by better-than-expected Euro area Industrial Production data yesterday. EUR/USD traded to an overnight high at 1.12643 before settling at 1.1252. Immediate resistance lies at 1.1270 followed by 1.1300. Immediate support can be found at 1.1240 and 1.1210. Look to buy dips with a likely range today of 1.1240-1.1290.
DAILY FX USD JPY Chart - 11 JULY 2019

DAILY FX USD JPY Chart – 11 JULY 2019

  1. USD/JPY – The Dollar eased against the Yen after trading to 108.991 last night. USD/JPY closed at 108.47 before easing further in early Sydney to 108.34. While the US 10-year bond yield was unchanged at 2.06%, Japanese ten-year rates were higher. USD/JPY has immediate support at 108.40 followed by 108.00. The next support level lies at 107.70 (strong). Immediate resistance can be found at 108.60 and 108.90. Look to sell rallies with a likely range today of 108.20-108.70.
  2. AUD/USD – The Aussie came back in true Battler fashion, climbing to 0.69691 overnight highs before settling at 0.6961 currently. Immediate resistance can be found at 0.6970, a break of which would yield 0.7000. Immediate support lies at 0.6940 followed by 0.6910. Assistant Governor Guy Debelle speaks tonight in New York at the FX Week USA conference. Look to buy dips with a likely range of 0.6950-0.7000.
  3. GBP/USD – Sterling managed to edge higher against the broad-based weaker US Dollar. The British Pound remains constrained by Brexit jitters and recently disappointing UK economic data. Which could see the Bank of England turn dovish on rates. However, short GBP market positioning continues to grow. Speculators extended their GBP short bets in the latest COT/CFTC report to -GBP 64,244 contracts from -GBP 58,937. The short bets are near the biggest they’ve been in a year. Immediate support can be found at 1.2470 and 1.2440. Immediate resistance lies at 1.2540 and 1.2590. Look to buy dips with a likely range today of 1.2485-1.2585.

Happy trading all.

Dollar, US 10-Year Yield Hit 3-Week Highs Ahead of Powell

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Summary: US bond yields and the Dollar grinded higher to three-week highs ahead of Jerome Powell’s two days of testimony to Congress. Traders will determine the chances of deep-rate cuts even as futures markets see a 95% probability of rate decrease at the Fed’s July meeting. The benchmark US 10-year treasury yield climbed to 2.06% (2.05%) while the Dollar Index (USD/DXY) rose to 97.499 (97.392), both three-week highs. Sterling slumped to 1.2465 from 1.2515, 6-month lows on Brexit worries and growing expectations of a rate cut from the Bank of England.  The Australian Dollar dropped to 0.6930 from 0.6974, near two-week lows after a fall in NAB’s Business Confidence Index in May. The Euro edged further toward 1.1200, closing at 1.1208, down 0.07%. The Dollar grinded higher to 108.87 from 108.77 Japanese Yen, up 0.08%.
A late burst in technology stocks pulled Wall Street higher following two days of decline. The DOW finished flat (25,787) while the S&P 500 was up 0.11% (2,979).

FOREX FACTORY US JOLTS Job Openings - 10 July 2019

FOREX FACTORY US JOLTS Job Openings – 10 July 2019

Australia’s National Australia Bank Business Confidence Index fell to 2 in May from 7 previously.
US JOLTS (Job Openings and Labour Turnover Survey) declined to 7.32 million in May while April’s Job Openings were revised down to 7.32 million from 7.45 million.

  • EUR/USD – The Single Currency slid further toward 1.1200, closing at 1.1213 after trading to an overnight and fresh 3-week low at 1.11934. The overall stronger US Dollar continues to weigh on the Euro.
  • AUD/USD – After trading to May 2019 highs just days ago, the Aussie has turned down to 0.6920 overnight and 2-week lows. AUD/USD closed at 0.6930 ahead of Powell’s testimony.
  • USD/JPY – The Dollar extended its gains versus the Japanese currency to 108.964 highs before settling to close at 108.87, up 0.08%. US bond yields continued to climb with the 10-year up one basis point to 2.06%.
  • GBP/USD – The British Pound slumped to an overnight and 6-month low at 1.24395 before bouncing to settle at 1.2165, 0.51% lower. Disappointing UK economic data of late (manufacturing and services PMI’s) have highlighted downward pressures in the economy. The BOE’s latest guidance suggested rates could go either way. Crucial May GDP and other primary data are released today.

On the Lookout: While markets await Powell’s testimony (midnight Sydney), primary economic data reports are in full swing today. The Bank of Canada is expected to keep its interest rate policy and overnight cash rate unchanged at 1.75% at the conclusion of its meeting today.
Asian data releases start off with New Zealand’s Food Price Index, Australia’s Westpac Consumer Sentiment Index, Japanese Producer Prices and Chinese CPI and PPI (annual).

CNBC US 10-Year Bond Yield Chart - 1M - 10 July 2019

CNBC US 10-Year Bond Yield Chart – 1M – 10 July 2019

European data reports start off with French and Italian Industrial Production followed by UK GDP, Manufacturing Production, Construction Output, Industrial Production and Goods Trade Balance.
Jerome Powell’s semi-annual testimony to the US House Financial Committee in Washington DC will have a question-and-answer session. FOMC member and St Louis Federal President speaks at a Fed function in St. Louis, Missouri. The release of the Fed’s FOMC latest meeting minutes (4 am Sydney, 11 July) round up the day’s events and reports.

Trading Perspective: FX markets are expecting Friday’s strong US Jobs report to influence Jerome Powell in his testimony with the Fed leaning to deliver no more than an insurance cut. Is it enough? The Fed made it clear that any interest rate easing would be data dependent. China and the US have agreed to re-start their trade talks. Although nothing concrete yet has been discussed.
Markets also know that Powell will not bow down to pressures from President Trump who has stepped up his criticism of the Fed and the stronger US Dollar.
The drop in US JOLTS Job Openings report last night was largely ignored from the FX price action. US Payrolls is a lagging economic indicator while the JOLTS is more forward looking.
The FOMC meeting minutes are most likely to be dovish leaning. The strong Jobs report will see a cautiously optimistic Powell, and his testimony will determine whether further interest rate cuts are in the offing.

  1. EUR/USD – The Euro managed to rebound off its lows and hold just above the 1.12 level. After grinding lower for 3 straight days, EUR/USD looks poised to test yearly lows. The election of Christine Lagarde as new ECB President are building expectations of a more dovish leaning central bank. The latest COT/CFTC report saw speculative EUR short bets increase following a string of cuts. FX markets risk disappointment if Powell is less optimistic in his testimony. Immediate support lies at 1.1190 followed by 1.1160. Immediate resistance can be found at 1.1220 and 1.1250. Look for a likely range of 1.1190-1.1230 today with the preference to buy any Euro dips.
  2. AUD/USD – The Aussie grinded to two-week lows after its failure last week to break above 0.7040. Broad-based US Dollar strength has weighed on the Aussie. Yesterday’s NAB Business Confidence report saw the Aussie slump 0.64% and finish as worst performing currency. AUD/USD has immediate support at 0.6920, 0.6900 and 0.6880. Immediate resistance can be found at 0.6950, 0.6980 and 0.7000. Market positioning also saw an increase in Aussie Dollar short bets in the latest COT/CFTC report. The RBA has cut rates twice in June and July. The Chinese economy has slowed down as a result of the trade war between the US and China. Market sentiment is bearish on the Aussie Battler and any US Dollar weakness will see the Aussie turn back up. Look for a likely range of 0.6920-0.6950 ahead of Powell. Prefer to buy dips.
  3. USD/JPY – traded to just under 109 at 108.964 before settling at 108.87 at the NY close. US 10-year bond yields steadied to finish at 2.06% from 2.05% yesterday. USD/JPY has immediate resistance at 109.00 followed by 109.30. Immediate support can be found at 108.70 and 108.40. Look for a likely range of 108.60-109.10 into Powell’s testimony.
Trading View GBP USD Chart - 10 July 2019

Trading View GBP USD Chart – 10 July 2019

  1. GBP/USD – Disappointing UK economic data released last week, and the overall stronger US Dollar have weighed on the British currency. GBP/USD traded to 6-month lows at 1.24395 before settling a touch higher at 1.2465 from 1.2515 yesterday. Brexit jitters continue to dog the Pound. UK GDP, Manufacturing, Construction and Trade data are released later today.
    The latest COT/CFTC report saw a build in GBP shorts to -GBP 58,900 bets from -GBP 52,600. Which is the biggest number of speculative short bets this year. Immediate support for the Pound lies at 1.2440 followed by 1.2400 and 1.2370. Immediate resistance can be found at 1.2500 and 1.2560. Much will depend on the US Dollar and Powell. Meantime look for a likely range today of 1.2440-1.2540.

Happy trading all.

Dollar Maintains Broad-based Strength; Powell Testimony Next

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Summary: The Dollar maintained its broad-based strength, after Friday’s stronger-than-expected increase in US jobs for June. Traders scaled back expectations of a sharp Fed rate cut at the end of this month, opting to bid the Greenback. Markets had a quiet start to the week with currencies trading in relatively tight ranges. The big risk event is Jerome Powell’s testimony to Congress (Wednesday) will offer guidance for a rate decrease. Last month 8 FOMC members forecast a rate cut this year which saw a slump in the Dollar and bond yields. The Euro was modestly lower to 1.1212 from 1.1227 after a soft Eurozone investor confidence report outweighed stronger German Trade. Both the Yen (108.73 from 108.50) and Swiss Franc (0.9942 from 0.9917) underperformed on their wide yield gap with the Greenback. Sterling slipped to 1.2515 from 1.2525 while the Aussie ended little-changed at 0.6975 from 0.6980. The Turkish Lira slumped 2.05% (USD/TRY 5.74 from 5.64) following the sacking of the Turkish Central Bank head by PM Erdogan. EM Currencies were mostly lower.

DAILY FX USD TRY Chart - 09 July 2019

DAILY FX USD TRY Chart – 09 July 2019

US bond yields were a touch higher with the 10-year at 2.05% (2.04%) and 2-years at 1.89% (1.87%).
Wall Street stocks extended their decline following Friday’s strong Payrolls report, which reduced expectations of rate cuts for the rest of this year. The Dow was 0.3% down to 26,797.00.
Mostly second tier data saw Japanese Core Machinery Orders and Bank Lending miss forecasts while the current account beat expectations. US Consumer Credit climbed above forecasts to 17.1 billion against 15.2 billion.

Daily FX - Hourly EURUSD Chart - 09 July 2019

Daily FX – Hourly EURUSD Chart – 09 July 2019

  • EUR/USD – The Euro was marginally lower to 1.1212 from 1.1227 after trading in a tight 28- point range. ECB Governing Council member Benoit Coeure said the central bank needed to be more accommodative.
  • USD/JPY – The Dollar settled 0.28% higher to 108.75 after trading to 108.808 overnight and three-week high. Higher US bond yields continued to support USD/JPY.
  • GBP/USD – The Pound slipped to 1.2515 from 1.2525 on the generally stronger US Dollar. Short GBP bets increased in the latest COT/CFTC report which prevented Sterling from sliding further.
  • AUD/USD – The Australian Battler held against broad-based stronger US Dollar, finishing little-changed at 0.6975 from 0.6980. Second tier Australian ANZ Job Ads were up in June while May’s advertisements were revised higher.

On the Lookout: The main risk event for the week is Jerome Powell’s semi-annual testimony to Congress on Wednesday (early Thursday Sydney). Powell will attempt to explain why they believe an increase in uncertainty builds a case for a rate cut. This week’s price action so far shows that the strong Jobs report seems to matter more to FX traders than to the Fed. We shall see.
Meantime, Federal Reserve heads Bullard (St Louis) and Quarles (Boston) are due to deliver speeches tonight. Powell opens a Federal Reserve function in Boston with a speech of his own. Today’s data releases are mostly second-tier with Australia’s NAB Business Confidence Index the lone first-tier report. The rest are: Japanese Average Cash Earnings, Swiss Unemployment rate, UK BRC Retail Sales, Canadian Housing Starts and Building Permits and US JOLTS Job Openings.

Trading Perspective: The Dollar flexes its muscles at the start of the week. US bond yields have steadied for now. It’s difficult to see any big moves ahead of Powell’s testimony on Wednesday. Market positioning saw speculative net speculative long USD bets increase to +USD 86,500 (week ended July 2) from +USD 51,900 the previous week. As we mentioned yesterday, the build was due to an increase in Euro, Sterling, and Aussie Dollar shorts. The only currency to see a decrease in shorts is the Japanese Yen. A dovish leaning Powell could see a big move back down in the Greenback.

  1. EUR/USD – The Euro traded to an overnight low at 1.12069 after trading in a tight range. The Single currency closed slightly above those lows at 1.1212. While it remains poised to test lower, we should see the 1.1180-1.1200 immediate support hold. Immediate resistance lies at 1.1230/40, with the next line at 1.1270-1.1280. The latest COT/CFTC report saw Euro short bets climb to -EUR 56,300 contracts from -EUR 52,300. Look for a likely, similar-type trade between 1.1205-1.1245. Prefer to buy dips.
Daily FX - USD JPY Hourly Chart - 09 July 2019

Daily FX – USD JPY Hourly Chart – 09 July 2019

  1. USD/JPY – The Dollar kept its bid tone against the Yen, closing at 108.75 as US 10-year yields stayed firm (2.05% from 2.04%). USD/JPY has immediate resistance at 108.80 followed by 109.00. Immediate support can be found at 108.50 and 108.20. The latest COT report (week ended 02 July) saw speculative JPY shorts trimmed further to -JPY 10,100 bets from -JPY 16,600. That’s the smallest total of short JPY bets this year. Bearish JPY sentiment has fallen which could see a lower USD/JPY. Look to sell USD/JPY with trade a likely range of 108.35-108.85.
  2. AUD/USD – the Australian Dollar traded in a narrow 0.6967-0.6994 range overnight, closing little-changed at 0.6975. Immediate support can be found at 0.6960 followed by 0.6930. Immediate resistance can be found at 0.6990-0.7000. The next resistance is found at 0.7030. The latest COT/CFTC report saw speculative short Aussie bets increase to -AUD 66,300 from -AUD 64,900. While the increase is miniscule, net short Aussie bets have stubbornly remained large. Look to trade a likely range of 0.6960-0.7010 range today. Prefer to buy dips.

Happy trading all.

FX Little Changed, US Payrolls – What to Look For

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Summary: FX was little changed while global bond yields slipped further. US Payrolls day. Lack of first-tier data and the US Independence Day holiday made for subdued trade. Treasury prices rallied this week on expectations of further monetary policy easing from major central banks. US bond yields slid the furthest, global peers followed. The impact on foreign exchange markets was minimal and currency volatility remained low. Germany’s 10-year Bund yield slipped to -0.40% from -0.39%, all time lows.

CNBC German 10-Year Bund Yield - 05 July 2019 (1)

CNBC German 10-Year Bund Yield – 05 July 2019 (1)

The Euro was modestly up at 1.1285 from 1.1280, despite a fall in Eurozone retail sales.  The Australian Dollar steadied at 0.7025 (0.7032) despite a slightly lower than expected May retail sales report. Japan’s Yen kept its overall gains, ending slightly higher against the US Dollar at 107.79 (107.85). Trade war concerns lingered after Chinese Ministry of Commerce spokesman Gao Feng insisted the US remove all tariffs as part of the deal struck at the G20 meeting.
Australia’s May Retail Sales missed forecasts at 0.1% against 0.2% although this bettered April’s -0.1%. Swiss CPI bettered expectations. Germany’s retail sales slumped to -0.3% although the previous month’s sales were revised up.

  • USD/JPY – The haven associated Yen outperformed, keeping most of it’s gains versus the Greenback. The sharp fall in US bond yields this week kept USD/JPY under pressure. Falling expectations of a speedy resolution to the US-China trade conflict also dented sentiment toward the Greenback. USD/JPY closed at 107.79 from 107.85 yesterday.
  • AUD/USD – The Aussie Battler touched fresh two-month highs at 0.70478 yesterday despite the lower-than-forecast retail sales, closing at 0.7025. A less than dovish sounding RBA and short market positioning has underpinned the Aussie.
  • EUR/USD – Despite the drop in German 10-year Bund yields to all-time lows and weaker-than-forecast Euro area retail sales, the Euro ended slightly up at 1.1285 (1.1277). The data is second tier while US rates have fallen from higher and quicker than Euro area yields.

On the Lookout: Friday, US Payrolls day. Possibly a game changer. June’s Non-Farms Employment report is critical for the upcoming Fed rate cut. The extremely low number in May and downward revisions for both April and March saw a sharp slide in US bond yields.
June Payrolls are forecast at a median +162,000 from May’s +75,000. Wage growth also weakened to 0.2%. A climb to 0.3% is expected for June.
Other data releases today include Australia’s AIG Construction Index and Japan’s Household Spending and Leading Indicators for Asia. Europe kicks off with German Factory Orders, French Trade Balance, and UK Halifax House Price Index (June). Canada reports its Employment Change, Unemployment Rate, and Ivey PMI. The US NFP Employment Change, Average Hourly Earnings (Wages), Unemployment Rate and the Federal Reserve’s Monetary Policy Report round up today’s data.

FX Street - US Payrolls Forecasts - 05 July 2019

FX Street – US Payrolls Forecasts – 05 July 2019

Trading Perspective: Most of the US will be out for a long weekend, celebrating their fourth of July holiday. US banks will be manned by more junior traders who won’t want to take any big positions. Trading conditions will be thinner. Less participants means less liquidity. Here’s what to look for:
Payrolls – The extremely low May Payrolls number of +75,000 is expected to be offset by a rise in June to +162,000. Which is in keeping with the average Jobs creation of 100,000 this year. If Payrolls come in at +135,000 or less, the Dollar will slide. Any number under +100,000 could be sayonara for the Greenback.
If Payrolls come exactly as expected, around +165,000, the Dollar will steady at current levels. And markets will look at Wages and revisions.
A gain of +185,000 to +225,000 will see a higher Dollar immediately. Watch for revisions to previous months. Last month both March and April Payrolls were revised lower.
Wages – Are forecast to climb to +0.3% from +0.2%. if wages stay stuck at 0.2%, the Dollar will struggle to gain, unless we see a fantastic Payrolls.
Unemployment Rate: The US Jobless rate is forecast flat at 3.6%. Any changes here could see exaggerated moves.
Market positioning saw a large reduction of USD long bets, most of them against the Euro and Yen.
Sterling shorts increased. Aussie Dollar short bets were much the same.

  1. USD/JPY – The Dollar Yen could be the biggest mover if we see weaker US Payrolls. The combination of lower US 10-year yields and the current China-US trade conflict will keep USD/JPY under pressure. USD/JPY has immediate support at 107.50 followed by 107.20 and 106.80. Immediate resistance can be found at 108.00 and 108.40. A weak Payrolls number could see USD/JPY slump to 106.80. A good number (+185-+200K) will see a test of 108.50, possibly 109.00 before settling. Will look to trade the extremes. Preference is to sell rallies.
  2. AUD/USD – Much of the Aussie’s up move has been shorts scrambling for cover. Sentiment was extremely bearish into the RBA’s second rate cut decision. When RBA Governor Philip Lowe expressed less than dovish sentiments, the Aussie started to climb. It comes down to the US Payrolls today. A good Payrolls report (+185,000 or higher) will see AUD/USD test 0.7000 and perhaps 0.6980 before settling. A weak NFP of +150,000 or less would see the Aussie trade up to 0.7100. AUD/USD has immediate resistance at 0.7050 followed by 0.7080. Immediate support lies at 0.7000 followed by 0.6970. Prefer to trade the extremes here too, the preference is to buy dips.
FX Street EUR USD Chart - 5 July 2019

FX Street EUR USD Chart – 5 July 2019

  1. EUR/USD – The Euro remained stuck in its range, hardly moved at 1.1285. Euro-area (Germany and France) bond yields fell to all-time lows. New ECB Chief Christine Lagarde is widely considered a dove after praising the central bank’s accommodation. The focus is now on the US economy and the Dollar. US bond yields have fallen from higher and harder than its European counterparts. A good Payrolls of +185,000 or more would see the Euro break 1.1260 immediate support to 1.1220 and 1.1200. The next support level lies at 1.1170. A weak NFP print of +135,000 or less will see EUR/USD climb to 1.1350 and 1.1380. Look to go on either side of an extreme trade. Neutral on the Euro, trade the range shag.

Happy Friday, happy Payrolls, happy trading all.

US 10-Year Yield Sinks to Late 2016 Lows, Dollar Slips

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Summary: The Dollar Index (USD/DXY) slipped from two-week highs to 96.772 (96.834) as US bond yields sank to late 2016 lows. Benchmark US 10-year bond yields slumped to 1.976%, from 2.03% yesterday, the lowest since November 2016. While central bank policy makers were divided on the next policy move, global yields were lower, indicating their openness to easier monetary policy. The Reserve Bank of Australia cut interest rates for the second straight meeting, which was widely expected. The Australian Dollar climbed 0.45% to 0.6995 (0.6965) to lead all gainers after the RBA said it would lower again “if needed.” Sterling slumped 0.45% to 1.2595 (1.2638) after BOE Governor Mark Carney said that a trade war and a no-Brexit deal was a growing possibility which would hamper domestic UK growth. USD/JPY fell to 107.95 (108.45), weighed by the slump in the US 10-year yield. The Euro slipped back to end unchanged at 1.1285 after initially climbing on a report that the ECB’s governing council weren’t ready to rush into additional monetary stimulus at this month’s meeting.

CNBC US 10-Year Bond Yield Chart - 03 July 2019

CNBC US 10-Year Bond Yield Chart – 03 July 2019

President Trump threatened the European Union with US$4 billion worth of additional tariffs. Christine Lagarde (current IMF head) was chosen by EU leaders to succeed Mario Draghi as ECB President.

  • AUD/USD – The Aussie led all gainers to close at 0.6995 from 0.6965 following the RBA’s decision to cut its key interest rates by 0.25% to 1.00% an all-time low. The move was widely expected. AUD/USD dropped initially to 0.6956 immediately after the news of the rate cut. In its statement, the RBA said it would lower again “if needed” which markets saw as a more balanced outlook.
  • USD/JPY – The Dollar fell back against the Yen weighed by the fall in US yields. USD/JPY closes at 107.95 from 108.45 yesterday. The Dollar is most sensitive against the Yen to any moves in the 10-year yield. Japanese 10-Year JGB yields, by contrast, were up one basis point to -0.15%.
  • EUR/USD – the Single currency settled unchanged at 1.1285 after initially rallying to an overnight high at 1.1321. Reports that the ECB’s Governing Council were in no rush to cut interest rates at their meeting later this month provided a brief boost for the currency.
  • GBP/USD – Sterling closed as worst performer to 1.2595 (1.2638) after Mark Carney remarked that a trade war and no-deal Brexit were growing possibilities. The BOE Chief said that both would hamper global and UK economic growth. UK Construction PMI fell well below forecasts.

On the Lookout: While the spotlight moves to Friday’s US Payrolls report, date releases today are heavy. Markets will be keen to see if global services PMI’s follow the pattern of the slide in manufacturing.
Australia starts with its June Building Approvals and Trade Balance. China reports on its Caixin Services PMI report. Euro area Services PMI’s (Spain, Italy, France, Germany) follow. The Eurozone Final Services PMI is next. UK Services PMI rounds up Europe’s data releases. Canada’s June Trade Balance follows.
US reports include: Challenger Job Cuts, ADP (Private Sector) Non-Farm Payrolls Change, Trade Balance, Weekly Unemployment Claims and Final and ISM Services PMI’s.

Trading Perspective: Though global bond yields fell overall, the slump in US rates were not matched by those of its Rivals. Except for the UK 10-year Gilt yields which plummeted 9 basis points following Mark Carney’s comments. The gap between US yields and those of its rivals has narrowed which is Dollar negative overall.

DAILY FX USD JPY Chart - 03 July 2019

DAILY FX USD JPY Chart – 03 July 2019

  1. USD/JPY – The Dollar slid back under 108 to finish at 107.95. Overnight low traded was 107.765, which is todays immediate support level. The next support level lies at 107.40. Immediate resistance can be found at 108.20 and 108.50. Expect Japanese corporates to be on the bid in the USD/JPY near last night’s lows. USD/JPY will continue to be led by moves in the US 10-year yield. The next move in US bond yields will come following Friday’s US Payrolls report. For now, look to trade a likely range of 107.75-108.45. Prefer to sell rallies.
  2. AUD/USD – The Australian Dollar rallied to an overnight high at 0.70003 before easing to settle at 0.6995. While the RBA presented a more balanced outlook following its second rate cut in successive meetings, the RBA may now pause and monitor global developments. The Aussie then becomes driven by the US Dollar. Australian 10-year bond yield were 2 basis points lower to 1.33%. The gap between US and Australian 10-year yields have narrowed 10 basis points since April this year. The Aussie was then at 0.7002. AUD/USD should be higher. Immediate resistance can be found at 0.7010 and 0.7040. Immediate support lies at 0.6970 and 0.6940. Look to buy dips with a likely range today of 0.6885-0.7035.
  3. EUR/USD – The Euro closed unchanged at 1.1285 weighed by the prospect of President Trump’s threat of additional trade tariffs on European goods. German bond yields were one basis point lower to -0.37%. Broad based US Dollar weakness will provide the Single currency the support it needs to move higher. EUR/USD has immediate support at 1.1275 (overnight low) followed by 1.1245. Immediate resistance can be found at 1.1300 and 1.1330. Look for a likely range of 1.1275-1.1325. Prefer to buy dips.

Happy trading all.

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