Dollar retreats on weak US Retail Sales, bond yields slump

Aussie rebounds despite latest jobs setback, USD/JPY slips

Summary

The Dollar retreated following a slump in January Retail Sales to -0.8%, down from December’s 0.4% which was revised lower. Consumer spending in the US fell sharply.

At the close of trade in New York, the DXY (Dollar Index), which weighs the value of the Greenback against a basket of 6 major currencies, tumbled to 104.30 from 104.90 previously.

US Treasury Yields finished lower with the benchmark 10-year rate down 7 basis points to 4.24%. Other global yields eased but to a lesser extent than those of the US. Germany’s 10-year Bund yield dipped to 2.36% from 2.39%.

The Euro (EUR/USD) soared to 1.0768 from 1.0705 against the overall weaker Greenback. Sterling (GBP/USD) climbed to 1.2597 from 1.2545. The British Pound was supported after UK Manufacturing and Industrial Production saw modest advances in January.

Against the Japanese Yen, the US Dollar plummeted to 149.95 from150.85 previously. Earlier in the day, the USD/JPY pair traded to an overnight high at 150.55 before easing.

The Australian Dollar (AUD/USD) rebounded against the overall weaker Greenback to 0.6521. Australia’s economy added just 500,000 Jobs, much lower than median estimates at 26,400. while the Unemployment Rate climbed to 4.1% in January from December’s 3.9%.

Other economic data out of the US were better than expected. Latest Weekly claims for unemployment benefits eased to 212,000 from 220,000. US Philadelphia Manufacturing PMI soared to 5.2 from -10.6 previously, beating estimates at -8.0.

Japan’s revised Industrial Production in January fell to 1.4% from 1.8% previously. The UK’s January Industrial Production rose to 0.6% month-on-month from an upward revised 0.5%. UK Manufacturing Production was also up, at 0.8% from 0.3%, which was also revised up.

The US Philly Fed Manufacturing Index rose to 5.2 from -10.6 previously, beating forecasts at -8. The Capacity Utilization Rate fell modestly to 78.5% from 78.7%, lower than forecasts at 78.8%.

• AUD/USD – Broad-based Greenback weakness enabled the Aussie Battler to finish at 0.6521, up from 0.6450 previously. The Aussie slumped to 0.6477 overnight lows before rebounding. The overnight high recorded was 0.6529.

• USD/JPY – The lower finish in US treasury yields weighed on the Greenback while lifting the Japanese currency. The Dollar plummeted to 149.95 Yen at the New York close, down from 150.85 previously. The overnight high recorded was 150.55.

• EUR/USD – The shared currency benefitted from the Greenback’s retreat, finishing at 1.0768, up from 1.0705 previously. Despite a downgrade in Europe’s economic forecasts from the European Union, the shared currency rallied on broad-based US Dollar weakness. The overnight high traded for the Euro was 1.0785.

• GBP/USD – Sterling climbed to 1.2597 at the close of trade in New York against 1.2545 previously. The British Pound traded to an overnight high at 1.2600 before easing. The overnight low recorded for Sterling was 1.2504.

On the lookout

Today’s economic calendar is a heavy one and kicked off with New Zealand’s Business NZ Manufacturing Index (PMI) which jumped to 47.3 from 43.1 previously. The Kiwi (NZD/USD) however, was little changed following the release. Despite the rise, the reading was below 50, indicating a contraction in New Zealand’s manufacturing. Japan follows next with its December Tertiary Industry Index (m/m f/c -0.3% from -0.7% - ACY Finlogix).

Germany follows with its German January Wholesale Prices (m/m f/c 0.3% from -0.6%; y/y f/c -2.5% from -2.6% - ACY Finlogix). The UK releases its January Retail Sales report (m/m f/c 1.5% from -3.2% previously; y/y f/c -1.4% from –2.4% - ACY Finlogix). UK Core January Retail Sales follows (m/m f/c 1.7% from -3.3%; y/y f/c -1.6% from -2.1% - ACY Finlogix).

Switzerland releases its Industrial Production (y/y f/c 1.5% from 2% - ACY Finlogix). France rounds up European data with its Final January Inflation Rate (m/m f/c -0.2% from 0.1%; y/y f/c 3.4% from 4.1% - ACY Finlogix). Canada starts off North America with its Canadian Final December Wholesale Sales (m/m f/c 0.8% from 0.9% - ACY Finlogix).

The US rounds up today’s data releases with its January Headline PPI (m/m f/c 0.1% from -0.1%; y/y f/c 0.6% from 1% - ACY Finlogix), US January Core PPI (m/m f/c 0.1% from -0.1%; y/y f/c 1.6% from 1.8% - ACY Finlogix), US January Building Permits (m/m f/c 0.7% from 1.8% - ACY Finlogix), US January Housing Starts (m/m f/c 0.9% from -4.3% - ACY Finlogix), and finally the US February Preliminary University of Michigan Consumer Sentiment (f/c 80 from 79 – ACY Finlogix).

US San Francisco Federal Reserve President and FOMC member Mary Daly is due to speak at the Annual National Association for Business Economics Economic Policy Meeting in Washington DC, USA. In his speech just now, RBNZ Governor Adrian Orr said that policymakers still need to ensure inflation expectations are contained. The New Zealand Dollar (NZD/USD) was little changed, at 0.6108 (0.6110).

Trading perspective

After a hectic week of trade which saw the Dollar with overall gains, expect the Greenback’s topside to be limited today. The lower finish in US bond yields will keep the Dollar under pressure against most of its Rivals. Economic data releases today will be closely monitored, particularly after surprise releases in Australia’s Employment report and the US Retail Sales. Expect more volatility ahead as we finish another week in the wild world of FX.

• AUD/USD – The Aussie Battler managed to rebound due to broad-based US Dollar weakness to 0.6521. On the day, look for immediate support at 0.6490 followed by -0.6460. On the topside, immediate resistance lies at 0.6550, 0.6580 and 0.6610. Look for more choppy trade in the Aussie, likely between 0.6470-0.6570. Prefer to buy Aussie on dips to 0.6470 today. If the Aussie falls under 0.6440, it could be “sayonara”.

• USD/JPY – Against the Japanese Yen, the Dollar plummeted to 149.95 from 150.85 previously, weighed by the lower close in US bond yields. Look for immediate support today at 149.80 followed by 149.50. Immediate resistance lies at 150.30, 150.60 and 150.90. Look for another choppy trading day in this currency pair, likely between 149.70-150.70. Looking to trade the range in the USD/JPY pair.

• EUR/USD – The shared currency rallied against the overall weaker Greenback to 1.0768 from 1.0705 previously. Look for immediate resistance at 1.0790 (overnight high traded was 1.0785). The next resistance level lies at 1.0825 and1.0855. Immediate support can be found at 1.0725 (overnight low). The next support level lies at 1.0700. Look for the Euro to trade in a likely range today of 1.0720-1.0820. Prefer to sell rallies today.

• GBP/USD – The British Pound soared to 1.2597 from 1.2545 supported by broad-based US Dollar weakness. Look for immediate resistance today at 1.2620 followed by 1.2650 and 1.2680. On the downside, immediate support lies at 1.2570, 1.2540 and 1.2500. Look for Sterling to trade in a likely, albeit choppy range today of 1.2540-1.2640. Am neutral here on Sterling, trade the range today.

Happy Friday and trading all. Have a top weekend ahead.