Solid data lift US yields, Dollar, JPY jumps on BOJ tweak talk

Euro, GBP tumble, CPI drop pulls Aussie lower, EMFX mixed

Summary

FX volatility picked up after the Federal Reserve increased its Fed Funds Rate by 25 basis points to 5.5%. The move was expected with many traders calling an end to the tightening cycle.

Robust US economic data that saw Weekly Unemployment Claims fall to 221,000 vs forecasts at 234,000, and the lowest level in 5 months lifted the Dollar Index to 101.75 (101.25).

The benchmark US 10-year Treasury Bond Yield jumped to 4% from 3.88%. Other global bond rates rose but not to the extent of their US counterpart.

Germany’s 10-year Bund rate rose to 2.47% from 2.42%. Australia’s 10-year bond yield was last at 3.92% against 4.03% on Wednesday.

The Euro (EUR/USD) tumbled to 1.0975 from 1.1055 after the ECB hiked its Main Refinancing Rate to 4.25% from 4.0%. While inflation remains elevated, a drop in Eurozone Flash PMIs for July showed signs of weakness.

ECB President Christine Lagarde said the that near term economic outlook had deteriorated.

Against the Japanese Yen though, the Dollar plummeted to 139.50 from 140.55 following a Nikkei news report that the Bank of Japan would discuss tweaking its yield curve control policy at its meeting today. The BOJ announcement will be the key highlight in Asian markets today.

Sterling (GBP/USD) slid to 1.2790 from 1.2890 as the gap narrowed between US and UK bond yields. The Ten-year UK Gilt yield settled at 4.30%, narrowing the gap to 30 basis points from 40 a week ago.

The Australian Dollar (AUD/USD) plunged 0.92% to 0.6708 (0.6788), closing near two-week lows. Broad-based US Dollar strength. A fall in Australia’s Q2 CPI to 0.8% from 1.4% weighed on the Battler.

Asian and Emerging Market Currencies were mixed. The USD/CNH (Dollar-Offshore Chinese Yuan) pair closed at 7.1360, down from Wednesday’s 7.1810. USD/THB (Dollar-Thai Baht) was little changed at 34.45 (34.48). The USD/SGD (Dollar-Singapore) pair edged up to 1.3308 from 1.3285.

Data released yesterday saw Spain’s Unemployment Rate ease to 11.6% from 13.3%, and better than forecasts at 13%. US Durable Goods Orders (m/m) rose to 4.7% from 1.8%, beating forecasts at 1.3%.

The US Trade Deficit narrowed to -USD 87.8 billion from -USD 91.9 billion, beating estimates at -USD 91.8 billion. The US Kansas City Fed Manufacturing Index plunged to -20.2 from -10, and lower than economist’s median expectations at -3.

• USD/JPY – Against the Yen, the Greenback did a U-turn, plunging to 139.50 New York close from 140.55 yesterday. On Wednesday the USD/JPY pair was changing hands at 141.07. A Japanese Nikkei News report that the BOJ would discuss tweaking its Yield Curve Control (YCC) sent the Greenback plunging against the Yen. Speculative long USD bets were purged.

• EUR/USD – The Euro did a U-turn and tumbled back below the 1.10 support level to settle at 1.0975 in New York from 1.1055. In volatile trade, the overnight low recorded was 1.0966 while the high seen was 1.1050. Against the Yen (EUR/JPY), the Euro sank 1.65% to 153.10 (156.00).

• AUD/USD – The Aussie Battler reversed its gains made on Wednesday, plummeting to 0.6708 from yesterday’s 0.6788. A fall in Australia’s Q2 Trimmed Mean CPI, which is the preferred measure of inflation by the RBA, to 0.9% from 1.2% and lower than estimates at 1.1% weighed on the Aussie Dollar. The overnight low traded was at 0.6698 while the high recorded was at 0.6821.

• GBP/USD – Sterling slid against the Greenback to 1.2790 from 1.2890. In choppy trade, the overnight high recorded was at 1.2996. The overnight low recorded was 1.2769. The British Pound was weighed by fears that the UK may be entering a recession due to the Bank of England’s aggressive monetary policy tightening.

On the lookout

A truly “Thank God it’s Friday” end to this week following choppy moves in FX will be welcomed by traders.

Busy Economic data releases today kick off with Japan’s Annual Tokyo Core CPI (y/y f/c 2.9% from 3.2% - ACY Finlogix).

Australia follows with its June Preliminary Retail Sales report (m/m f/c 0% from 0.7%), and Australian PPI (q/q f/c -0.7% from 1%; y/y f/c 2.9% from 5.2% - ACY Finlogix).

The Bank of Japan is widely expected to keep its BOJ Policy Rate unchanged at -0.1% at the conclusion of its meeting today.

France starts off European data with its July Inflation Rate (y/y f/c 4.3% from 4.5% - ACY Finlogix).

France also reports its GDP (q/q f/c 0.1% from 0.2%; y/y f/c 1.0% from 0.9% - ACY Finlogix).

Switzerland follows with the release of its KOF Leading Economic Indicator for July (f/c 90.5 from 90.8 – ACY Finlogix).

Germany releases its Flash GDP Growth Rate (q/q f/c 0.1% from -0.3%; y/y f/c -0.3% from -0.5% - ACY Finlogix).

German Preliminary July CPI follows (m/m 0.3% from 0.3%; y/y f/c 6.2% from 6.4% - ACY Finlogix).

The Eurozone follows with its Eurozone July Economic Sentiment (f/c 95 from 95.3 – ACY Finlogix).

Canada starts off North America with its June Preliminary GDP (m/m f/c 0.1% from 0.4% - ACY Finlogix).

The US rounds up today’s data releases with its June Personal Income (m/m f/c 0.5% from 0.4% - ACY Finlogix), US June Personal Spending (m/m f/c 0.4% from 0.1% - ACY Finlogix), and US Wages Employment Cost Index (q/q f/c 1.1% from 1.2% - ACY Finlogix) and finally US Core PCE Index for June (m/m f/c 0.1% from 0.1%; y/y f/c 4.2% from 4.6% - ACY Finlogix).

Trading perspective

The Dollar finished stronger against most of its Rivals bar the Japanese Yen boosted by solid economic data which pushed US yields higher.

While other bond yields rose, US rates climbed higher, widening the gap.

This has been the main driver of the Greenback.

The Dollar Index (DXY) rebounded 0.85% to 101.75 (101.25).

Expect the Dollar to keep its bid in Asia first up.

Economic data released today will be key with Retail Sales, GDP, CPI from around the globe as well as the US Core PCE report.

Look for FX volatility to stay elevated today.

• EUR/USD – The Euro tumbled 0.94% to 1.0975 from 1.1055 after the ECB and the Fed raised interest rates. The gap between US and European interest rates widened in favor of the Greenback. Look for immediate support in the Euro at 1.0950 followed by 1.0920 and 1.890. Immediate resistance lies at 1.1000, 1.1050 and 1.1100. Look for more choppy moves in the shared currency today, likely between 1.0950-1.1120 today. Trade the range, nice and wide.

• USD/JPY – Against the Japanese Yen, the US Dollar plunged to 139.50 from 140.55 on the Nikkei News report. For today, look for immediate support at 139.20 and 138.70. Immediate resistance can be found at 140.10, 140.60 and 141.00. Prepare for another roller coaster ride in this currency pair. If the BOJ does tweak its YCC (Yield Curve Control) we could see the Greenback break support at 138.70 to 137.70. If the BOJ does nothing, expect USD/JPY to soar back to 141.30 before settling. Get those tin helmets on for another possible ride today.

(Source: Finlogix.com)

• AUD/USD – The Aussie Dollar slumped against the broadly based stronger Greenback to 0.6708 from 0.6788. On the day, look for immediate support at 0.6690 followed by 0.6660 and 0.6630. Immediate resistance can be found at 0.6730, 0.6760 and 0.6790. Look for another choppy trading session in the Aussie, likely between 0.6680-0.6780. Trade the range.

• GBP/USD – The British Currency was pounded lower against the US Dollar, finishing at 1.2790 from 1.2890. Look for immediate support in Sterling at 1.2770 and 1.2740. On the topside, immediate resistance is found at 1.2840, 1.2890 and 1.2940. Look for more choppy trade in this currency pair likely between 1.2770-1.2920. Am neutral at current levels but don’t want to get caught short at current levels. Look to sell rallies.

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