FX Volatility Heightens, Bond Yields Edge Up, Wall Street Stocks Rally

Summary: The Japanese Yen dropped to a fresh 24-year low against the US Dollar after the Bank of Japan kept its ultra-loose monetary policy intact, meeting minutes revealed. Overnight, the USD/JPY pair rocketed to 136.70, not seen since August 1998 from 135.10 yesterday. The Greenback eased to 136.50 Yen in volatile overnight trade. The BOJ was an outlier amidst other major central banks who have recently moved to tighten policy and was supported by Japanese Prime Minister Fumio Kishida. Meantime, the Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies was little changed at 104.43 (104.45 yesterday). The Euro (EUR/USD) edged up to 1.0530 in late New York from yesterday’s 1.0515. Sterling (GBP/USD) gained to 1.2275 (1.2248) despite a nationwide strike by UK rail workers. The Australian Dollar (AUD/USD) was last at 0.6970 from 0.6960 yesterday, failing to break back above 0.70 cents despite the rise in risk sentiment.

Wall Street stocks rallied following upbeat comments from US Treasury Secretary Janet Yellen. Yellen said she believed that there is a path to bringing down inflation while maintaining a strong labour market. The DOW gained 1.32% to 30,560 (30,195) while the S&P 500 closed at 3,767 (3,717), up 1.43%. US bond yields steadied following their climb yesterday. The benchmark 10-year treasury rate was unchanged at 3.27%. German 10-year Bund yields rose 2 basis points to 1.76%. Japan’s 10-year JGB yield was unchanged at 0.23%.

Data released yesterday: Switzerland’s Trade Surplus eased to +CHF 3.12 billion from a previous downward revised +CHF 4.03 billion, and lower than estimates at +CHF 3.78 billion. The Eurozone Current Account Deficit climbed to -EUR 5.8 billion from -EUR 1.6 billion, and bigger than median estimates of -EUR 3.2 billion. UK CBI (Confederation of British Industry) Industrial Orders Expectations fell to 18 from a previous 26, lower than estimates at 22. Canada’s May Retail Sales (m/m) climbed to 0.9% from an upward revised 0.2%, and stronger than estimates at 0.8%. Canada’s May Core Retail Sales (m/m) rose to 1.3%, higher than expectations at 0.5%. US Existing Home Sales climbed to 5.41 million units, lower than the previous 5.60 million but bettering forecasts at 5.40 million. Earlier this morning, New Zealand’s GDT Milk Price Index fell -1.3% from a previous +1.5%. New Zealand’s Trade Balance eased to +NZD 263 million from a downward revised +NZD 440 million, missing expectations at +NZD 580 million. The Kiwi (NZD/USD) dipped to 0.6325 from 0.6335.

  • USD/JPY – The Japanese currency had a volatile session against the US Dollar and other currencies. Overnight the Greenback rocketed to a fresh August 1998 high at 136.70 from yesterday’s 135.10 before easing back to settle at 136.50. The Bank of Japan’s meeting minutes will be revealed later this morning (9.50 am Sydney).
  • EUR/USD – The Euro edged higher against the Greenback settling at 1.0530 from yesterday’s open at 1.0515. In choppy trade, the shared currency climbed to a high at 1.0583 before sliding to its New York close.
  • AUD/USD – The Aussie Battler closed at 0.6970 from 0.6960 yesterday. Overnight high traded for the AUD/USD pair was at 0.6994. Minutes released from the RBA’s latest monetary policy meeting revealed that the Australian central bank does not see any recession signs ahead. The market’s risk-on stance was supportive of the Aussie.
  • GBP/USD – Sterling grinded higher against the Greenback to 1.2275 (1.2248) at the New York close. The British currency climbed to an overnight peak at 1.2325 before easing. UK Inflation data is due for release later today.

On the Lookout: Today’s economic calendar picks up with the release of the monetary policy meeting minutes from the Bank of Japan. Australia follows with its Melbourne Institute Leading Index (m/m no f/c, previous was -0.2%). New Zealand follows with its Credit Card Spending (y/y no f/c, previous was 1.1%). The UK kick off European data with its UK May CPI (m/m no f/c, previous was 2.5%; y/y f/c 9.1% from 9% - FX Factory), UK May Core CPI (m/m no f/c, previous was 0.7%; y/y 6.0% from previous 6.2% - FX Factory), UK PPI Input (m/m f/c 1.8% from 1.1%), UK PPI Output (m/m f/c 1.6% from previous 2.3%). Switzerland releases its Current Account (no f/c, previous was +CHF 14 billion). Canada starts off North American data with its May CPI (m/m f/c 1.0% from 0.6%; y/y no f/c, previous was 6.8%); Canadian May Core CPI (m/m no f/c, previous was 0.7%; y/y no f/c, previous was 5.7%), Canadian Trimmed-Mean CPI for May (f/c 5.4% from 5.1%). The Eurozone releases its June Flash Consumer Confidence (f/c -20 from previous -21).

US Fed Chair Jerome Powell is due to testify before the Senate Banking Committee in Washington DC on the Semi-Annual Monetary Policy Report. Earlier, Swiss National Bank Chairman Thomas Jordan speaks at a panel discussion on the “Future of Financial Services” in Zurich, Switzerland.

Trading Perspective: Expect markets to remain jittery this morning amidst a weakening Japanese Yen. The Dollar Index which measures the value of the Greenback against a basket of 6 major currencies was little changed. However, trading ranges in each currency pair were wide due to heightened volatility. We can expect more of the same today, with traders fixed on rhetoric from global central bank officials. The Bank of Japan will remain vigilant on the volatile Japanese currency. Watch for further comments from Japan Inc. with the BOJ, the Japanese Prime Minister, and the MOF (Ministry of Finance) as the main players. The trend for the USD/JPY remains up. Which should keep the Greenback supported against its other rivals.

  • USD/JPYA few weeks ago, we mentioned that it was good to see the Japanese Yen start to heat up and lead the FX markets. Has it ever! Today expect another roller coaster ride. On the topside, look for immediate resistance at 136.70 to cap. A clean break above will see 137.10, 137.50 and 138.00. On the downside immediate support can be found at 136.10, 135.80 and 135.30. Look for further choppy trade in a likely range between 135.00-137.00 Preference today is to sell USD/JPY rallies, its overdone on the topside.

(Source: Finlogix.com)

  • EUR/USDThe Euro was second fiddle to the Yen overnight, although trade was choppy as well. The shared currency finished at 1.0530 from 1.0515 yesterday. Overnight high traded was at 1.0583. Immediate resistance today lies at 1.0580 followed by 1.0610 and 1.0640. On the downside, immediate support is found at 1.0510 (overnight low traded was 1.0513). The next support level lies at 1.0480. Look for a likely range today of 1.0510-1.0610. Sell rallies.
  • AUD/USDThe Aussie Battler edged higher against the Greenback, settling at 0.6970 from yesterday’s 0.6960. Overnight high traded was at 0.6994. For today look for immediate resistance at 0.7000 followed by 0.7040. Immediate support can be found at 0.6940 (overnight low traded was 0.6934). The next support level lies at 0.6900 and 0.6870. Look for the Aussie to trade a likely range today of 0.6920-0.7020. Prefer to sell AUD/USD rallies.
  • GBP/USDThe British currency gained versus its US counterpart to finish at 1.2275 from yesterday’s 1.2248. Overnight high traded for Sterling was at 1.2325. On the day, look for immediate resistance at 1.2300, 1.2340 and 1.2380. On the downside, immediate support can be found at 1.2240, 1.2200 and 1.2170. Look for further choppy trade in this currency pair too, likely range 1.2220-1.2320. Preference is to sell GBP/USD rallies.

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