JPY surges, GBP soars to one-year high, DXY tumbles

US June CPI weakens, ten-year yield drops to 4.21%

Summary:

The US Dollar plummeted against the Japanese Yen to 158.85 in late New York trade from 161.30 previously. Suspected intervention from Japan Inc was behind the 1.75% drop, but there was no confirmation. 

A softer-than-expected read in the US June CPI report, to -0.1% against forecasts at 0.1%, added pressure to the falling Greenback. The Dollar Index (DXY), which weighs the value of the Greenback against a basket of 6 major currencies, fell to 104.50 from 105.10.

Sterling (GBP/USD) surged to an overnight and 2024 high at 1.2950 before falling to close at 1.2913. It was the British currency’s second straight gain against the Greenback.

The Euro (EUR/USD) rallied to an overnight and 5-week high at 1.0900, easing to 1.0867 at the New York close. Earlier in the week, the Euro was changing hands at 1.0815 vs the Greenback.

The Australian Dollar (AUD/USD) jumped to 0.6799 overnight and early January highs before easing to close at 0.6757 (0.6740 yesterday). The Aussie firmed on the diversion in the outlook on monetary policy between the RBA and the Federal Reserve.

New Zealand’s Kiwi (NZD/USD) though, dipped to 0.6095 from 0.6125. The RBNZ surprised markets earlier this week, stating it expects inflation to return to its 1-3% target range in 2H 2024.

Against the Asian and Emerging Market Currencies, the US Dollar fell across the board. The USD/CNH pair (Dollar-Offshore Chinese Yuan) slid to 7.2685 (7.2885). The USD/SGD (Dollar-Singapore) pair tumbled to 1.3430 from 1.3510.

Economic data released yesterday saw Japan’s May Machinery Orders fall -3.2% in June against -2.9% in May. The UK’s June GDP rose 0.4% against 0% previously, beating estimates at 0.2%.

The US June Core CPI eased to 0.1% month-on-month from 0.2% previously. US Claims for Unemployment Benefits in the latest week climbed to 222K, better than the previous 239K.

• USD/JPY – The Dollar plummeted against the Japanese Yen to settle at 158.85 in late New York from 161.30 on Wednesday. Overnight, the USD/JPY pair traded to a low at 157.40 in volatile trade. The overnight high recorded was 161.76.
• GBP/USD – The British Pound surged against the US Dollar to finish at 1.2913, from 1.2785 previously. In choppy trade of its own, Sterling slumped to an overnight low at 1.2855 before recovering.
• AUD/USD – The Aussie Battler gained, jumping to finish at 0.6757 against the Greenback (0.6740 yesterday). The Australian Dollar soared to an overnight and January 2024 highs   at 0.6799 before easing. The overnight low recorded was 0.6740.
• EUR/USD – The shared currency advanced against the broadly based weaker Greenback to 1.0870 (1.0815 previously). The Euro climbed to an overnight high at 1.0900 before easing in later New York. The overnight low recorded for the Euro was 1.0832.

On the lookout:

Welcome to Friday. This week finishes with a light economic calendar. New Zealand kicks off with its BusinessNZ Manufacturing Index (f/c 46.8 from 47.2 – ACY Finlogix). China follows with the release of its June Balance of Trade (f/c +USD 85 billion from +USD 82.62 billion previously – ACY Finlogix), Chinese June Exports (y/y f/c 8% from 7.6% - ACY Finlogix), Chinese June Imports (y/y f/c 2.8% from 1.8% - ACY Finlogix)

Japan follows with its May Capacity Utilization (m/m f/c 0.2% from 0.3% - ACY Finlogix) and Japanese May Final Industrial Production (m/m f/c 2.8% from -0.9%; y/y f/c 0.3% from -1.8% - ACY Finlogix). Germany kicks off European data with its German June Wholesale Prices (m/m f/c 0.2% from 0.1%, y/y f/c 1.4% from -0.7% - ACY Finlogix).

France releases its June Final Inflation Rate (m/m f/c 0.1% from 0%; y/y f/c 2.1% from 2.3% - ACY Finlogix). Canada kicks off North America with its Canadian May Building Permits (m/m f/c -5.9% from 20.5% - ACY Finlogix).

The US rounds up today’s economic data with its US June PPI (m/m f/c 0.1% from -0.2%; y/y f/c 2.3% from 2.2% - ACY Finlogix), US June Core PPI (m/m f/c 0.2% from 0%; y/y f/c 2.5% from 2.3% - ACY Finlogix).

Trading perspective:

The fall in the US treasury yields on the weaker-than-expected US CPI report will keep the Greenback under pressure against its Rivals. Market participants now expect a Fed rate cut in September in response to the softer inflation report. The benchmark 10-year US treasury yield fell 9 basis points to 4.21%, its lowest since June. A clean break below 4.20% in the 10-year yield could see a gap down to 4.0%, January 2024 lows.

The Dollar Index (DXY) tumbled to an overnight low at 104.08, before rallying to settle at 104.45 in late New York. The downward momentum should see a retest of the 104.08 level. A break of the 104.00 level in the DXY could see a test of 102.70, March 2024 lows.

On the data front, markets will be watching the US June PPI report.

Expect consolidation at current levels with a soft US Dollar in Asia to kick off FX markets today.

• USD/JPY – Expect more choppy trade in this currency pair today. Japan Inc will be vigilant again today, so expect more losses in USD/JPY today. Immediate support lies at 158.40, 158.00 and 157.60.  The next support level can be found at 157.40 (overnight low). Immediate resistance today lies at 159.15, 159.75 and 160.25. Expect a nervous start in Asia today, likely range: 157.70-160.30.

• GBP/USD – Sterling surged to 1.2913 close in New York. On the day, look for immediate resistance at 1.2950 (overnight high). The next resistance level lies at 1.2980. On the downside, immediate support can be found at 1.2880, 1.2850 and 1.2820. Look for Sterling to consolidate in a likely range today of 1.2850-1.2950. Prefer to sell Sterling on strength today.
• AUD/USD – The Aussie Battler climbed modestly against the Greenback to 0.6757, up from 0.6740. In volatile trade, the Aussie soared to an overnight high at 0.6799 before easing. Look for immediate resistance today at 0.6790 followed by 0.6830. Immediate support can be found at 0.6740 (overnight low). The next support lies at 0.6700. Look for the Aussie to consolidate today, likely between 0.6720-0.6820. Trade the range.
• EUR/USD – the Euro soared to an overnight high at 1.0900 before easing to close at 1.0867. Immediate resistance lies at 1.0900 followed by 1.0940 and 1.0980. On the downside, look for immediate support at 1.0830 (overnight low traded was 1.0832). The next support level can be found at 1.0800 and 1.0770. Look for consolidation in the Euro today, likely between 1.0820-1.0900. Trade the range. Prefer to sell Euro rallies today.

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