Risk-Off, Risk-On; Powell Calms Inflation Fears, Dollar Dips, Stocks Rise

Loonie, Kiwi, Aussie Outperform; JPY Eases; Asians, EMS End Mixed

Summary: The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, eased 0.18% to 91.72 from 91.85 yesterday. Risk appetite settled and volatility eased after Fed Chair Jerome Powell told a US House of Representatives panel that US central bank would not raise rates on inflation fears alone. On Friday, the Dollar Index peaked at a 2-month high at 92.405. New Zealand’s Kiwi finished as best performing currency against the Greenback, soaring 0.56% to 0.7025 (0.6990). The Australian Dollar (AUD/USD) settled 0.26% higher to 0.7555 (0.7540). Against the Canadian Loonie, the US Dollar (USD/CAD) slid 0.48% to 1.2312 (1.2362). The Euro rallied 0.23% to 1.1938 (1.1920) while Sterling advanced a modest 20 pips to 1.3950 from 1.3930. Risk-on sentiment saw the USD/JPY pair rally to 110.67 (110.27). Against the Asian and Emerging Market currencies, the Greenback closed mixed. USD/CNH (US Dollar-Offshore Chinese Yuan) edged higher to 6.4800 (6.4650). USD/SGD was little changed at 1.3430 from 1.3425.
Bonds stabilised and yields settled. The benchmark US 10-year Treasury yield eased 2 basis points to 1.47% (1.49%). Germany’s 10-year Bund closed flat at -0.17%. Stocks rose moderately. The DOW closed 0.31% higher to 33,987, while the S&P 500 was last at 4,250 (4,225), up 0.42%.
Data released yesterday saw New Zealand’s Q2 Westpac Consumer Sentiment Index climb to 107.1 from 105.2. UK Public Sector Net Borrowing eased to GBP 23.6 billion from GBP 28.3 billion, bettering forecasts at GBP 24.5 billion. Japan’s BOJ Core CPI was flat at 0.0%, matching forecasts. US Richmond Manufacturing Index (June) rose to 22.0 from a previous 18.0 and beating estimates at 18.0. US May Existing Home Sales rose to an annual 5.80 million units, beating median forecasts for a rise of 5.72 million units.

• EUR/USD – the shared currency rebounded off an early April low at 1.18475 on Friday to 1.1920 yesterday, and 1.1938 overnight. The Euro’s rally was fuelled by the retreat of the US Dollar against its Rivals.
• USD/CAD – The Greenback slid against the Canadian Loonie to 1.2312 from 1.2362 yesterday and 1.2470 on Friday. The USD/CAD pair has had a volatile start to June. In the early part of this month, USD/CAD was trading at 1.20067, just whiskers away from 1.2000.
  Overnight, USD/CAD hit a high at 1.2403.
• AUD/USD – The Australian Battler rebounded to close at 0.7555 after sliding to 0.7470 lows on Thursday night following the Fed’s hawkish shift. Overnight AUD/USD peaked at 0.75642. Overnight low traded was 0.74939. Improved risk sentiment amidst stable commodity prices supported the Battler.
• USD/JPY – rallied to finish at 110.67 (110.27) as the market’s stance switched from risk-off to risk-on after Jerome Powell soothed fears of a pre-emptive rise in US interest rates. Overnight low in the USD/JPY was at 110.21 while the resistance at 110.80 remains strong (overnight high 110.79).

On the Lookout: Economic data picks up today with the release of global Manufacturing and Services PMI’s. Australia kicks off with its latest Flash Manufacturing and Services PMI data with Japan following next. The Bank of Japan releases the minutes of its latest monetary policy meeting. Europe follows with French, German, Italian and Euro Zone Manufacturing and Services PMIs. Most PMIs are expected to match or better previous reports. The UK follows closely, releasing its Manufacturing and Services PMI reports. Canadian Headline and Core Retail Sales (April) are next in tonight’s calendar. Canadian Core Retail Sales are widely expected to fall in April with a range of -4.4—5.0% (Finlogix f/c -5.0%) from March’s +4.3%. The plunge in Canada’s sales report coincided with the country’s efforts to fight a third wave of Covid-19 infections. Finally, the US releases its Manufacturing and Services PMI data as well as New Home Sales for May (f/c to 0.87 million from April’s 0.863 million – Finlogix).

Trading Perspective: The Dollar’s sharp rise following the Fed’s hawkish shift last week was in part the result of overstretched speculative short USD positions. The latest Commitment of Traders/CFTC report (week ended June 14), which was before the FOMC meeting, saw an increase in speculative USD short bets. Overnight saw the Dollar ease further against its rivals following reassuring comments from Jerome Powell. The Fed Chair said that the recent rise in US inflation alone would not result in higher interest rates. Fed officials have differed in their views as to when they should begin taper bond purchases. And there is more Fed speak to come in the days ahead.
The next test for US inflation comes on Friday night with the release of the latest Core PCE Price Index. Data released tonight sees global Manufacturing and Services PMIs and traders will be searching for any surprises there.

(Source: Finlogix.com)

• EUR/USD – The Euro rose a modest 0.23% settling at 1.1938 (1.1920 yesterday). The shared currency slid to a low last week at 1.1847 on Friday night. EUR/USD hit an overnight high at 1.19526. Immediate resistance lies at 1.1960 followed by 1.2000. Immediate support can be found at 1.1910 and 1.1870. Look for further consolidation between a likely range of 1.1885-1.1955 today. European and Eurozone PMIs are widely forecast to match or better previous reports. Any disappointments will see further Euro selling.
• USD/CAD – The Canadian Loonie has seen choppy trade in the past few trading days. Overnight, the USD/CAD pair slid to a low at 1.2304 before climbing to settle at 1.2311 in late New York. On Monday night the Greenback hit a high at 1.24869 before dropping to 1.2362 yesterday. USD/CAD has immediate support at 1.2300 followed by 1.2270. Immediate resistance can be found at 1.2355 and 1.2395. Canadian Retail Sales are released tonight with expectations for a large fall due to Canada’s efforts to fight a third wave of Covid-19 in April when the country locked down. The Loonie is not out of the woods yet. Look to buy USD/CAD dips to 1.2270. A short term bottom to this currency pair may be in place.
• AUD/USD – The Aussie rebounded to 0.7555 after slumping to 0.7494 overnight. AUD/USD hit 0.7470, lows not seen since December 2020 on Friday night. The bounce so far can be described as limp, and a risk lower cannot be dismissed. For today AUD/USD has immediate support at 0.7510 followed by 0.7480. Immediate resistance lies at 0.7570 (overnight high 0.75642) and 0.7610. Look for consolidation in a likely range between 0.7510-0.7570 first up today. Preference is to sell into strength near recent highs.
• USD/JPY – Heading into the Olympic Games which are due to start in just over a month in Tokyo, we could see this currency pair liven up. Overnight range for USD/JPY was between 110.21 and 110.791. Immediate resistance lies at 110.80 and 111.10 (strong). Immediate support can be found at 110.35 and 110.05. The BOJ releases the minutes of its latest monetary policy meeting minutes shortly (9.50 am Sydney today). Traders will be looking at the Japanese Central Bank’s outlook for the future and further details into any extensions the country’s pandemic relief program. With other major central banks starting to reconsider their easy money stance, any differences with the BOJ’s stance will be scrutinised. Interesting… tin helmets on?

Happy trading and Wednesday all