Dollar resumes climb in choppy trade to kick-off new month

AUD Slumps, JPY Up; Yields Fall; Expect More Volatility Ahead

Summary: The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of major currencies, soared above the 105.00 threshold in volatile trade on Friday. The DXY ended a choppy session at 105.12, up 0.42%. It was the strongest finish for the DXY since mid-June. While Wall Street stocks ended higher in a technical finish to its worst half-year performance in decades, it was risk-off for the currency markets. The Australian Dollar (AUD/USD) fell 1.3% to 0.6812 at the close of trade in New York from its 0.6902 Friday open. New Zealand’s Kiwi (NZD/USD) also known in FX markets as the Aussie’s smaller cousin, slid to 0.6195 from 0.6235. The Euro (EUR/USD) fell back to 1.0426 from 1.0483, down 0.59%. Sterling (GBP/USD) slumped 0.74% to finish at 1.2097 against its 1.2174 open on Friday. However, it was not a one-way street for the Greenback. Against the haven sought Japanese Yen, the US Dollar tumbled 0.51% to 135.22 from 135.72. Asian and Emerging Market currencies were mixed against the Greenback. The USD/THB (Dollar-Thai Baht) pair rallied 0.37% to 35.27 (35.15) while USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 6.6955 from 6.7065. Against the backdrop of growing expectations of a Fed rate hike due to elevated inflation, market sentiment soured following the release of weaker-than-expected US Institute of Supply Management (ISM) Manufacturing Index. US ISM PMI for May plunged to 53.0 from April’s 56.1, weaker than median expectations at 54.6. Prices for US Treasuries soared pushing bond yields lower. The benchmark US 10-year bond rate sank a whopping 16 basis points to 3.01% (3.17%). Two-year US Treasury bond yields closed at 2.95% from 3.11%. Wall Street stocks settled higher. The DOW finished at 31,070 (30,742) while the S&P 500 gained 1.2% to 3,825 (3,780).

Other economic data releases Friday saw Australia’s AIG Manufacturing Index climb to 54.0 from 52.4. New Zealand’s Building Consents in May improved to -0.5% from a previous -8.5%. Japan’s Annual Tokyo Core CPI was at 2.1%, unchanged from 2.1% previously. Japanese Tankan Manufacturing Index fell to 9 from 14, missing expectations at 13. Japan’s Tankan Non-Manufacturing PMI matched forecasts at 13. China’s Caixin Manufacturing PMI rose to 51.7 from a previous 48.1, beating median expectations at 50.2. Germany’s June Final Manufacturing PMI was unchanged at 52.0. The Eurozone Final Manufacturing PMI climbed to 52.1 from a previous 52.0. UK Final Manufacturing PMI fell to 52.8 from 53.4. UK Mortgage Approvals rose to 66K against expectations of 64K. UK Net Lending to Individuals climbed to GBP 8.3 billion from a previous GBP 5.5 billion, higher than forecasts at GBP 5.6 billion. US Construction Spending slid to -0.1% from a previous 0.2%, lower than expectations at 0.3%.

• EUR/USD – against the overall stronger Greenback, the shared currency retreated to 1.0426 from Friday’s open at 1.0483. In volatile trade, the Euro skidded to an overnight low at 1.0365 before settling and edging higher. The EUR/USD pair traded to a high at 1.0478.
• USD/JPY – the risk-off sentiment favoured the haven sought Japanese Yen. The Greenback plunged to 135.22 Yen at the close of trade in New York. On Friday, the USD/JPY pair opened at 135.72. Overnight low traded was at 134.74 while the high recorded was at 135.98. As in the previous sessions, trading was choppy in this currency pair.
• AUD/USD – slip sliding away, risk aversion weighed on the Australian Dollar. At the close of trade in New York, the AUD/USD pair settled at 0.6812 against its Friday open at 0.6902. It was another roller coaster ride for the Battler, with the overnight low recorded at 0.6764. The overnight high traded was at 0.6903. Which is a whopping 139 pip range!
• GBP/USD – Sterling wilted in extremely choppy trade against the broadly based stronger Greenback, closing 0.74% lower to 1.2097 from 1.2174. Overnight, Sterling plunged to a low at 1.19755 before climbing back to it’s New York close. Overnight high recorded was at 1.2161.

On the Lookout:  The week ahead starts off with a light economic calendar amidst the US Fourth of July Independence Day holiday. It begins with the release of Japan’s Annual Monetary Base (y/y f/c 6.3% from 4.6% - FX Street). New Zealand follows with its ANZ Bank June Commodity Price (no f/c, pervious was -2.8%). Australia is next with its May Building Permits (m/m f/c -1.8% from -2.4%; y/y no f/c, previous was -32.4%: FX Street), Australian ANZ Job Ads (no f/c, previous was 0.4% - FX Street). Germany starts off Europe with its May Trade Balance (f/c +EUR 2.4 billion from previous +EUR 3.5 billion; Imports f/c 1.2% from 3.1%; Exports f/c 1.2% from 3.1% - FX Street). Switzerland follows with its June Consumer Price Index (m/m f/c 0.3% from 0.7%, y/y f/c 3.2% from 2.9% - FX Street). The Eurozone follows with its July Sentix Investor Confidence Index (f/c -20 from -15.8 – FX Street), Eurozone Producer Price Index (m/m f/c 1% from 1.2%; y/y f/c 36.7% from 37.2% - FX Street). Canada kicks off North America with its Bank of Canada Outlook Survey and Canadian Manufacturing PMI (no f/c, previous was 56.8).

Trading Perspective: Following Friday’s volatile FX trade, expect a tentative start in Asia today. The Dollar Index should steady around the 105.00 level with sellers capping any sustained gains. The strong Dollar has seen a number of American exporters warning that the US currency’s rapid rise will have an adverse effect on their bottom lines. Many of these companies can resort to hedging strategies. Traditionally the Northern Hemisphere summer months are slower for currency markets because many executives of the large US firms take their holidays. This year though, because of the strengthening Greenback, expect more hedging activity to take place. Which will add to volatility and trading volume for the markets. For the FX trader, the added volatility means “happy days”.

• EUR/USD – The Euro continued its slide, falling another 0.59% to finish at 1.0426 against its 1.0482 Friday open. Overnight low traded was at 1.0365. For today, look for immediate support at 1.0400, 1.0370 and 1.0340. Immediate resistance can be found at 1.0450, 1.0480 (overnight high traded was 1.0478) and 1.0510. Look for another choppy ride in the shared currency, likely range 1.0370-1.0470. Selling into Euro strength remains the strategy.
• USD/JPY – against the haven sought Japanese Yen, the Greenback fell to 135.22 at the close of trade in New York. On Friday, the USD/JPY pair opened at 135.72. The plunge in US bond yields weighed on this currency pair. Overnight low traded was at 134.74. For today, look for immediate support at 135.00, 134.70 and 134.40. Immediate resistance lies at 135.50, 135.80 and 136.10. Look for further volatility in a likely range of 134.70-135.70 today.
• AUD/USD – slip-sliding away, the risk leading Aussie Dollar was battered lower, to finish at 0.6812 from 0.6902 Friday. Overnight low traded for the AUD/USD pair was at 0.6764. For today, look for immediate support at 0.6775 followed by 0.6745. Immediate resistance can be found at 0.6840, 0.6870 and 0.6900. Look for another roller coaster ride in the Aussie, likely range today, 0.6770-0.6870. Just trade the range, it’s a wide and wonderful one today.

(Source: Finlogix.com)

• GBP/USD – Sterling succumbed to the broadly based stronger US Dollar, settling at 1.2097 from 1.2174 Friday open. Overnight the British Pound plunged to a low at 1.1976 before settling to rally back at the close of trade in New York. Overnight high recorded was at 1.2161. Look for immediate support today at 1.2060, 1.2030 and 1.20000. Immediate resistance can be found at 1.2130, 1.2160 and 1.2190. Look for another volatile session in Sterling with a likely range today of 1.2010-1.2140, nice and wide, just trade the range.

Have a good Monday and top week ahead all. Happy trading.