Dollar rockets up, eyes on hawkish Fed in Jackson Hole meet

EUR, AUD, EMFX Slump; Yields Climb; Stocks, Bonds Tumble

Summary: The Dollar Index, a popular measure of the Greenback’s value against a basket of 6 major currencies soared 0.58% higher to 108.10 (107.50 Friday), and its strongest finish in over 5 weeks. On Friday a slew of Fed speakers expressed a desire for a 75 bp rate hike in their upcoming September meet. James Bullard, St Louis Federal Reserve President led a slew of officials after he expressed a desire for a 75 bp rate hike at the September meeting. Global bond yields climbed. The benchmark US 10-year treasury rate was up 9 basis points to 2.97%. The two-year US bond yield climbed to 3.23% (3.20% Friday). Wall Street stocks tumbled with the DOW losing 0.92% to 33,690 from 34,000 Friday while the S&P 500 ended down 1.39% to 4,226 (4,285 Friday). In the FX markets, the Euro, which carries 57.6% weight in the Dollar Index, slumped to 1.0040 from 1.0085. The British Pound (GBP/USD) plunged to 1.1822 (1.1930). Risk aversion weighed on the Australian Dollar (AUD/USD), which fell to 0.6872 from 0.6915. The Kiwi (NZD/USD), considered by Sydney traders as the smaller cousin of the Aussie, slid to 0.6185 from 0.6257 Friday. Against the Japanese Yen, the US Dollar (USD/JPY) closed at 136.85, little changed from Friday’s 136.87. Despite higher global bond yields, demand for the Japanese currency due to risk aversion buoyed the Yen against the Greenback. The Dollar grinded higher against most Asian and Emerging Market Currencies. USD/CNH (US Dollar-Offshore Chinese Yuan) spiked to 6.8350 (6.8030 Friday) while USD/SGD (US Dollar- Singapore Dollar) climbed to 1.3910 from 1.3852.

Data released Friday saw New Zealand’s Trade Deficit widen to -NZD 1,092 million from a previous downwardly adjust -NZD 1,102 million (from -NZD 701 million). A surplus of NZD 105 million was expected. The UK GFK Consumer Confidence Index dropped to -44 against forecasts at -42 and a previous -41. Japan’s National Core CPI (y/y) matched estimates at 2.4%, and a previous 2.2%. German July PPI rose to 5.3%, up from a previous 0.6%, and better than estimates of a 0.7% gain. UK Retail Sales in July rose to 0.3%, beating median estimates at -0.2%. UK Public Sector Net Borrowing dipped to GBP 4.2 billion from a previous GBP 20.1 billion, adjusted from GBP 22.1 billion. The Eurozone Current Account improved to +EUR 4.2 billion from a previous downward adjusted -EUR 6.9 billion, beating estimates at -EUR 3.3 billion. Canada’s Headline Retail Sales (m/m) rose to 1.1%, bettering forecasts at 0.4%. Canadian Core Retail Sales dipped to 0.8% from expectations of 0.9%.

• EUR/USD – Slip-sliding away, the shared currency slumped to an overnight low at 1.0027 from Friday’s open at 1.0085 before settling at 1.0040. The likelihood of a test at Parity grew following more hawkish rhetoric from US Federal Reserve officials. Overnight high traded for the Euro was at 1.0050.
• GBP/USD – Sterling was pounded lower against the broadly based stronger Greenback to 1.1820 from Friday’s open at 1.1930. Overnight, the British Pound traded to a low at 1.1791 while the overnight high recorded was at 1.1854. Despite a higher-than-expected rise in UK Retail Sales, negative sentiment toward the British currency continued to grow.
• AUD/USD – Slip sliding away, the risk-off stance by markets weighed on the Aussie Battler. Overnight the AUD/USD pair slumped to an overnight and 5-week low at 0.6860 from Friday’s 0.6915. Hawkish Fed rhetoric as well as worries about a global economic downturn weighed on the Aussie Dollar.
• USD/JPY – Against the Japanese Yen the US Dollar was little-changed, at 136.85 (136.87 Friday). Overnight the USD/JPY traded to a high at 137.08. Overnight low recorded was at 136.71. Breaking news early this morning that Japanese Prime Minister Kishida tested positive for Covid-19 pushed USD/JPY up to 137.08 before settling at its current 137.02.

On the Lookout: The week ahead starts off with a light economic calendar for today with only China’s Loan Prime Rate (1 Y and 5 Y) release as well as Canada’s National House Price Index (NHPI). Tuesday though picks up with the release of global Manufacturing and Services PMIs. China’s 1-year Loan Rate currently stands at 3.7%, with no forecasts given for the Peoples Bank of China’s (PBOC) likely decision. Current 5-year Loan Rate stands at 4.45%. Germany kicks off European data with its Bundesbank Monthly report. Canada starts off North American data with its New Housing Price Index for July (m/m f/c 0.4% from 0.2%; y/y no f/c, previous was 7.9% - FX Street). The US rounds up today’s data releases with its Chicago Fed National Activity Index for July (no f/c, previous was -0.19 – ACY Finlogix).

This week’s big event is the annual Jackson Hole, Wyoming Economic Symposium. Which is a yearly gathering of prominent global central bankers and finance ministers to discuss economic issues facing economies. Potentially this is one of the biggest yearly events for the FX markets. The symposium is sponsored by the Federal Reserve Bank of Kansas City, USA and has been held since 1981, every August. For this year it starts on Friday, midnight in Sydney. Federal Reserve President Jerome Powell is scheduled to speak on the economic outlook (Friday, 10 am Washington DC time).

Trading Perspective: The US Dollar continued its climb versus all of it’s Rivals despite the market positioning, with the DXY (Dollar Index) trading to just over 5-week highs. Which surprised many, including this writer. The catalyst behind the ongoing Dollar strength was more hawkish than expected Fed speak, heading into this week’s Jackson Hole Economic Symposium. Between now and then, we can expect FX volatility to remain high with choppy trade dominating. Markets will be watching for further comments/rhetoric from various Fed and other global central bank heads. While the Greenback should maintain its gains, position adjustments could see a long-overdue correction set in. Strap yourself in for more choppy markets ahead.

EUR/USD – The Euro’s set-back brings a test of Parity back on the table, which is more likely this week. Overnight, the EUR/USD pair plunged to a 5-week and overnight low at 1.0027 before steadying to close at 1.0040. Immediate support lies at 1.0025 followed by 1.0000 and 0.9970. On the topside, immediate resistance can be found at 1.0070, 1.0100 and 1.0130. Look for another roller coaster ride on this currency pair, with 1.00 likely to be tested. This should be followed by a bounce back to 1.0070-80. Likely range today, 0.9985-1.0085. Prefer to sell into EUR/USD strength.

(Source: Finlogix.com)

AUD/USD – Risk aversion will continue to weigh on the Aussie Battler. On Friday, the Aussie Dollar settled at 0.6872 from Friday’s 0.6915. Overnight low traded for the AUD/USD pair was at 0.6860 which is where immediate support lies for today. The next support level is found at 0.6830 followed by 0.6800. Immediate resistance can be found at 0.6900, 0.6930 and 0.6960. Look for the AUD/USD pair to trade a likely range of 0.6830-0.6930. Sell rallies.

GBP/USD – The Pound is sinking, echoes of Paul McCartney’s 1982 tune which he wrote as an example of free markets “adjusting prices”, which today is fundamental in FX trading. On Friday, the British Pound plunged to an overnight low at 1.1810 from its Friday open at 1.1932. Sterling (GBP/USD) closed at 1.1820 after a volatile session Friday. For today, look for immediate support at 1.1810 followed by 1.1780 and 1.1750. Immediate resistance lies at 1.1860 (overnight high traded was at 1.1854). The next resistance level is found at 1.1890 and 1.1920. Likely range today, 1.1790-1.1890. Trade the range, nice and wide.

USD/JPY – The Dollar finished little-changed against the Japanese Yen despite higher US bond yields. Risk aversion saw demand for the Japanese currency pick up against the Greenback and other rivals. On Friday, USD/JPY closed at 136.85. Immediate support for today lies at 136.70 (overnight low 136.71), followed by 136.40. Immediate resistance can be found at 137.10 (overnight high traded was 137.08). The next resistance level is found at 137.40 and 137.70. Looking for a choppy session in the USD/JPY pair between 136.60-137.60. Am neutral at current levels, prepare to trade both sides.

Have a good trading week ahead all, happy Monday.