Dollar ends the week flat even as treasury yields fall

Euro steadies, Yen stays soft, week ahead: US PCE data

Summary

The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies, finished the week little changed, at 103.95 (103.92).

US Federal Reserve Board member Christopher Waller said that US policymakers should delay interest rate cuts by at least a couple more months.

According to a Reuters report, Waller wants to see if the recent uptick in inflation is stalling progress towards price stability or is just a bump in the road. Friday (1 March) sees the release of the US PCE (Personal Consumption Expenditure) report, an important inflation barometer.

Despite Waller’s comments, US bond yields fell, pulling rival bond rates lower. The 10-year bond yield dropped 7 basis points to 4.25%. Germany’s 10-year Bund yield finished at 2.36% (2.44%). The 10-year UK Gilt yield fell to 4.03% from 4.10% Friday.

The Euro (EUR/USD) steadied above the 1.0800 level to 1.0817, little changed from Friday’s opening at 1.0820.  Sterling (GBP/USD) edged higher to finish at 1.2670, up from 1.2658.

Against the Yen, the Greenback maintained its advance above the 150 JPY mark to 150.50 (150.55 Friday). The Australian Dollar (AUD/USD) was little changed, settling at 0.6560 (0.6554). Position adjustments saw New Zealand’s Kiwi (NZD/USD) steady to 0.6197 (0.6200 Friday).

The US Dollar finished mixed against the Asian and Emerging Market Currencies. The USD/SGD (Dollar Singapore) dipped to 1.3433 (1.3440) while USD/CNH closed at 7.2050 from 7.2030.

Global stock markets stabilized following Waller’s comments. The US DOW was last at 39,112 (39,042). The S&P 500 climbed to 5,087 from 5,083. Japan’s Nikkei edged up to 39,440 (39,420).

Other economic data released Friday saw New Zealand’s Retail Sales (Q/Q) slump to -4.1% from -3.4%, and forecasts at -3.6%. China’s January House Price Index fell -0.7% against forecasts at 0.7% % and -0.4% previously.

Germany’s IFO Business Climate Index for February was unchanged at 85.5 while German Annual GDP Growth Rate edged up to -0.2% from -0.3% previously, matching estimates.

• EUR/USD – the shared currency steadied above the 1.0800 level to finish at 1.0817, little changed from Friday’s opening at 1.0820. In subdued end of week trade, the Euro climbed to an overnight high at 1.0840. The overnight low recorded was 1.0812.

• USD/JPY – against the Japanese currency, the Greenback closed at 150.50, from 150.55 Friday. Trading in the USD/JPY pair was also subdued, with the Greenback trading to an overnight high at 150.77 before easing. The overnight low recorded was 150.29.

• AUD/USD – The Aussie Battler edged modestly higher against the Greenback to 0.6560 from 0.6554 Friday. Weekend position adjustments kept the Australian Dollar supported with the overnight low traded at 0.6550. Earlier in the session, the Aussie climbed to a high at 0.6580.

• GBP/USD – the British Pound rose modestly to 1.2670 from 1.2658 Friday. Sterling clung to its modest gains versus the Greenback. In choppy pre-weekend trade, Sterling soared to an overnight high at 1.2701 before easing. The overnight low traded was 1.2648.

On the lookout

Today sees Chinese markets return in full force following the end of the Lunar New Year on Saturday (24 Feb). The economic calendar today is light and kicks off with Japan’s SPPI, or Services Producer Price Index, a leading indicator for consumer inflation (y/y f/c 2.4%, unchanged from 2.4% previously (Forex Factory).

 The UK follows with its February CBI (Confederation of British Industry) Distributive Trades (f/c -47 from -50 previously – ACY Finlogix). Bank of England Chief Economist Huw Pill in London at the Bank of England Agenda for Research conference (10 pm tonight Sydney time). The US releases its January Final Building Permits (m/m f/c -1.5% from 1.8% previously; 1.47 million units from 1.493 million units – ACY Finlogix).

Canada releases its Preliminary January Manufacturing Sales (m/m f/c 0.3% from -0.7% - ACY Finlogix). The US rounds up today’s light calendar with its January New Home Sales (m/m f/c 0.9% from 8.0%; 0.68 million units from 0.664 million units – ACY Finlogix) and finally US Dallas Fed February Manufacturing Index (f/c -8 from -27.4 – ACY Finlogix).

Trading perspective

After a steadying to a quiet finish for the week, the Dollar Index (DXY) was last at 103.95 from 103.92 previously. As we begin a new week, traders will focus on this week’s US PCE and Core PCE reports, an important barometer for inflation. Expect Asia to consolidate at current levels heading into this set of data.

Data released today which stand out ate the US Building Permits, which see a big drop to 0.9% from a previous 8.0%. The Dallas Fed Manufacturing Index is expected to climb to -8 from -27.4 previously (ACY Finlogix).

That’s a large difference and any substantial change in the data could move markets. If the Index sees a bigger drop than -8, say to -15 or above, the Greenback could take a hit. Markets will also be focused on rhetoric from the Federal Reserve and other central bank officials.

• USD/JPY – the Dollar kept its bid against the soft Japanese Yen, holding above 150 to close at 150.50. The overnight high traded was at 150.77 with 150.80 immediate resistance. A break above 150.80 would see 151.20. Immediate support can be found at 150.30 (overnight low traded was 150.29). The next support level lies at 150 followed by 149.70. Look for consolidation in the USD/JPY pair today, likely between 150.20-150.90. Preference is to sell USD/JPY rallies given the fall in US bond yields.

• EUR/USD – the shared currency steadied, finishing little changed at 1.0817 from Friday’s opening at 1.0820. Look for immediate support at 1.0800 followed by 1.0770 and 1.0740. Immediate resistance is found at 1.0850 followed by 1.0880. Look for the Euro to trade in a likely range today of 1.0800-1.0850. Prefer to sell Euro on strength.

• AUD/USD – the Aussie Battler held its own against the Greenback, finishing at 0.6560 from 0.6554 Friday. On the day, look for immediate resistance on the Australian Dollar at 0.6580 (overnight high). The next resistance level lies at 0.6610 followed by 0.6640. On the downside, look for immediate support at 0.6540 and 0.6510. Look for the Aussie to consolidate in a likely range today of 0.6530-0.6580. Prefer to sell Aussie rallies today.

• GBP/USD – the British Pound was also steady against the US Dollar, finishing at 1.2670 (1.2658 Friday). On the day, look for immediate resistance at 1.2700 (overnight high traded was 1.2700). The next resistance level lies at 1.2730. On the downside, look for immediate support at 1.2640 (overnight low traded was 1.2648). The next support level can be found at 1.2610 and 1.2580. Look for Sterling to trade a likely range today of 1.2630-1.2730. Trade the range, with the preference to sell Sterling rallies.

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

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