Risk-on, risk-off, the Dollar rebounds after weak close – AUDUSD slumps

China Maintains Zero Covid Policy; “Just Another Manic Monday”

Summary

Currency markets were all over the place in early Asian trade Monday after the US Dollar took a beating on Friday. A rise in the US Unemployment Rate to 3.7% from 3.6% in October despite a gain in Payrolls to 261,000 from an upward revised 315,000. weighed on the Greenback.

However, in early Asian trade this morning, the US Dollar rebounded against its rivals, after Chinese authorities vowed to maintain their strict Covid-zero policy.

The Australian Dollar (AUD/USD), leading FX risk barometer, slumped to 0.80% to 0.6410 after closing at 0.6465 in New York on Friday. There was no lack in volatility in this currency pair which saw a range between 0.6285 and 0.6483, almost 200 pips.

US Fed Chair Jerome Powell signalled that it was too early to think about a pause in monetary tightening. US bond yields were little changed with the 10-year note rate unchanged at 4.16%.

After tumbling to an overnight low at 0.9747, the Euro (EUR/USD) rocketed to a high at 0.9967 before easing to settle at 0.9910 in early Asia. Sterling (GBP/USD) had its own choppy session, soaring to a 1.1382 peak from Friday’s low at 1.1145, before closing in New York at 1.1330.

Against the Japanese Yen, the Greenback (USD/JPY) finished little changed at 146.65 from Friday’s 146.67. Overnight, the USD/JPY pair soared to a high at 148.40 before sliding at the close.

The US Dollar was mixed against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 7.2430 from 7.1760 Friday. The USD/THB pair (Dollar-Thai Baht), however grinded higher to finish at 37.45 (37.20).

Wall Street stock futures slid in early Asia after a strong close on Friday. The DOW was last at 32,255 from its Friday close at 32,390 while the S&P 500 was at 3,764 (3,767 NY close).

Other economic data released on Friday saw Australia’s October Retail Sales unchanged at 0.6% from a previous 0.6%, which was also the median estimate.

Germany’s October Factory Orders slid to -4.0% from a previous -2.4%, and lower than median estimates at -0.5%. The Eurozone Final Services PMI dipped to 1.6% from estimates at 1.7%.

Canada added a total of 108,300 jobs, beating estimates at 11,000 and a previous 21,100. Canada’s Unemployment Rate dipped to 5.2% against median expectations at 5.3%. Canada’s IVEY PMI slumped to 50.1 in October from a previous 59.5.

US October Average Hourly Earnings (Wages) rose to 0.4% from a previous 0.3%, and median estimates at 0.3%. On an annual basis (y/y) though, US Wages dipped to 4.7% in October from September’s 5.0%.

AUDUSD – The Australian Dollar soared to an overnight high at 0.6483 following the release of the US Payrolls report, which initially weighed on the Greenback. However, in late New York trade, where volumes traditionally thin-out (because just about every FX trader in NY leaves their desk early), the Aussie Battler plummeted 0.80% to 0.6410.

EURUSD – The Euro sprang back to life on Friday, soaring initially to an overnight high at 0.9967 before tumbling in late New York to 0.9910. A fall in Germany’s October Factory Orders weighed on the EUR/USD pair. Overnight, the Euro hit a low at 0.9747.

GBPUSD – Sterling had its own volatile session, plunging initially to an overnight low at 1.1145 on broad-based US Dollar strength despite a stronger than expected UK Construction PMI (53.2 from a previous 52.3, and forecasts at 50.2). Overnight high traded was at 1.1382. After being pummelled early Friday, the British currency rebounded, closing at 1.1330.

USDJPY – The Dollar Yen pair also had a choppy session, trading to an overnight low at 146.51, while hitting a peak at 148.40. On Friday, the Greenback settled at 146.65 Yen, not far from its overnight lows. The rise in the US Jobless Rate to 3.7% from 3.6% and risk-off stance prevented the USD/JPY pair from rising further.

On the lookout

Today’s economic calendar is a light one although it picks up during the week, culminating in the crucial US CPI report (Friday, Nov 11 at 12.30 midnight in Sydney). Australia kicks off with its October ANZ Bank Job Advertisements (m/m f/c -1.2% from -0.5%). China follows next with its October Balance of Trade (f/c Surplus of +USD 95.95 billion from a previous +USD 84.74 billion – ACY Finlogix). Switzerland starts off European data with its October Unemployment Rate (f/c 2% from 1.9%). Germany follows next with its September Industrial Production (m/m f/c 0.2% from a previous -0.85 – ACY Finlogix), German October Construction Output (f/c 43 from 41.8). Next, the UK releases its October Halifax House Price Index (f/c -0.3% from -0.1% - ACY Finlogix). The US rounds up today’s data releases with its September Consumer Credit Change (f/c USD 30 billion from a previous USD 32.24 billion). US Fed FOMC members Loretta Mester and Susan Collins are scheduled to speak at an Economic Symposium hosted by the Federal Reserve Bank of Cleveland.

Trading perspective

“Just another manic Monday”, that familiar Bangles tune from 1986 rings in my head this morning as I put down my thoughts on paper. The original lyrics describes a woman who is waking up to work on a Monday, wishing it was still Sunday so she could continue relaxing. During those early Monday starts in my FX days at one of the major trading banks, where markets had a volatile Friday session, this was exactly how one felt. I’m certain my fellow FX colleagues felt, or still feel (some of them are still in the markets) the same way.

Prior to the close of trade in New York, the Dollar began a long overdue correction downward as speculative long bets bailed. However, the Bloomberg release that Chinese officials vowed to maintain their strict Covid-zero policy when hopes arose that their policy would soon be loosened saw asset markets switch to risk-off in early Asia. What this does signal to financial markets is to expect extended high volatility. Fundamentally, the economic data releases in the week ahead take more significance in determining the next big moves.

EURUSD – The shared sprung to life on Friday after several sessions of similar trading ranges. Overnight, the Euro initially plummeted to a low at 0.9747 before a strong bounce saw the shared currency slump to 0.9910, modestly lower from Friday’s open at 0.9960. Overnight high traded was at 0.9967. Today’s immediate resistance is found at 0.9970 followed by 1.0010. Immediate support lies at 0.9875, 0.9845 and 0.9800. Look for further volatility in a likely range of 0.9820-0.9970 today.

(Source: Finlogix.com)

AUD/USD – The Aussie Battler had its own choppy session, slumping by the close of trade in New York to 0.6410 from Friday’s open at 0.6465. The risk-leading barometer Aussie Battler jumped to an overnight high at 0.6483 before tumbling at the close. Overnight low traded was at 0.6285. Look for another choppy session in the Aussie, likely range 0.6330-0.6520. Traders should continue to monitor developments out of China which will impact AUD/USD.

GBP/USD – The British Pound or as is commonly known to FX traders as Sterling (or Pound Sterling) finished in late New York at 1.1320 down from Friday’s open at 1.1380. In volatile trade, the overnight low recorded was at 1.1145, before a short squeeze saw it rebound to a high at 1.1382. On the day, look for immediate support at 1.1285, 1.1235 and 1.1185. On the topside, immediate resistance is found at 1.1380 followed by 1.1420 and 1.1470. We could see more short covering in GBP/USD, but the 1.1500 resistance level is unlikely to break.

USD/JPY – Against the Japanese Yen, the Greenback settled to finish at 146.65 from Friday’s open at 146.67, little changed. However, the trading range for the USD/JPY pair was wide. Trading, normally subdued in this currency pair was extremely choppy on Friday. Overnight high traded was at 148.40 while the overnight low recorded was at 146.51. Immediate support today lies at 146.50 followed by 146.00. On the topside, look for immediate resistance at 147.20, 147.70 and 148.20. Look for more choppy trade, likely range today 146.40-148.20.

Have a good trading week ahead all, happy Monday.