Dollar maintains gains post Evergrande, Fed taper plans

Summary: The Euro was little changed, above 1.1700 (1.1720) at the start of Asian trade Monday as Germans went to the polls on Sunday. German Chancellor Angela Merkel’s 16-year era came to an end with her party the SPD (Social Democrats) in pole position to lead. The Dollar Index (USD/DXY), a popular gauge of the US Dollar’s value against a basket of 6 major currencies, finished up 0.26% at 93.27 from 93.10. Safe-haven demand from China’s Evergrande collapse earlier in the week, and a signal from the Fed that it would soon unwind bond purchases lifted the Greenback. The Dollar rallied to 110.63 Japanese Yen from 110.32. Sterling slid 0.42% to 1.3667 (1.3720) following weaker-than-expected UK Gfk Consumer Confidence data. Negative sentiment on uncertainty over hard-pressed Chinese property developer Evergrande kept the Australian Dollar under pressure. The AUD/USD pair slumped to 0.7260 from 0.7295. US Treasury bond yields rose while Wall Street stocks finished mostly flat. The DOW settled at 34,830 (34,810) while the S&P 500 was last at 4,460 (4,450). The benchmark US 10-year Bond yield was last at 1.45% (1.43%). Germany’s 10-year Bund yield was up three basis points to -0.23%. Japanese 10-year JGB yields rose to 0.05% (0.03%). Data released on Friday saw New Zealand’s Trade Balance slide to -NZD 2,144 million from a previous upward revised -NZD 397 million, and missing forecasts at +NZD 110 million. UK GFK Consumer Confidence fell to -13 in August from a previous -8. Japan’s Flash Manufacturing PMI eased to 51.2 from 52.7, missing estimates at 52.5. Germany’s IFO Business Climate Index slipped to 98.8 from 99.6. UK CBI Realised Sales fell to 11 from a previous 60, and lower than forecasts at 35. US New Home Sales climbed to 740,000 units from an upward revised 729,000, beating median estimates at 712,000.

(Source: Forexfactory.com)

EUR/USD – The Euro edged lower, finishing little changed at 1.1720 (1.1739). The shared currency traded to an overnight low at 1.1700 before buying support emerged. Overnight high traded was at 1.1748.

AUD/USD – The Aussie Battler, under pressure for most of the session, settled at 0.7260 from its 0.7295 opening on Friday. AUD/USD slid to 0.7236 overnight lows before stabilising. Overnight the Aussie traded to 0.7317 highs before beginning its slide.

GBP/USD – Sterling fell under the weight of weaker UK Consumer Confidence and CBI Realised Sales data. GBP/USD slumped to 1.3656 overnight lows, before settling to a 1.3667 New York close (1.3720 Friday).

USD/JPY – The US Dollar rallied to an overnight high at 110.79 Japanese Yen before easing to its 110.62 New York close. The USD/JPY pair traded to an overnight low at 110.31. Higher US bond yields lifted the Greenback back up against the Yen.

On the Lookout: The week ahead starts with a light economic calendar today which picks up toward the middle of the week. Germany’s Federal Election results will conclude and reveal its new government. Japan kicks off with its SPPI (Services Producer Price Index - y/y). Europe sees the release of its Eurozone Private Loans and Germany’s Bundesbank Monthly Report. The US releases its August Headline and Core Durable Goods Orders (Headline f/c 0.7% from -0.1% - ACY Finlogix) (Core CPI f/c 0.5% from 0.8% - ACY Finlogix). US Dallas Fed Manufacturing Index for September round up the day’s economic data releases (no f/c previous was 9).

Several central bank heads will be speaking at various global virtual events. The highlight is in an international (virtual) forum hosted by the ECB. The US Fed sees President Powell and FOMC members Williams, Brainard, Evans, and Bostic make speeches. Christine Lagarde (ECB), Haruhiko Kuroda (BOJ), Andrew Bailey (BOE) and Powell are scheduled to speak at a virtual panel discussion at the ECB Forum on Central Banking.

Trading Perspective: Expect a slow start in Asia today. The US Dollar will keep its overall bid tone which began last week. While rises in US treasury bond yields were matched by its global rivals, the US maintains its advantage in differentials. Signals from the Fed that it would soon start unwinding bond purchases and haven flows have continued to support the Greenback. Market positioning which is strongly tilted in favour of growing speculative long Dollar bets is the main impediment to further USD gains. Later this week, we look at the speculative market’s positioning.

EUR/USD – The shared currency managed to finish above the 1.1700 level on Friday following Thursday’s 1.1688 close. Overnight the Euro traded to a low at 1.1700. Which is where today’s immediate support lies. A break of 1.1700 will see the 1.1675/80 level tested. A clean break below 1.1660 paves the way for a test toward 1.1500/00. Immediate resistance lies at 1.1750 followed by 1.1780. With Germany’s elections too close to call, and an overall bid US Dollar, the pressure remains to the downside. Euro short bets will be the main support for the EUR/USD pair today. Likely range 1.1680-1.1750. Look to sell rallies.

(Source: Finlogix.com)

AUD/USD – Slip-sliding away, the Battler remained soggy, finishing at 0.7260 from 0.7295 on Friday. Overnight low traded was at 0.7236. Immediate support for the Aussie lies at 0.7220. A clean break below 0.7220 sees 0.7170 and possibly 0.7140. Immediate resistance lies at 0.7280 and 0.7320 (overnight high 0.7317). Look for the Aussie to drift lower first up in a likely range today of 0.7220-0.7290. Looks heavy but beware the shorts.

GBP/USD – Sterling also succumbed to broad-based USD strength, finishing 0.42% lower to 1.3667 (1.3720 Friday). Disappointing UK Consumer Confidence and CBI Realised Sales added more pressure on the British currency. GBP/USD has immediate support at 1.3650 (overnight low 1.3656). The next support level is found at 1.3620. Immediate support can be found at 1.3700 and 1.3730 (overnight high traded was 1.3736). Look for Sterling to trade in a likely range today of 1.3640-1.3740. The overall stronger Greenback will weigh on the Pound, beware of the speculative shorts.

USD/JPY – Higher US treasury bond yields lifted the Greenback against the Japanese currency to finish at 110.63 from 110.32 on Friday. Overnight high traded was 110.79. Immediate resistance on the day is found at 110.80. The next resistance level lies at 111.10. We can find immediate support at 110.30 (overnight low 110.31). The next support level comes in at 110.00. Look for the USD/JPY pair to remain supported in the current environment. Likely range today 110.30-80. Just trade the range shag on this one today.

Have a good trading week ahead. Happy Monday all.