Hawkish Fedspeak lifts US bond yields, the Dollar, the AUD plummets

USD Ratchets Up vs JPY, CHF, Sterling Slides; Stocks Slump.

Summary

Hawkish rhetoric from Federal Reserve presidents Neel Kashkari (Minneapolis) and James Bullard (St Louis) lifted US bond yields and the Dollar.

After falling for most of the week, the Dollar Index (DXY), a popular gauge of the Greenback’s against a basket of 6 foreign currencies rebounded 0.4% to 106.67 (106.30 yesterday).

Kashkari remarked that inflation is still elevated and “it’s unclear how high the US central bank will need to raise it’s policy rate.” St Louis Fed President James Bullard said that the “minimum rate view” was between 5-5.25%.

Adding support to the Greenback was a historic low in the claims for unemployment benefits for US workers, down to 222,000 from the previous week’s 226,000 and better than economist’s forecasts of 228,000.

The Australian Dollar (AUD/USD) plummeted 0.8% to 0.6687 from 0.6739 despite a fall in Australia’s Unemployment Rate to 3.4% from 3.5%. Wages though spiralled higher, weighing on the Aussie.

US Treasury bond yields rebounded on the hawkish Fed rhetoric. The 2-year rate jumped 10 basis points to 4.45%. The benchmark 10-year yield climbed 8 basis points to 3.77% at the close of trade.

Against the yield sensitive Japanese Yen, the Greenback ratcheted up to 140.23 from 139.55. Japan’s 10-year JGB was flat at 0.24%. Japan’s Trade Deficit rose to -JPY 2.3 trillion from -JPY 2.094 trillion.

After two days of strong gains, Sterling (GBP/USD) slid 0.54% to 1.1850 from 1.1913. Broad based US Dollar strength amidst a mostly risk-off stance weighed on the British currency.

After climbing most of this week, the Euro (EUR/USD) slid to 1.0365 from 1.0390. The shared currency failed to close above the 1.0400 resistance level, which led to some downside correction.

The Dollar finished with modest gains versus the Asian and Emerging Market currencies. The USD/CNH pair climbed to 7.1530 from 7.1100. Against the Singapore Dollar, the Greenback (USD/SGD) edged up to 1.3752 against 1.3700 yesterday.

Other economic data released yesterday saw the Eurozone Final CPI (y/y) unchanged at 5%. US October Building Permits eased to 1.53 million from 1.564 million. Housing Starts rose to 1.43 million units, modestly higher than median estimates at 1.41 million units.

The US Philadelphia Fed Manufacturing Index slid to -19.4 from a previous -8.7, and forecasts at -6.2.

• AUD/USD – The Aussie Battler plummeted lower against the broadly based stronger Greenback to 0.6687 following yesterday’s strong close at 0.6740. Overnight the Australian Dollar jumped to a high at 0.6751 in volatile trade. Overnight low traded was at 0.6634.
• USD/JPY – Against the Japanese Yen, the US Dollar ratcheted higher to 140.23, breaking through the 140.00 barrier, from yesterday’s 139.55. The rebound in US treasury yields boosted this currency pair. Overnight high traded was at 140.74 while the low was at 138.88.
• EUR/USD – Following a few days of rallies, the shared currency eased back to finish at 1.0365 (1.0390 yesterday). Overnight, the Euro traded to a high at 1.0407 before sliding against the strengthening Greenback. On Wednesday, the Euro soared to a near 4-month peak at 1.0481. In choppy trade the overnight low hit was at 1.0305.
• GBP/USD – Sterling reversed its advance against the US Dollar, sliding to 1.1850 from 1.1913 yesterday. Mid-week the British Pound rocketed through the 1.20 barrier to a 3-month high at 1.2029 before beginning its decent. A strong rise in UK inflation on Wednesday saw speculative shorts squeezed in Cable (as it was known in the old days) before resuming its downtrend. Overnight low traded was at 1.1762.

On the lookout

Following a busy week, economic data releases today are light. Japan kicks off with its National Headline CPI report for October (y/y f/c 3.2% from 3%; m/m f/c 0.4% from 0.3% - ACY Finlogix), Japanese October Core CPI (y/y f/c 3.5% from 3% - ACY Finlogix).

The UK starts off European data with its October Retail Sales report (m/m f/c 0.3% from -1.4%, y/y f/c -6.5% from -6.9% - ACY Finlogix); UK Core (excluding fuel) Retail Sales (y/y f/c -6.9% from -6.2%, m/m f/c 0.6% from -1.5% - ACY Finlogix).  Watch this set of data, the forecasts are way above the previous report.

Switzerland follows with its Industrial Production (y/y f/c 2.5% from 5.1% - ACY Finlogix). ECB President Lagarde is due to speak at the European Banking Congress in Frankfurt. As head of the ECB, FX traders will be watching her speech closely.

Canada starts off North America with its October Raw Materials Price Index (m/m f/c -0.4% from -3.2%; y/y f/c 7.8% from 11% - ACY Finlogix). Canadian October PPI (m/m f/c 0.4% from 0.1%; y/y f/c 7.8% from 9%). The US rounds up today’s data releases with its October Existing Home Sales (f/c 4.38 million from 4.71 million – ACY Finlogix).

Following this week’s big drop in the Greenback against its Rivals due to overstretched long bets liquidating positions, we should see support creeping back.

The Dollar Index (DXY) rebounded 0.4% to 106.67 from 106.30 yesterday. In the composition of the Dollar Index, (DXY) the Euro takes the most weight, 57.6%.

The shared currency (EUR/USD) pair eased back to 1.0365 from yesterday’s 1.0390 after hitting a near 4-month peak at 1.0481 Wednesday.

Keep an eye on the Euro then, which was volatile overnight. Given that it’s a Friday, we could see more of the same volatility heading into the weekend. Happy days!

• EUR/USD – The shared currency has survived the plunge earlier in the month to just under 0.99 (0.9896) before beginning its strong rebound. In choppy overnight trade, the Euro rallied to a high at 1.0407 before easing to its close at 1.0365. For today, look for immediate resistance at 1.0400 followed by 1.0430 and 1.0480. On the downside, immediate support lies at 1.0330, 1.0300 and 1.0270. Look for further choppy trade in a likely range today of 1.0310-1.0410. Preference is to sell Euro rallies.

• AUD/USD – The Aussie’s strong rebound saw an overnight high at 0.6751 before sliding to finish at 0.6687 (0.6739 yesterday). Immediate support for the Battler today lies at 0.6635 (overnight low traded 0.6634). This is followed by 0.6600 and then 0.6570. Immediate resistance is found at 0.6710, 0.6750 and 0.6790. Look for more choppy trade in the Aussie, likely between 0.6620-0.6720. Preference is to sell rallies.

• USD/JPY – The Greenback finished on a strong note against the yield sensitive Japanese Yen, up 0.65% to 140.23 (139.55 yesterday). Overnight, the USD/JPY pair rocketed to a high at 140.74 before easing back at the New York close. Immediate resistance today lies at 140.75 followed by 141.15 and 141.55. On the downside, immediate support can be found at 139.80, 139.30 and 138.80. Look for more choppy trade in this currency pair, likely between 139.20-140.70. Just trade the range shag on this one, nice and wide.

(Source: Finlogix.com)

• GBP/USD – Sterling or Cable (as it was known in the old days, due to an underground cable beneath the Atlantic Ocean linking the UK and the US which used to synchronize the British currency with the USD by a telegraph) settled lower against the broadly based stronger Greenback at 1.1850 (1.1913 yesterday). Immediate support today lies at 1.1820, 1.1770 (overnight low traded was 1.1762) and 1.1720. On the topside, look for immediate resistance at 1.1880, 1.1920 and 1.1970. Look for another choppy one in this currency pair, likely between 1.1780-1.1930. Prefer to sell rallies.

Have a good Friday ahead, happy trading all. And a top, restful weekend too.