Summary: The hawkish shift from the US Federal Reserve sent Dollar bears running for cover and pushed commodity prices lower. The Dollar Index (USD/DXY), a gauge of the Greenback’s value against a basket of 6 major currencies hit its highest level since mid-April at 91.90 (91.25). After recently hitting a 13-week peak, net speculative USD shorts against ten IMM futures scrambled for cover. The Euro sank to an overnight low at 1.18916 from yesterday’s 1.2005 opening before settling at 1.1905 at the New York close. USD/CHF (Dollar-Swiss Franc) jumped 1.02% to 0.9178 (0.9078), The Swiss National Bank left its Policy Rate unchanged at -0.75% and said it would maintain its expansionary monetary policy. Risk leaders the Aussie (AUD/USD) and Kiwi (NZD/USD) were hit hard. The Australian Dollar fell 0.9% to 0.7547 (0.7615) despite an upbeat Australian Employment report. A strong rise in New Zealand’s Q1 GDP (+1.6% against f/c of +0.5 % q/q) could not save the Kiwi which slumped 1% to 0.6999 (0.7058 yesterday). The British Pound (GBP/USD) ended down 0.59% at 1.3997 (1.4080). Against the traditional haven sought Japanese Yen, the Dollar was lower at 110.28 from 110.65 yesterday. The Greenback soared against the Asian and EMS Currencies. USD/CNH settled at 6.4575 (6.4385), its highest close since mid-May. The USD/SGD pair soared to overnight high at 1.34428, settling at 1.3427, its highest finish since mid-April. US Bond yields were mixed. The 10-year Treasury rate fell to 1.50% from 1.57% while the 2-year US bond yield was up one basis point to 0.21%. Commodity prices sank with Silver losing 4.4% to USD25.95 (USD27.32). Brent Crude Oil slipped 1.83% to USD 73.02 (USD 74.10). Wall Street stocks eased. The DOW lost 0.41% to 33,810 (34,037) while the S&P 500 settled at 4,222 (4,226).
Australian Employment in May saw an addition of 115,200 Jobs, beating estimates at 30,000. Australia’s Unemployment Rate fell to 5.1%, better than forecasts at 5.5%. Eurozone May CPI matched forecasts, rising 0.3% (m/m). Eurozone May Core Annual CPI rose to 1.0% against forecasts of a 0.9% rise. US Weekly Unemployment Claims climbed to 412,000 from 376,000 the previous week, and higher than estimates at 359,000.
- EUR/USD – The Euro sank to its lowest close since April 14 at 1.1902 (1.2007 yesterday). Overall US Dollar strength weighed on the shared currency which has been overbought (COT report) since late 2020. Overnight low for the EUR/USD pair was at 1.18916 before a mild rebound to 1.1902.
- AUD/USD – The Battler got KO’d despite upbeat Australian Employment data for May (see above). The Aussie hit an overnight and near 2021 low at 0.75395 before rallying modestly to 0.7548 at the New York close. Early Asia has lifted the AUD/USD to 0.7557. Like the rest of the currency market, overall USD strength weighed on the Aussie.
- USD/SGD – As in most risk-off scenarios, the Greenback saw strong advances against Asian and EM currencies with USD/SGD no exception. The Dollar soared to an overnight and early April high at 1.34428 before easing to 1.3427 in late New York (1.3358 yesterday).
- USD/JPY – Against the traditional haven sought Yen, the Greenback lost ground, dipping to 110.28 from 110.65 yesterday. USD/JPY initially rallied to an overnight high at 110.822 before slipping lower. USD/JPY was affected by the sharp drop in the US 10-year bond yield.
On the Lookout: Today’s economic calendar is light and will give markets time to pause following the Fed’s hawkish surprise. The Dollar extended its rally with some big advances overnight against some its rivals, including most Asian currencies. While this is not surprising, the question is where do we go from here? Other central banks are expected to follow the Fed’s lead. The Bank of Japan meets on interest rates today (1 pm Sydney) followed by its policy statement and press conference. The BOJ is expected to maintain policy and keep its policy rate unchanged at -0.1%. The Bank of England meets on interest rates next week.
Today’s data kicks off with Japan’s Headline and Core CPI data for May. Headline Inflation (y/y) is forecast at -0.7% from the previous -0.4%. Japan’s National Core CPI (y/y) is forecast to rise to +0.1% from April’s -0.1%. Europe kicks off with Germany’s May PPI report (m/m f/c 0.7% from 0.8% and y/y f/c 6.4% from 5.2%). The Eurozone releases its April Current Account (March was +EUR 31 billion). The UK releases its Headline May Retail Sales (m/m f/c 1.6% from April’s 2.9% and y/y f/c at 29% from 42.4%).
Trading Perspective: Given its Friday and with a slow economic calendar ahead of us, expect markets to take a breather with the Dollar consolidating its gains. Traders will look to the Bank of Japan’s policy announcement and press conference which follows a few hours later. The Dollar’s rally in the past 48 hours has mainly been the result of short covering. Expect more of this in the days ahead following a period of consolidation. Beyond that though, can the Greenback’s rally sustain itself? Many remain bearish on the USD expecting other central banks to follow the Fed’s lead and start tapering. Without yield support though, the Dollar will struggle to climb higher. It’s the yield differentials that matter. This writer thinks that they will go back in the Dollar’s favour and USD may be building a base to climb higher. Time will tell.
- EUR/USD – As I write this, early Asia has seen a range between 1.18916 and 1.1913. We can expect more choppy moves in the currencies today which present trading opportunities. EUR/USD is no exception. Immediate support lies at 1.1900 and 1.1870. Immediate resistance can be found at 1.1940 and 1.1980. Look for the Euro to consolidate in lively trade with the range between 1.1880 and 1.1980 today.
- AUD/USD – The Battler may have overshot on the downside despite the heavy feel to the antipodean risk currency. AUD/USD has immediate support at 0.7540 (overnight low 0.75395) followed by 0.7500. Immediate resistance can be found at 0.7590 and 0.7620. Expect a choppy trade in this currency pair as it consolidates the past few days of moves. Likely range today 0.7540 to 0.7590. Just trade the range shag on this one, there’s money to be made on both sides.
- USD/JPY – The Dollar eased against the Yen weighed by the fall in the US 10-year bond yield. The Dollar closed at 110.28 from 110.63 yesterday. USD/JPY traded to 110.822 overnight high while the low traded was 110.165. USD/JPY has immediate resistance at 110.50 followed by 110.80 and 111.10. Support lies at 110.20 and 119.90. Expect consolidation in this currency pair with a likely range today of 110.10-70.
- USD/SGD – The Dollar rallied to 1.34428 overnight and April 5 high before easing to settle at 1.3427 (1.3358 yesterday). USD/SGD has immediate resistance at 1.3450 followed by 1.3480. Immediate support can be found at 1.3410, 1.3390 and 1.3360. Look for consolidation in a likely range today of 1.3380-1.3450. Just trade the range shag on this currency pair too.
Happy Friday and trading all
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