Dollar rebounds, stocks tumble as inflation fears mount

Summary: The US Dollar rebounded against most of its rivals as inflation fears mounted. A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) rose 0.54% to 104.50 from 103.80 on Tuesday. Data released yesterday saw US Consumer Confidence in June drop to 98.7, lower than expectations at 100.0 and a previous downward adjusted 103.2 (from 106.4). Growing concerns over what higher interest rates might mean to the US economy weighed on consumers as the “R” word, recession resonated. Wall Street stocks tumbled with the S&P 500 down 2.09% to 3,825 (3,915) while the DOW settled at 30,982 from 31,584 yesterday. Germany’s DAX Index lost 0.81% to 13,124 (13,272). Australia’s ASX lost 0.7% to 6,700 from 6,780 yesterday. Japan’s Nikkei fell to 26,765 from 27,105 yesterday.

In the currencies, Sterling (GBP/USD) slumped 0.68% to 1.2184 from 1.2272 while the Euro (EUR/USD) lost 0.56% to 1.0523 (1.0591). Against the haven associated Swiss Franc, the Greenback (USD/CHF) dipped to 0.9560 (0.9563). The EUR/CHF cross slid to 1.0067 (1.0106), it’s lowest close in over three months. The Australian Dollar (AUD/USD) fell 0.23% to 0.6905 from 0.6947 yesterday. Against the haven associated Swiss Franc, the Greenback (USD/CHF) dipped to 0.9560 (0.9563). The USD/JPY pair rallied to 136.15 from 135.70 yesterday. Against the Asian and Emerging Market currencies, the US Dollar was mixed. The USD/CNH pair (Dollar-Offshore Chinese Yuan) rose to 6.7060 from 6.6850 while the USD/THB (US Dollar-Thai Baht) slid to 35.15 (35.20 yesterday). USD/SGD (US Dollar-Singapore Dollar) rallied to close at 1.3877 from 1.3860.

Global bond yields remained firm. The US 10-year Treasury yield was last at 3.17% from 3.21% while the two-year bond rate climbed to 3.11% (3.06% yesterday). Germany’s 10-year Bund yield rose one basis point to1.62%. Japanese 10-year JGB’s closed with a yield at 0.22%, unchanged from yesterday.
Other economic data released yesterday saw US Richmond Manufacturing Index in June fall to -19 from May’s -9. The US House Price Index rose in June to 1.6% against forecasts of 1.5%. The US May Merchandise Trade Deficit improved to -USD 104.3 billion from a previous -USD 106.7 billion. US Case-Shiller Home Price Index for April rose 21.2% from 21.1%, beating estimates at 21.0%.

EUR/USD – The shared currency slid back to 1.0523 from yesterday’s open at 1.0591. In volatile trade the overnight low traded was at 1.0503 while the high recorded was at 1.0606. In her welcoming remarks at the ECB Forum on Central Banking in Portugal, ECB President Christine Lagarde offered no new insight into the central bank’s outlook.

USD/JPY – Despite a dip in US bond yields, the Greenback remained firm against the Japanese Yen, closing at 136.15 from 135.70 yesterday. Japan’s 10-year JGB yield was unchanged at 0.22%. BOJ Governor Haruhiko Kuroda stressed that monetary policy remain accommodative because the Japanese economy has not been affected much by the global inflationary trend. Overnight high traded was at 136.38 while the low was at 135.11.

AUD/USD – The Aussie Battler dipped against the broadly based stronger Greenback to finish at 0.6905 at the close of New York trade (0.6947 yesterday). In choppy trade, the overnight high recorded was at 0.6964. Overnight low traded was at 0.6904. Australian Retail Sales is due out today.

GBP/USD – Sterling finished 0.68% lower against the US Dollar at 1.2184 from yesterday’s open at 1.2272. Like the other FX pairs, trading was choppy with the overnight high recorded at 1.2292. On the downside, the overnight low traded was at 1.2180. There were no major UK data releases yesterday.

On the Lookout: Today’s economic data calendar and risk events pick up with several central bank speakers scheduled to deliver remarks at the ongoing ECB forum on Central Banking in Portugal. ECB President Christine Lagarde, Bank of England Governor Philip Bailey, and US Federal Reserve Chair Jerome Powell are all due to speak at some stage today. Earlier Japan kicked off the calendar with its Annual Retail Sales (up to 3.6% from a previously upward adjusted 3.1%, and higher than estimates at 3.3%). Australia follows with its May Preliminary Retail Sales report (m/m f/c 0.4% from a previous 0.9% - FX Street). Europe starts off with Spain’s May Retail Sales report (y/y f/c 1.3% from 1.5% - FX Street). The Eurozone follows with its June Economic Sentiment Index (f/c 103 from previous 105 – FX Street), Eurozone June Consumer Confidence (f/c -23.6 from previous -23.6 – FX Street), Eurozone June Business Climate (no f/c, previous was 1.26). Switzerland releases its June ZEW Survey (f/c -70.7 from previous -52.6 – FX Street). Germany releases its June Preliminary CPI (m/m f/c 0.3% from 0.9%; y/y f/c 7.9% from 7.9% - FX Street). The US rounds up today’s data calendar with its US Annualised Q1 GDP (f/c -1.5% from previous -1.5%), US Q1 GDP Price Index (f/c 8.1% from 8.1% - FX Street), US Q1 Core Personal Consumption Expenditures (f/c 5.1% from previous 5.1% - FX Street) and US Q1 Personal Consumption Expenditure Prices (f/c 7% from previous 7% - FX Street).

Trading Perspective: A huge day ahead of us in terms of economic data and risk events. We can expect volatile conditions and wide ranges to continue to dominate FX trading. While the US Dollar remains king of FX, the approaching month-end and other technical factors could change that. What remains is heightened volatility. Just another day for you and me in FX land. Stay flexible and be prepared to trade, the ranges are nice and wide and give everyone an opportunity.

EUR/USD – The shared currency lost ground against the overall stronger Greenback sliding to 1.0522 at the close of trade in New York (1.0591 yesterday). Immediate support for today lies at 1.0500 (overnight low 1.0503). The next support level is found at 1.0480 followed by 1.0450. Immediate resistance lies at 1.0550, 1.0580 and 1.0610. Expect more choppy trade today. Likely range 1.0485-1.0585. Immediate risk is lower but beware of month-end flows.

(Source: Finlogix.com)

AUD/USD – The Aussie Battler slumped under the weight of a stronger Greenback and risk-off stance by markets. Overnight, the AUD/USD pair fell to a low at 0.6904 before settling to close at 0.6910. Immediate support is found at 0.6900 followed by 0.6870. On the topside, immediate resistance lies at 0.6940 and 0.6970. Expect another volatile trading day on the Aussie with a likely range of 0.6870-0.6970. Looking to sell on Aussie strength.

USD/JPY – The US Dollar edged higher against the Japanese Yen to close at 136.15 (135.70 yesterday). For today, look for immediate resistance at 136.40 followed by 136.70 and 137.00. Immediate support can be found at 135.90, 135.60 and 135.30. Expect another roller coaster ride in this currency pair, likely range 135.30-136.30. Just trade the range.

GBP/USD – The British Pound was also softer against the broadly based stronger US Dollar, sliding 0.68% to 1.2184 from yesterday’s 1.2282. Overnight low traded was at 1.2180 which is immediate support for today. The next support levels are found at 1.2150 and 1.2120. On the topside, look for immediate resistance at 1.2210, 1.2240 and 1.2270. Look for another choppy one on this puppy today, likely range 1.2160-1.2260.