Soft US Retail Sales pull Dollar, bond yields lower

AUD rallies, JPY stays weak, CHF rallies, DXY dips

Summary:  

Softer-than-expected US Retail Sales pulled the US 10-year bond yield down to 4.22% (4.27%). A good US Treasury auction result lifted bond prices, pushing yields lower.

The Commerce Department reported that US Retail Sales grew at a slower than anticipated pace in May of 0.1%, against forecasts of 0.3%. April’s Sales were also revised lower.

Fed officials stressed the need for more evidence of cooling inflation before lowering interest rates. US policymakers have kept borrowing costs at a two-decade high for nearly a year.

The Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies, dipped to 105.25 from 105.40. The DXY traded to an overnight high at 105.65.

Against the Japanese Yen, the US Dollar edged higher to 157.85 (157.70) Fears of intervention from Japanese authorities kept traders cautious, and the USD/JPY pair within recent ranges.

The Australian Dollar outperformed, rallying to 0.6655 from 0.6617. Yesterday, the RBA kept rates on hold, albeit with a hawkish tone. RBA Governor Michelle Bullock confirmed the board discussed rate hike options, with a rate cut not being contemplated at this time.

Ahead of tomorrow’s Swiss National Bank monetary policy meeting, the USD/CHF pair slumped to 0.8840 (0.8885). Demand was also strong for the Swiss Franc, a traditional haven in Europe.

Sterling (GBP/USD) finished little changed, at 1.2705 from 1.2710. Ahead of today’s UK CPI numbers, the British currency steadied. Also, the Bank of England meets on policy tomorrow.

The Euro (EUR/USD) closed at 1.0740, modestly up from 1.0735 yesterday. A fall in Germany’s ZEW Economic Sentiment to 47.5, against forecasts at 49.6 was offset by a rise in Eurozone ZEW Sentiment to 51.3, beating estimates at 47.8.

The Greenback closed mixed against the Asian/EMFX. The USD/CNH (Dollar-Offshore Chinese Yuan) closed at flat at 7.2700. Against the Thai Baht, the Greenback (USD/THB) slumped to 36.65 from 36.85. USD/SGD (Dollar-Singapore) was little changed, at 1.3510.  

• AUD/USD – The Aussie Battler outperformed, climbing to an overnight high at 0.6658 from 0.6620. A hawkish hold by the RBA buoyed the Aussie, which finished higher against other currencies. The AUD/JPY pair soared to 0.7% to finish at 105.05 (104.25).
• USD/JPY – Against the Japanese Yen, the US Dollar edged modestly higher to 157.85 from 157.70 yesterday. Fears of intervention from Japan Inc kept the USD/JPY pair in a relatively tight range between 157.51 and 158.24.
• EUR/USD – The shared currency was steady, at 1.0740 in late New York, against yesterday’s opening at 1.0735. Overnight, the Euro traded to 1.0761 highs before easing at the close. The overnight low recorded for the EUR/USD pair was 1.0710.
• USD/CHF – We highlight this currency today because the haven sought Swiss Franc outperformed. Risk aversion in Europe saw the USD/CHF pair tumble to finish at 0.8842, against yesterday’s 0.8885. The Swiss National Bank meets on its rates policy tomorrow.

On the lookout:

Today’s economic calendar kicked off with New Zealand’s Current Account data, which beat forecasts, coming in at -NZD 4.36 billion, against -NZD 4.55 billion, and better than the previous -NZD 7.84 billion.

The Kiwi (NZD/USD) was unchanged from this morning’s opening, at 0.6143. Japan released its June Reuters Tankan Index, which fell to 6 from 9 previously, missing estimates at 12. The Bank of Japan releases the minutes from its policy meeting shortly.

The UK starts off Europe with its UK May Inflation Rate (y/y f/c 2% from 2.3%; m/m f/c 0.4% from 0.3% - ACY Finlogix), UK May Core Inflation Rate (y/y f/c 3.5% from 3.9%; m/m f/c 0.2% from 0.9% - ACY Finlogix), and UK Retail Price Index (y/y f/c 3.1% from 3.3% - ACY Finlogix).

The Eurozone follows with its April Current Account (f/c +GBP 37 billion from +GBP 44.5 billion). The US rounds up today’s economic data releases with its June NAHB Housing Market Index (f/c 45 from 45 – ACY Finlogix).

Trading perspective:

The weaker-than-expected result in US Retail Sales weighed on the Greenback and pulled bond yields lower. The US 10-year bond yield settled at 4.22%, approaching 4.2%, which March 2024 lows. Despite the fall, Fed officials urged patience for any rate cuts. This latest soft US Retail Sales data will keep the Greenback under pressure. Traders should watch the US bond markets for any future clues in the near-term direction of the Greenback.

• AUD/USD – The Australian Dollar closed on a firm note following the RBA’s hawkish hold. On the day, look for immediate resistance at 0.6670 (overnight high traded was 0.6658). The next resistance level lies at 0.6700. Immediate support can be found at 0.6620 and 0.6590. Look for more choppy trade in the Aussie today, likely range: 0.6570-0.6670. Trade the range with the preference to sell into Aussie strength.
• USD/JPY – The Dollar edged higher against the Yen in steady trade, settling at 157.85 (157.70 yesterday). Look for immediate resistance in this currency pair at 158.05 followed by 158.40 and 158.70. On the downside, look for immediate support at 157.50 (overnight low traded was 157.51). The next support level is found at 157.20. Look for consolidation in a likely range of 157.30-158.30 today. Trade the range, nice and wide.
• EUR/USD – The Euro finished steady against the Greenback at 1.0740. Immediate resistance today lies at 1.0770 followed by 1.0800. Immediate support can be found at 1.0700 followed by 1.0670. The next support level lies at 1.0640. Look for the Euro to consolidate in a likely range today of 1.0700-1.0800. Trade the range, the preference is to sell Euro on strength.
• GBP/USD – Sterling closed little changed, at 1.2705 from 1.2710 yesterday. Look for immediate support at 1.2670 (overnight low traded was 1.2669). The next support level lies at 1.2640. Immediate resistance can be found at 1.2730 (overnight high traded was 1.2721). The next resistance level lies at 1.2760. Look to trade a likely range today in the British currency between 1.2660 and 1.2760. Prefer to sell Sterling on strength, to 1.28.
• USD/CHF – We add in the Swiss Franc today due to its haven status with the political situation in Europe remaining shaky. Immediate support lies at 0.8820 followed by 0.8790. Immediate resistance lies at 0.8870, 0.8900 and 0.8930. Look for the USD/CHF pair to trade in a likely range today of 0.8780-0.8880. Look to sell USD/CHF rallies.

Happy Wednesday and trading all. Tin helmets on for more roller coaster rides in FX.