Summary: The US Dollar headed for a third day of losses weighed by lower bond yields and a stronger performance from all it’s Rivals. The yield on the US 10-year bond slipped to 2.638% from 2.66% yesterday. Sterling outperformed, surging above 1.30 to 1.3070 on a combination of long-term short-covering and fresh buying. Despite the doom and gloom associated with Brexit, better-than-forecast UK data of late and a generally weaker Greenback spurred Pound purchases. The Dollar Index (USD/DXY) dropped another 0.25% to 96.538 (96.776 yesterday). Emerging Market currencies, the South African Rand, Russian Ruble, Mexican Peso, Thai Baht, and the Turkish Lira all finished higher against the withering Greenback. The Australian Dollar rallied 0.53% to a two-week high at 0.7170 while the Euro gained 0.26% to 1.1340 (1.1315 yesterday).
- GBP/USD – The British Pound defied expectations, surging to over two-week highs of 1.30728 before settling to close in New York at 1.3065. More optimistic Brexit sentiment and a broad-based US Dollar decline roused fresh Pound buyers. Despite the stronger finish, expect the British currency to remain volatile with uncertainty over Brexit still a huge risk.
- EUR/USD – the Single currency ground it’s way higher to an overnight high of 1.13575 before settling to close at 1.1340. The decline in the Greenback and the rally in Sterling has frustrated fresh sellers and enabled the Euro to finish at Feb 12 highs. The ZEW Economic Sentiment saw better-than-forecast readings for Germany and the Euro-Zone last night.
- AUD/USD – The Aussie Battler is another currency that continues to grind its way higher, frustrating shorts. The RBA meeting minutes revealed nothing new and the Aussie remains captive to the ongoing China-US trade talks. AUD/USD closed at 0.7165 after trading to a high of 0.71738.
- USD/DXY – The Dollar Index fell to 96.538, down 0.25% on broad-based Dollar selling. USD/DXY traded to an overnight low of 96.426 and managed to close right above immediate support at 96.50, an interesting juncture.
On the Lookout: Following the long US holiday weekend, the markets get going today with more first-tier economic data on the way today and tomorrow. The latest FOMC meeting minutes (January) are released later today (early tomorrow in Asia). Earlier today New Zealand Q4 PPI output rose 0.8%, beating forecasts of 0.6%. Today sees the release of Japanese Trade data for January, Australian Wage Price Index data, German PPI, and UK CBI Industrial Orders Expectations.
Trading Perspective: The performance of the Emerging Market currencies against the US Dollar may suggest further weakness ahead. However, after 3 days of decline in less liquid conditions, we should see more two-way trading from here. Bond prices rose and stocks were mostly up on solid US corporate earnings. The yield on the benchmark US 10-year slipped one basis point to 2.638%. Slip-sliding away, the Dollar needs fresh yield support to lift it higher.
Saxo Bank’s chart on the Commitment of Traders CFTC report (for the week ended in January 22) saw a large trimming of US Dollar longs. This should be Dollar supportive as the Greenback continues to slip. Remember though that this report is almost a month old.
- EUR/USD – Despite bearish sentiment, the Euro continues to frustrate sellers. The Single currency has benefited from Sterling’s rally and the overall weaker US Dollar. On the day, the immediate resistance for EUR/USD lies near the overnight highs of 1.13575. The next resistance level can be found at 1.1370/80 and then 1.1400. Immediate support lies at 1.1310 followed by 1.1275. Expect the overall weaker US Dollar sentiment to drive the Euro higher in the short term but 1.1360/70 will cap. Likely range today 1.13 20/70.
- GBP/USD – Sterling’s climb in less than a week (from 1.2805 Friday) to 1.30728 last night is impressive indeed. Despite the doom and gloom associated with Brexit, the Pound defied sentiment. Which is in true Cable fashion. The assumption that short-covering and fresh buying from longer term funds is most probably accurate from the price movement. However, the risks remain in place. Any rallies today will be limited to 1.3080. The next resistance level can be found at 1.3110. Immediate support can be found at 1.3040 followed by 1.3010. Look for a likely range today of 1.2980-1.3080.
- AUD/USD – The Australian Dollar has also frustrated the sellers with its robust performance of late. While the Antipodean currency is closely related to the Chinese economy and its ongoing trade situation with the US, the Aussie is still quoted against the US Dollar. AUD/USD has immediate resistance at 0.7175 followed by 0.7200. Immediate support can be found at 0.7140 and 0.7105 on the day. Expect more consolidation in a likely range of 0.7125-75.
- USD/DXY – The Dollar Index closed just above supports of 96.50 (96.538). Immediate support can be found at 96.40. A break of 96.40 could see us at the early February lows around 96.00. Immediate resistance can be found at 96.80 followed by 97.10. Look for a likely range today of 96.40-96.80.
Happy trading all.