Risk-off, AUD, stocks, bond yields slump, JPY, GBP rally

Summary: Inflation anxiety dominated FX with varying CPI results influencing movements. Markets switched to a risk-off stance. Treasury prices rose, yields slumped, resource currencies fell. Wall Street stocks slipped. The benchmark US 10-year bond yield fell 4 basis points to 1.59%. Other global treasury yields were either flat or lower. The DOW ended 0.48% lower to 36,000 (36,227) while the S&P 500 dipped 0.15% to 4,695 from yesterday’s close at 4,707. In the FX markets, the British Pound (GBP/USD) outperformed, rallying 0.48% to 1.3492 (1.3427). A reading of UK annual inflation (CPI) soared 4.2%, beating economist’s expectations of 3.9% and a previous 3.1%. The Dollar Index (DXY), which measures the Greenback’s value against a basket of 6 major currencies, eased 0.11% to 95.75 after hitting a 16-month high at 95.85 yesterday. Risk aversion pushed the USD/JPY pair 0.65% lower to 114.17 (114.67 yesterday). The Euro (EUR/USD) finished little changed at 1.1320 (1.1316). Resource currencies finished lower. Risk-FX leader the Aussie Dollar (AUD/USD) tumbled 0.50% to 0.7265 from 0.7300. The Kiwi (NZD/USD) was little changed at 0.6998 (0.6995) heading into today’s RBNZ Inflation Expectations Survey (1 pm Sydney).

Against the Asian and Emerging Market currencies, the US Dollar ended mixed. The USD/CNH (Dollar- Offshore Chinese Yuan) pair settled at 6.3725, down 0.27% from 6.3905. USD/SGD (US Dollar- Singapore Dollar) dipped to 1.3555 (1.3567) while USD/THB (US Dollar -Thai Baht) closed 0.20% lower to 32.65 (32.75).

Data released yesterday saw New Zealand’s PPI Output (Q/Q) beat forecasts with a 1.8% read against 1.4%. NZ PPI Input was at 1.6%, against economist’s forecasts at 1.7%. Japan’s September Machine Tool Orders fell to 12.5%, against median forecasts at 17.4%. Japan’s October Trade Deficit eased to -JPY 67.4 billion against forecasts at -JPY 310 billion. Japan’s exports fell to 9.4% from 13%, missing expectations at 9.9%. Imports were also eased to 26.7% from 38.6%, and forecasts at 31.9%. Australia’s Wage Price Index (y/y) matched estimates at 2.2%. UK Annual Core CPI for October rose to 3.4% from a previous 2.9%, beating estimates at 3.1%. UK PPI Input climbed to 1.4% against forecasts at 1.1%, while PPI Output was also up at 1.1%, against expectations of 0.7%. UK Annual House Price Index rose to 11.8% from a previous 10.6%, and higher than estimates at 11.5%. The Eurozone Final CPI (y/y) matched median estimates with a 4.1% print. Eurozone Final Core CPI dipped to 2.0%, against expectations and a previous 2.1%. Canada’s October CPI matched forecasts at 0.7%, and up from a previous 0.2%. Canada’s Annual October Trimmed-Mean CPI fell to 3.3% from 3.4%. US October Building Permits climbed to 1.65 million from a previous 1.586 million and beating estimates at 1.63 million. US October Housing Starts eased to 1.52 million from 1.555 million and lower than median forecasts at 1.58 million.

GBP/USD – The British Pound outperformed, rebounding 0.48% against the US Dollar at 1.3492 from 1.3427 yesterday. Higher than forecast UK CPI which hit 10-year highs, boosted Sterling against the Greenback and other rivals. Overnight GBP/USD traded to a high at 1.3496. Expectations for a rate hike from the Bank of England in December rose.

EUR/USD – The shared currency continued to trade heavy falling to an overnight and 16-month low at 1.1264 before rallying to close at 1.1320. Overnight high traded for the EUR/USD pair was at 1.1332. Eurozone Final Core CPI (y/y) dipped to 2.0%, against median forecasts and a previous 2.1%.

AUD/USD – Risk and resource leader, the Aussie Dollar fell as markets took a risk-off stance. The Aussie Battler traded to an overnight and 5-week low at 0.7259 before settling to 0.7265. Australia’s Wage Price Index matched estimates on an annual basis at 2.2%.

NZD/USD – Despite the fall in the Aussie, often considered by traders as the bigger cousin of the Aussie, the Kiwi managed to cling to gains made earlier this week. NZD/USD closed in New York at 0.6998 from 0.6995 yesterday. Overnight low traded was at 0.6980.

On the Lookout: Today’s economic calendar is light. Traders will be focussed on any rhetoric from various central bank officials given the recent inflation reads. Risk appetite remains shaky, and this will keep traders on their toes. New Zealand kicks off today’s economic data releases with its RBNZ Q4 Inflation Expectations (no f/c given, previous was at 2.27%). Australia’s RBA Assistant Governor Luci Ellis is due to speak today at an online conference in Sydney in an event hosted by the Committee for Economic Development of Australia (1 pm Sydney). Switzerland kicks off European data with its October Trade Balance (f/c 4.90 billion from a previous 5.05 billion – Forex Factory) and Swiss Industrial Production (y/y no forecasts, previous was 15.7%). ECB Executive Board Member Fabio Panetta is expected to speak at an online conference (9 pm Sydney). US Weekly Unemployment Claims starts off US data (f/c 260,000 from 267,000 – ACY Finlofix), US Philadelphia Fed Manufacturing Survey for November (f/c 24 from previous 23.8 – ACY Finlogix). Canada releases its October ADP Employment report (no f/c, previous was 9,600). FOMC Members Williams and Evans are scheduled to speak at different online events. ECB Chief Economist Philip Lane is scheduled to speak at an online conference.

Trading Perspective: With the economic data calendar light for today and tomorrow, markets will focus on the upcoming speeches from global central bank officials starting today.  Overnight the Dollar Index (DXY) eased 0.11 % after trading to a 16-month high (95.85) yesterday. While risk-off generally stronger US Dollar, individual currencies will trade to their respective strengths and weaknesses. This will favour the haven sought Japanese Yen and Swiss Franc. The risk associated Aussie Dollar and the Asian and Emerging Market FX will stay pressurised. Speculative market positioning is skewed toward long US Dollars. Which is a risk heading into today’s trade.

AUD/USD – Slip-sliding away, the Aussie slumped 0.50% to finish at 0.7265, near 6-week lows. Among the global central banks, the RBA is seen as lagging when it comes to reducing stimulus and raising rates. On the day, immediate support for the AUD/USD pair lies at 0.7255 (overnight low 0.7259). The next support level is found at 0.7220, and then 0.7190. Immediate resistance lies at 0.7300 (overnight high 0.7305) and 0.7330. Look for the Aussie to drift lower initially in a likely range today of 0.7240 - 7320. Got the range wrong yesterday, thought the Aussie would hold. Am still not bearish at current levels. Looking to buy dips near the 0.7240 level. Stop if we trade under 0.7210.

(Source: Finlogix.com)

EUR/USD – The shared currency managed to climb off its overnight low at 1.1264 to finish little changed at 1.1320 (1.1316 yesterday). Immediate resistance today lies at 1.1335 (overnight high traded was 1.1332). The next resistance level is found at 1.1360. On the downside, immediate support can be found at 1.1285 followed by 1.1260. Look for the Euro to consolidate in a likely range today of 1.1260-1.1330. Preference is to sell rallies.

GBP/USD – Sterling outperformed in FX overnight, boosted by the higher UK inflation data. The British Pound closed at 1.3492 from yesterday’s open at 1.3427). Overnight high traded was at 1.3496. For today, immediate resistance lies at 1.3500. The next resistance level can be found at 1.3530. Immediate support is found at 1.3460, 1.3430 and 1.3400. Overnight low traded was at 1.3396. Expect further choppy trade as Sterling consolidates. Likely range today 1.3410-1.3510. Looking to sell into Sterling strength.

USD/JPY – Lower US bond yields combined with risk-off sentiment equals a strong Japanese Yen. Overnight the USD/JPY pair slid 0.64% to 114.17 from 114.67 yesterday. Overnight low traded for USD/JPY was at 113.93. For today immediate support can be found at 113.90 and 113.60. On the topside, immediate resistance lies at 114.30, 114.60 and 114.90 (overnight high traded 114.95). Looking for the USD/JPY pair to trade in a likely range today of 114.00-115.00. Preference is to buy USD/JPY on dips around the 113.90-114.00 level.