Turkey Jacks Up Rates, EM Currencies Lift
USD – Index extends drop to 2.1/2-week lows
EUR – rallies, Draghi optimistic
GBP – higher, BOE stands pat
AUD – carried higher, upbeat Jobs data
JPY – weaker, improved risk sentiment
TRY – soars 4.3%, Turkey ups rates by 625 BP
Recap: The Dollar extended its losses finishing at 2.1/2-week lows following a lower-than-forecast US August CPI reading. Across the Atlantic, it was all about central banks. The Bank of England and European Central Bank both kept interest rates steady, as expected. The Central Bank of the Republic of Turkey (CBRT) jacked up its one-week repo rate to 24% from 17.75%. Australia’s economy added almost 3 times more full-time jobs in August than analysts predicted.
Outlook: This week US producer and consumer prices were both lower-than-expected, surprising to the downside. This will not prevent the Fed from raising rates this month, however should tonight’s US retail sales miss forecasts, it may be the last Fed hike for 2018.
Both the Euro and Sterling were already trading higher against the Greenback into the BOE and ECB rate announcements. Both left rates on hold as expected. Super Mario Draghi was more optimistic on wage growth and inflation.
Trading View: The day starts with China’s triple treat of data (Industrial Production, Retail Sales and Fixed Asset Investment). All three sets of data for August are expected to match July’s.
Trade uncertainty remains in the market place after President Trump tweeted that isn’t under pressure to reach a trade agreement with China.
The Dollar’s weaker trend has been the result downside surprises in US data. Narrowing relative growth from the rest of the globe has halted the Greenback’s advance.
The yield on the US 10-year bond rose one basis point to 2.97%. German 10-year Bund yields were up to 0.42% (0.41%), while the UK 10-year Gilt yield advanced 2 basis-points. The differentials have not widened in 2 weeks.
Emerging Market currencies rallied led by a 4.24% rise in the Turkish Lira against the US Dollar. The USD/ZAR (South African Rand) slumped 1.3% to 14.7630 from 14.9430 yesterday.
USD/DXY – the Dollar Index closed at 94.546, down 0.28% from 94.828 yesterday. USD/DXY has not been able to advance beyond the 95.80/96.00 resistance level since the start of the month. Overnight low traded was 94.428. Immediate support lies at 94.40 followed by 94.10. A clean break through 94.00 could see us back to 93.50. The overnight high traded was 0.94.965. Immediate resistance can be found at 94.70 followed by 95.00. Look to trade a range of 94.30-80 until the release of US Retail sales data. A downside surprise will see 94.00 tested.
EUR/USD – closed at 1.1690 following a test of 1.17010 overnight high. The slightly more upbeat tone of Mario Draghi in his press conference was merely the icing on the cake for the Euro. The damage was done to the Greenback from the surprise downside US inflation data following on the heals of yesterday’s lower US producer prices. EUR/USD has immediate resistance at 1.1700 followed by 1.1730. Immediate support can be found at 1.1650 with the next support at 1.1620. Look to trade a likely range of 1.1660-1.1710 today.
AUD/USD – The Aussie closed at 0.7190, up 0.26% from yesterday’s 0.7175. The overnight high traded was 0.72292. Immediate resistance can be found at 0.7220 followed by 0.7250. Overnight low traded was 0.71643. Immediate support for today lies at 0.7160 followed by 0.7130. Full-time Australian Employment saw a total of 44,000 Jobs created (versus consensus of 16,500 gain). That’s massive, any other day of the week the Aussie would be closer to 0.73 cents. Last week we saw a surprise upside Q2 result. Still the Aussie struggles to move higher. The reason is simply China, “live by the sword, die by the sword.” Ongoing Chinese trade dispute with the US has seen a slowdown in growth. Today sees the trio of Chinese data, all of which are expected to stay flat. The other impediment to Aussie gains has been the EM currencies, which have halted their massive decline. Market positioning remains short of Aussie bets. The risk for the antipodean is still north. Look to buy on dips with today’s likely range 0.7170-0.7270. Prefer to buy dips, a squeeze could be in the air tonight.
GBP/USD – Sterling closed at 1.3107, near 6.1/2-week highs. The Pound continues to be supported by multi-year speculative shorts. Brexit negotiations are going better despite all the to-ing and fro-ing. Immediate resistance lies at 1.3130 (overnight high 1.31275). The next resistance level is 1.3150. The British Pound looks poised to test 1.3200. Immediate support lies at 1.3080 followed by 1.3050. Bank of England Governor Mark Carney, who has continued to downplay any Brexit no-deal, is scheduled to speak today in Dublin. Look to trade a likely range of 1.3060-1.3160. Just trade the range on this one from here, shag.
USD/JPY – rallied to 111.95, up 0.63% from 111.25 yesterday. Risk sentiment continued to improve with trade issues relegated to the background. The one basis point rise in the US 10-year yield also lifted USD/JPY. The Bank of Japan meets on policy next week and is expected to keep its ultra-loose policy intact given the global trade uncertainty. USD/JPY traded to an overnight high of 112.00. Immediate resistance lies at 112.10 followed by 112.30. Immediate support can be found at 111.70 followed by 111.50. Look to trade a likely range of 111.50-112.20. Prefer to sell rallies.
Happy Friday and happy trading all, have a top weekend.