Summary: The Dollar took a defensive role, climbing against its rivals bar the Japanese Yen, amid worsening economic data and trade war fears. US private payrolls in April showed a record of 20.236 million jobs lost based on the ADP Employment report. Across the Atlantic, Germany’s Factory Orders plunged -15.6%, the biggest fall since 2005. The coronavirus pandemic saw a slew of bleak economic forecasts by the Eurozone. US President Trump ramped up the rhetoric against China, raising doubts over its performance on the previous trade deal. The Euro fell for the third day in a row, losing 0.4% to 1.0795 (1.0837), near two-week lows. Sterling slumped to 1.2340 (1.2436), fresh weekly lows after UK Construction PMI suffered it’s largest fall on record. Against the safe-haven Japanese Yen, the Dollar dipped 0.35% to 106.10 from 106.52. Japanese traders return to their desks today after the Golden Week holidays. Commodity and Emerging Market currencies were all lower against the Greenback. The Australian Dollar retreated to 0.6385 in early Sydney from 0.6432 yesterday. The USD/CAD pair rallied to 1.4145 from 1.4055 as oil prices declined. Against the South African Rand, the US Dollar advanced 1.27% to 18.7300 (18.5500). Wall Street stocks finished in the red, the DOW losing 1% to 23,665 (23,867). The S&P 500 was down 0.89% to 2,845 (2,865). Global bond yields climbed with the benchmark US 10-year rate up 4 basis points to 0.70%. The US increased the amount of debt it plans to issue in its quarterly refunding auctions to a record high of US$ 96 billion according to a Bloomberg report. Germany’s 10-year Bund yield was up 5 basis points to -0.51% after their constitutional courts criticised the ECB easing measures.
Other data released yesterday saw Australia’s Retail Sales climb 8.5%, beating forecasts of 8.2%. Spain’s Services PMI slumped to 7.1 from the previous 23.0, missing expectations at 10.0. Other Euro area (Italy, German, France, and the Eurozone) Services PMIs mostly matched forecasts. The UK’s Construction PMI fell to 8.2 from 39.3, underwhelming forecasts at 21.0.
On the Lookout: Expect more grim economic reports out today. The main event is the Bank of England’s monetary policy meeting and rate decision. The BOE report is going to be released ahead of the London market opening and could see some FX fireworks.
Australia’s AIG Services Index and Trade Balance kick off the day’s reports. Traders will focus on the breakdown of exports and imports in the trade report. China, back from its Golden Week celebrations, reports it Caixin Services PMI’s and Trade Balance (in CNY and USD). European data start with Switzerland’s Unemployment rate followed by German and French April Industrial Production. The Bank of England monetary policy report and rate decision follows. The BOE is expected to keep its interest rates unchanged. Economic projections from the BOE will be in the spotlight. Canada reports its IVEY PMI’s. The US Weekly Unemployment Claims, forecast at 3 million, round up today’s reports.
Trading Perspective: In the leadup to tomorrow’s US Payrolls report, where markets are expecting the worst (-21.4 million jobs lost, 16.0% Unemployment rate), the US Dollar will keep its defensive role. The correlation of a strong US Dollar and weak risk assets is set to continue. The safe-haven Japanese Yen will be the exception, although with Tokyo back today, we can expect Japanese importers to support the downside of the USD/JPY pair.
Market positioning will continue to influence FX moves. The Euro risks lower as long bets were still near 2-year highs in the last Commitment of Traders report. Commodity cousins, the Aussie and Kiwi risk a reversal of their 6-week rallies. The resumption in the slump of oil prices saw the Loonie as worst performing major against the Greenback. Let’s get ready to rumble…
AUD/USD – Risk-Off Forces Battler Lower, Short Bets Support at 0.6350
The Australian Dollar reversed its gains slipping below 0.6400 cents in early Sydney. The souring in risk sentiment weighed on all the commodity and Emerging Market currencies. AUD/USD finished in late New York at 0.6400 from 0.6435 yesterday. In early Sydney, the Aussie Battler dipped to 0.63784 before settling around 0.6385.
Yesterday saw Australia’s Retail Sales beat forecasts, climbing to 8.5% from 8.2%. The rise in sales were due to increased spending in supermarket sales as Australian households stockpiled household goods during the lockdown. The bleak European factory and services output and US ADP Payrolls turned the AUD/USD pair back. Overnight high traded was 0.64528.
AUD/USD has immediate resistance at 0.6430 followed by 0.6460 today. Immediate support can be found at 0.6375 and 0.6345. Look for a likely trade today between 0.6340 to 0.6440 first up. Prefer to sell any rallies close to the 0.6440 area.
EUR/USD – Long Bets Erode Bids, 1.0775 Need to Hold, 1.0850 Caps
The Euro extended its decline for the fourth consecutive day to fresh one-week lows, closing at 1.0795 in New York. EUR/USD traded to an overnight low at 1.07819. Grim Euro area data and the market’s speculative long Euro positions weighed on the shared currency, causing it to sag. The slump in Germany’s Factory Orders coupled with yesterday’s constitutional court decision challenging the country’s participation in the Eurozone’s stimulus program weighed heavily on the shared currency.
EUR/USD has immediate support at 1.0775 which should hold for now. The next support level comes in at 1.0730 and 1.0700. Immediate resistance lies at 1.0810 followed by 1.0850. Look for a likely range today of 1.0775-1.0845. While we are near two-week lows, the speculative long Euro market makes one wary of trying to pick a bottom. Look to trade the range shag on this one.
USD/JPY – Heavy but Wary of Japan Inc, 1.0570 Bid, 106.70 Caps
The Dollar retreated to fresh 7-week lows at 105.988 against the haven sought Yen in low volume trade as Japan celebrated their Golden Week holidays. Bleak economic data and an escalation in US-China relations has lifted demand for the Japanese currency. The Yen was the only currency to climb against the rallying Greenback yesterday. USD/JPY grinded lower and closed in New York at 106.10 (106.35 yesterday). As a result, the Yen has also climbed against its other rivals, including the Asian currencies. Many of these Asian currencies represent the countries that trade with Japan. Japanese officials will not be pleased to see a strong domestic currency against weak Asian EMS and a weak Nikkei (stock market).
With Tokyo back today, expect importer USD buying support to emerge at the immediate support level at 105.75. The next support level lies at 105.50 and 105.00. Immediate resistance can be found at 106.40 followed by 106.70. Look to trade a likely range today between 105.85 and 106.85. Prefer to buy dips in USD/JPY today.