Dollar Climbs, US Yields Drop on PPI Miss, Stocks Slip
USD – Index climbs, broad-based gains
EUR – falls to 6-week lows, Quitaly weighs
AUD – reverses gains, down on EM tumble
JPY – modestly lower versus Dollar
GBP – slips on stronger Dollar
NZD – extends losses, down 1.7% post-RBNZ
US 10-year Bond Yield – falls to 2.93% from 2.96% yesterday
Recap: The Dollar Index (USD/DXY) climbed to close at the top of its recent range fuelled by a slump in Emerging Market currencies. Russia’s Rouble extended its slide, down 1.4% following yesterday’s 2.7% slide on the announcement of US sanctions. The Euro dropped to 6-week lows as worries on Italian political risks re-emerged. US Producer Prices stagnated in July. The yield on the benchmark US Ten-year bond fell 3 basis points to 2.93%.
Outlook: Summer conditions saw thin trading which exaggerated the moves of the USD/EM currency pairs. The Dollar finished well bid in despite the fall in US Treasury yields. The sharp fall in Emerging Market currencies propelled the Greenback ahead after a sluggish few months.
Today sees a busy data calendar, culminating in the US Headline and Core CPI with consumer prices expected to increase in July.
Trading View: The 0.54% rally in the Dollar Index (USD/DXY) to 95.60, the top of its recent range was fuelled by the Euro’s 0.7% fall. The Dollar was little-changed against the Yen and Swiss Franc. The Aussie reversed gains, dropping 0.75% to 0.7375 support on the back of the Kiwi’s big 1.7% fall. Traders saw no reason to hold the New Zealand Dollar following the RBNZ’s dovish stance.
The pronounced weakness in Emerging Market Currencies is supporting overall US Dollar strength.
The Philippine Central bank (BSP) raised its prime rate 50 basis points to 4.0% to arrest rampant inflation and the currency’s fall.
US treasury yields ended lower following a miss in US PPI data. Both Headline and Core PPI were lower than forecast. The yield on the 2-year treasury fell 2 basis points to 2.65%. Without yield support, further Dollar gains are unlikely.
Markets are all geared up for a strong US CPI number. The risk is for a disappointment.
Market positioning has the speculative community long of USD bets. This will play a factor in the end-game of today’s trading, particularly in New York.
USD/DXY – The Dollar Index closed at 95.60, just at the strong resistance level and the top of our recent range. Technically, its not difficult to see why analysts see a move higher, but we will need fundamental yield support. Which will come from the CPI data. Immediate resistance today lies at 95.65 and then 96.00. Immediate support can be found at 95.35 and then 95.00. A sustained break of 96.00 could see a move back up to 98.00 and even 100.00. Let’s see how this plays out tonight.
Likely range 95.20-95.70. Prefer to sell rallies, if we break above 96.00, I’m wrong.
EUR/USD – The Euro fell to it’s recent 6 week low, trading to 1.16193 overnight. The Euro closed at 1.1529, down 0.71% from yesterday’s 1.1613. Quitalian fears (right-wing Italian politicians wanting to leave the European Union) weight on the Single Currency. This is fully priced into the Euro at current levels. The risk is for a weaker Greenback if US CPI disappoints. Immediate support is found at 1.1520/30 (1.15256 was the overnight low traded). Next support can be found at 1.1500 which is strong. Immediate resistance can be found at 1.1560, 1.1580 and then 1.1600. Likely range today 1.1520-1.1620. Prefer to buy dips.
USD/JPY – closed modestly lower at 111.07 (110.93) against the overall stronger US Dollar. USD/JPY struggled to gain much headway given the lower US 10-year yield as well as global trade worries. The Dollar Yen is crucial to further Greenback support. Japanese Q2 GDP data are due out a few minutes from now. Market focus remains centred on the US inflation data due out later today. USD/JPY has immediate resistance at 111.20 (overnight high 111.18), followed by 111.50. Immediate support can be found at 110.70 (overnight low 110.706), followed by 110.40. Look to sell rallies with today’s likely range 110.70-111.20.
AUD/USD – the fall in close “cuz” the Kiwi weighed on the Aussie which soared to an overnight high of 0.74431 overnight before sliding lower. AUD/USD finished at 0.7375, down 0.75% from yesterday’s 0.7435 opening. The slump in Emerging Market currencies also weighed on the Aussie. AUD/USD has immediate support at 0.7370 (overnight low 0.73735), followed by 0.7340. Immediate resistance can be found at 0.7400 and then 0.7430. Look to a likely trading range today of 0.7370-0.7420. Prefer to buy dips, the specs are still short Aussie bets.
NZD/USD – The Kiwi was pummelled further to near 5-month lows at 0.6612 overnight. NZD/USD extended its losses to 0.6600 in early Sydney trading. Traders viewed the dovish RBNZ stance as a license to “shoot that Bird down”. Which makes sense, why hold Kiwi with interest rates expected to remain lower than US rates for some time. The yield on the 10-year New Zealand bond dropped a whopping 12 basis points to 2.62%. Which kept the Kiwi on the back foot. However, RBNZ Governor Graeme Orr said that the New Zealand Dollar is closer to fair value. Immediate support for the NZD/USD lies at 0.6600 and then 0.6570. Immediate resistance can be found at 0.6650 and then 0.6680. Likely range today 0.6585-0.6685. Prefer to buy dips.
Event and economic data releases today: New Zealand NZD Business Manufacturing Index: Japan Preliminary Q2 GDP, Q2 GDP Price Index and PPI; Australia RBA Monetary Policy Statement; UK July GDP (m/m and y/y), Manufacturing Production, Industrial Production; Canada Employment Change and Unemployment Rate for July; US Headline and Core CPI
It’s Friday and I can’t help but share a tune with you. Blood Sweat and Tears 1968 hit, Spinning Wheel. Lyrics of which are: “What goes up, must come down, spinning wheel got to go round.
Could this be the Dollar’s plight? The song continues. “Did you find the directing sign.. Just let it shine within your mind”.
Happy Friday and trading all.