Asia/EMFX Mixed, Wall Street Stocks Dip
Summary: Currencies finished mixed against the Greenback ahead of tomorrow’s highly awaited US CPI report. The Australian Dollar (AUD/USD) slid 0.40% lower to 0.6965 (0.6995) against the Greenback, finishing as worst performing FX. China extended its military drills in international waters around Taiwan following US Speaker Nancy Pelosi’s visit to the island nation. Which saw markets switch to risk-off mode, sending stocks lower. The Euro (EUR/USD) edged 0.15% higher to 1.0212 (1.0182 yesterday) after see-sawing in a familiar range between 1.0188 and 1.0247. Sterling (GBP/USD) finished with modest gains at 1.2082 from yesterday’s 1.2072. Against the Japanese Yen, the Dollar finished modestly higher at 135.10 from 135.00. The Greenback was mostly lower against the Asian and Emerging Market currencies. USD/THB (Dollar- Thai Baht) slumped to 35.38 from 35.82 while USD/SGD (US Dollar-Singapore Dollar) was last at 1.3792 (1.3812 yesterday). A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) closed 0.12% lower to 106.30 (106.60). Wall Street stocks dipped. The US S&P 500 closed at 4,125 from 4,140 yesterday. The benchmark US 10-year Treasury bond yield eased to 2.78% from 2.83%, leading other global rates lower. Germany’s 10-year Bund yield closed at 0.91% (0.95%).
Data released yesterday saw Australia’s National Australia Bank Business Confidence Index climb to 7 from a previously upward revised 2 (from 1). Japanese Preliminary Machine Tool Orders rose to 89.9 from 89.5. The US NFIB Small Business Index climbed to 89.9 from a previous 89.5, beating estimates at 89.5. US Preliminary Unit Labour Costs (q/q) rose to 10.8%, up from median forecasts at 9.4%. The US IBD/TIPP Economic Optimism fell to 38.1 from a previous 38.5, and lower than expectations at 40.2.
- EUR/USD – The shared currency kept to its familiar range, trading between 1.0188 overnight low and 1.0247, overnight high. The Euro closed at 1.0212, 0.14% up from yesterday’s 1.0188 finish. Apart from the US, both Germany and Italy are scheduled to release their inflation data.
- AUD/USD – The Australian Dollar slid to 0.6965 New York close from yesterday’s 0.6995. The Aussie finished as worst-performing currency, down 0.40% against the Greenback. Overnight low traded for the Australian Dollar was at 0.6949. Risk-aversion also weighed on the Battler. China releases its July CPI and PPI data today, which could impact the Aussie. The stronger finish of Asian currencies against the Greenback failed to provide any support for the Australian currency.
- GBP/USD – Sterling edged up against the US Dollar to finish at 1.2082 against yesterday’s 1.0272. In another volatile session, the British Pound traded to an overnight high at 1.2130 before easing to its close. Overnight low recorded was at 1.2061.
- USD/JPY – Against the Japanese Yen, the Greenback rallied modestly to 135.10 from 135.00. Overnight, the USD/JPY pair slumped to a low at 134.67 before rallying back above 135.00 in late New York. Overnight high traded was at 135.200. The lower close in the US 10-year treasury bond yield by 5 basis points to 2.78% weighed on this currency pair. Japan’s 10-year JGB yield was unchanged at 0.16%.
On the Lookout: The countdown to tonight’s highly anticipated US CPI release began in early Asian trade this morning. After easing overnight against most of its Rivals, the Dollar has edged up. Data released today kick off with Japanese July PPI (m/m f/c 0.4% from 0.7%; y/y f/c 8.4% from a previous 9.2% - ACY Finlogix). China follows with its July Inflation Rate (m/m f/c 0.5% from 0.0%; y/y f/c 2.9% from 2.5%), Chinese July PPI (y/y f/c 4.8% from 6.1%). Germany starts off European reports with its Final July Inflation Rate (m/m f/c 0.9% from 0.1%; y/y f/c 7.5% from 7.6% - ACY Finlogix). Italy releases its Final July Inflation Rate (y/y f/c 7.9% from 8.0% - ACY Finlogix). Finally, the US follows with its July Headline Inflation Rate (m/m f/c 0.2% from 1.3%; y/y f/c 8.7% from 9.1% - ACY Finlogix), US July Core Inflation Rate (m/m f/c 0.5% from 0.7%; y/y f/c 6.1% from 5.9%)
Trading Perspective: Expect more consolidation today ahead of the much-awaited US CPI report (10.30 pm Sydney time). Ahead of that, China, Germany, and Italy also release their inflation data. Traders will be looking for any surprises on the data, particularly from China. The US Dollar mostly lost ground as net speculative long bets were unwound. Speculative market positioning remains well long of the US currency, despite recent lightening of those positions. If the US Core CPI report comes out lower than market estimates, month-on-month at 0.4%, while y/y at 8.5% or lower, the Greenback will fall further. There will be key levels to monitor on the various currencies (see below). Thursday sees the release of US PPI as well. We can expect choppy trade throughout the week. Friday sees UK GDP and US Preliminary University of Michigan Consumer Sentiment. For today, all eyes on the US CPI.
- EUR/USD – The Euro managed to edge higher against the Greenback to finish just above the 1.0200 level (at 1.0212). The shared currency has struggled all week with most traders keeping a bearish bent on the EUR/USD pair. For today, look for immediate support at 1.0190 (overnight low 1.0188). The next support level comes in at 1.0160. On the topside, immediate resistance can be found at 1.0220, 1.0250, and 1.0280. Look for further consolidation in a likely range today between 1.0175-1.0245 first up. Trade the range today, we could be in for a big one, depending on the US CPI number.
- AUD/USD – Slip sliding away, the Aussie closed 0.4% lower at 0.6965 from 0.6995 yesterday. The failure of the Aussie Battler to trade above 0.70 cents weighed on the antipodean currency. Risk-off didn’t do any favours either. For today, look for immediate support at 0.6945 (overnight low traded was 0.6949). The next support level is found at 0.6920. On the topside, immediate resistance lies at 0.6995 followed by 0.7025. Looking at a likely range today of 0.6940-0.6990. Looking to trade both sides of the range.
- USD/JPY – Against the Japanese currency the US Dollar edged back above the 135.00 level to finish at 135.10. Overnight high traded was at 135.20, which is today’s immediate resistance. The next resistance level is found at 135.50 followed by 135.80. On the downside, look for immediate support at 134.90 followed by 134.60 (overnight low traded was at 134.67). The next support level lies at 134.30. Look for consolidation in a likely range today of 134.70-135.70. Preference is to buy USD/JPY dips. Watch the US bond yields.
- GBP/USD – Sterling settled with modest gains versus the Greenback to 1.2082 from 1.2072. With no data out of the UK until Friday, the British currency will be a function of the US Dollar. On the day, look for immediate resistance at 1.2110 followed by 1.2130 (overnight high). The next resistance level lies at 1.2160. On the downside, immediate support can be found at 1.2050 (overnight low traded was 1.2061). The next support level is at 1.2020. Look for further consolidation in a likely range today of 1.2030-1.2130. Look to trade the range with the preference to sell rallies.
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