Euro plummets on “Lame” ECB, risk-Off, AUD/USD slides
|Dollar Lifts, Yen Steadies, EMFX Flat; US CPI Up Next
Summary: The Euro (EUR/USD) plummeted against the Greenback to 1.0615 from yesterday’s 1.0718 following the ECB’s decision to lift interest rates at its July meeting with 25 bps increments. The ECB left the door open for a higher increase in September depending on the medium-term inflation outlook and kept its Main Refinancing Rate unchanged at 0.00%. Christine Lagarde, ECB President, said that any lifting of interest rates would be gradual. Markets weren’t impressed and switched into risk-off mode which lifted the US Dollar and weighed on resource and Emerging Market currencies. Wall Street stocks slumped. The DOW finished 1.81% lower to 32,325 (33, 930) while the S&P 500 was last at 4,025 from 4,117 yesterday. Risk leader the Australian Dollar (AUD/USD) tumbled to 0.7097 from 0.7193 while the Kiwi (NZD/USD) slid 0.91% to 0.6385 (0.6448). Sterling (GBP/USD) fell 0.45% to 1.2490 (1.2540) on the market’s deteriorating risk appetite and the lower Euro. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, climbed to 103.30 (102.55), gaining 0.97%. After trading to a 20-year high yesterday, the USD/JPY pair was little changed, settling at 134.32 from 134.37. The Greenback closed mixed against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) settled at 6.7010 (6.7005). Against the Thai Baht, the US Dollar (USD/THB) edged higher to 34.55 from 34.50.
Global bond yields rose. The US Ten-Year Treasury Bond Yield was up 2 basis points to 3.04%. Germany’s 10-Year Bund Rate rose to 1.42% from 1.40% yesterday. Japan’s 10-year JGB yield was unchanged at 0.24%. Data released yesterday saw China’s Trade Surplus climb to +CNY 503 billion from a previous +CNY 325 billion, and higher than estimates of +CNY 400 billion. US Weekly Jobless Claims rose to 229,000 from a previous 202,000 and higher than forecasts of 205,000.
- EUR/USD – The shared currency had a volatile session yesterday, soaring initially to an overnight high at 1.0774 before plummeting post ECB announcement to 1.0611 overnight lows. The Euro then stabilised to settle at 1.0615 in late New York.
- AUD/USD – The Aussie Battler, which on Wednesday jumped following the RBA’s decision to lift interest rates 50 bps, tumbled on risk-off, finishing at 0.7097 (0.7193). Overnight low for the Aussie was at 0.7093 while the overnight high recorded was at 0.7194.
- USD/JPY – The Japanese currency which took centre-stage earlier this week hitting 20-year lows against the Greenback settled to close at 134.35 from 134.32 yesterday. In further volatile trade, the USD/JPY hit an overnight high at 134.56. Overnight low was at 133.18.
- GBP/USD – Sterling (GBP/USD) slid 0.43% to 1.2490 from 1.2540 yesterday. A weak close in the Euro amidst broad-based US Dollar strength and risk-off weighed on the British Pound. Overnight low traded was at 1.2478 while the high reached was at 1.2558.
On the Lookout: Today’s economic calendar is busier than the past few days and culminates with the crucial US CPI report. Japan kicked off earlier with its May PPI (y/y) which fell to 9.1% from 10% in April, and lower than expectations at 9.8%. Japanese May PPI (m/m) was also lower to 0% from a previous 1.3%, and lower than forecasts at 0.5%. The USD/JPY pair edged up to 134.40 from 134.35. China follows next with its May CPI (m/m f/c -0.3% from 0.4%; y/y f/c 2.2% from previous 2.1% - ACY Finlogix). Chinese May PPI follows (y/y f/c 6.4% from previous 8.0%). Australia releases its May HIA New Home Sales (no f/c, previous was -1.2%). China follows with its May Vehicle Sales report (y/y no forecast, previous was -47.6%). Italy starts off European data with its April Industrial Production (m/m f/c -1.1% from previous 0%; y/y f/c -0.2% from a previous 3%). Canada kicks off North America with its May Employment Change (f/c 30k from 15.3k0, Canadian May Unemployment Rate (f/c 5.2% from 5.2%), Canadian May Participation Rate (no f/c previous was 65.3%). The US rounds up today’s data releases with its May CPI (m/m f/c 0.7% from 0.3%; y/y f/c 8.3% from 8.3% - ACY Finlogix), US May Core CPI (m/m f/c 0.5% from 0.6%; y/y f/c 5.9% from 6.2% - ACY Finlogix). ECB President Christine Lagarde is scheduled to speak in a pre-recorded video at the 20th anniversary of a Law Institute in Frankfurt. Finally, the US releases its Preliminary University of Michigan Consumer Sentiment (f/c 58 from a downward revised previous 58.4 (59.1).
Trading Perspective: After a long, tough, volatile trading week in FX, we’ve finally come to Friday. That said, given the wide ranges of the currencies, we can expect more choppy trading ahead. The Dollar Index (USD/DXY) was boosted by the plummeting Euro (EUR/USD) and the market’s risk-off stance. In the current environment its difficult to see a major change in this sentiment which is overall supportive for the DXY. Be aware though that it is Friday where anything could happen. Market positioning, now well long of Greenbacks, is considered a risk despite strong sentiment.
- EUR/USD – The shared currency has that heavy feel to it even at current levels. The overnight low edged a pip lower to 1.0610 with the 1.0600 level vulnerable. A clean break of the 1.0600 immediate support level will see 1.0550. Immediate resistance today can be found at 1.0650, 1.0700 and 1.0740. Extreme bearish sentiment amidst short speculative positioning should see a likely trade today of 1.0580-1.0720.
(Source: Finlogix.com)
- AUD/USD – The Aussie Dollar was battered by the combination of a strong Greenback and a souring of risk sentiment. The Aussie closed at 0.7097 after trading to an overnight low at 0.7093. Immediate support for today lies at 0.7090 followed by 0.7060. Immediate resistance can be found at 0.7130, 0.7160 and 0.7190. Look for the Aussie to remain heavy in a likely range today of 0.7080-0.7180. Not getting bearish down at these levels, trade the range shag.
- USD/JPY – The Dollar Yen slowed following its meteoric rise on Wednesday (from 132.70 to 134.40). USD/JPY closed little changed in New York at 134.35. For today, immediate resistance is found at 134.60 followed by 134.90. Immediate support lies at 134.00, 133.70 and 133.40. Look for consolidation today in a likely range of 133.50-134.50.
- GBP/USD – Sterling slid to 1.2490 at the close of New York from yesterday’s open at 1.2540. Broad-based US Dollar buying and risk-off also weighed on the British Pound. On the day, immediate support lies at 1.2470 (overnight low traded was 1.2478). The next support level is found at 1.2440. Immediate resistance can be found at 1.2510, 1.2540 and 1.2570. Look for a likely, albeit choppy trading range in Sterling between 1.2470 and 1.2570 today. Just trade the range shag on this one today.
Have a good trading day ahead all, happy Friday. Top weekend everyone.
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