US bond yields steady, dollar holds gains on strong services PMI

Summary: FX volatility picked up in North American trade after Fed Vice Chair Richard Clarida suggested that the US central bank could reduce bond-buying support. Earlier in the session, a weaker-than-expected US private employment report (ADP) drove the Dollar lower. US ADP Non-Farms Employment underwhelmed with a gain of 330,000, below forecasts of 695,000, and a previous build of 692,000.A favored gauge of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) reversed losses from 91.81 to finish up 0.21% to 92.27 (92.07 opening yesterday). The benchmark US 10-year treasury bond yield steadied to 1.18% after falling to a low at 1.13% (1.19% yesterday). Choppy trade was most evident in the USD/JPY pair, the market’s traditional risk barometer.USD/JPY tumbled to an overnight low at 108.72from its opening at 109.05, soaring to a peak at 109.67, finally settling to close at 109.47. Ahead of today’s Bank of England monetary policy announcement, the British Pound closed at 1.3887 from its 1.3915 open yesterday, after hitting an overnight high at 1.3958. Short covering boosted the Australian Dollar to an overnight high at 0.7427 from 0.7392 before closing at 0.7380. Against the Canadian Loonie, the Greenback slid initially to 1.2515 from yesterday’s 1.2540, rebounding to finish at 1.2545 in New York. The Euro rallied to an overnight high at 1.1900 before tumbling to settle at 1.1837 (1.1863 opening yesterday). Against the Asian and Emerging Market currencies, the Dollar was mostly higher. USD/SGD settled at 1.3510 after slumping to 1.3471 overnight and one-month low and 1.3512 open yesterday. The Greenback edged higher against Thai Baht to close at 33.14 (33.02).

Wall Street stocks slipped. The DOW lost 0.74% to 34,820 (35,090) while the S&P 500 ended at 4,420 from 4,391 yesterday, down 0.30%.

Other data released yesterday saw Australia’s June Retail Sales match expectations at -1.8%, the same as the result in the previous month. Australia’s CBA Services PMI in July matched June’s number at 44.2. China’s Caixin Services PMI rose to 54.9, beating forecasts at 50.6 and a previous 50.3. Italy’s Services PMI climbed to 58.0 from 56.7 but missed median estimates at 58.8. French Services PMI basically matched forecasts at 57.0 with a 56.8 print. Germany’s Services PMI underwhelmed at 61.8 against expectations of 62.2. The Eurozone Services PMI eased to 59.8 in July from 60.4 in June, missing forecasts at 60.4. UK July Services PMI rose to 59.6 against forecasts, and a previous 57.8. Canada’s June Building Permits climbed 6.9%, bettering forecasts at 6.0% and a previous 4.8%. US ISM Services PMI rose to 64.1 from 60.1, beating estimates at 60.5.

USD/JPY – had a choppy session, initially tumbling to overnight and late May low at 108.72 from its open in Asia at 109.05. After Fed Vice Chair Clarida spoke and US bond yields settled, the USD/JPY pair soared to an overnight peak at 109.67 before easing to settle at 109.47 in the late New York trade.

AUD/USD – The Aussie which had been under selling pressure earlier in the week, initially rose to 0.7427 overnight and a 3-week high before easing to settle at 0.7380 in late trade. The AUD/USD pair hit an overnight low at 0.7370 after another drop in Australian Retail Sales which matched forecasts.

GBP/USD – Sterling eased moderately against the Greenback to finish 0.21% to 1.3887 from yesterday’s 1.3915. Overnight, the GBP/USD pair hit a high at 1.3958. The Bank of England holds its monetary policy meeting and announcement later today. The BOE is widely expected to keep interest rates unchanged but also began reducing asset purchases earlier this year.

EUR/USD – The Euro slid to settle at 1.1836 in New York after initially rallying to an overnight peak at 1.1900. The shared currency opened at 1.1864 in Asia yesterday. Euro area and Eurozone Services PMI’s were mostly lower than median forecasts which weighed on the Euro.

On the Lookout: Today’s data calendar kicks off with Australia’s June Trade Balance which is expected to improve to a +AUD 10.45 and +AUD 10.55 billion range from a previous +AUD 9.681 billion. European reports start with Germany’s June Factory Orders (f/c +201% from -3.7%). French Industrial Production for June (f/c 0.5% from -0.3%) follows. Next is Germany’s Construction PMI for July (no f/c given, previous was 47). UK July Construction PMI follows (f/c 64.0-64.5 from 66.3). The Bank of England is widely expected to keep its Official Bank Rate at 0.1%. BOE MPC Asset Purchase Facility Votes (f/c 0-1-8 from 0-1-8) and Official Bank Votes follow (f/c 0-0-9 from 0-0-9). Note:The vote isin a X-X-X format. First number is votes to increase, middle number votes to decrease and the last number votes to hold.
US Challenger Job Cuts follow (no forecasts, previous was -88.0%), US Weekly Unemployment Claims (f/c 382,000 from 400,000) are next. Finally, the US releases its June Trade Balance (f/c -USD 74.2 billion from -USD 71.2 billion previously).

Trading Perspective: The Dollar reversed initial losses from the weaker-than-expected private jobs (ADP) employment change. The gain of 330,000 was way below median estimates for a 695,000 build and a previous 692,000. Fedspeak came to the aid of the Greenback after Fed Vice Chair Clarida suggested that the US central bank may reduce bond-buying support more quickly as the economy improves. The US ISM Services PMI beat expectations with a big jump to 64.1 against 60.5 and a previous 60.1. The Employment component of the PMI rose to 53.8 from a previous 49.3.  Uncertainty has built heading into tomorrow’s US Employment report which could see more FX volatility. Happy days!

USD/JPY – After an initial slide to the overnight and late May low at 108.72, the Greenback rallied to close at 109.47, up 0.43%. The overnight high traded was 109.67. Immediate resistance today lies at 109.70 followed by 110.00 Immediate support can be found at 109.20 followed by 108.90. Look for consolidation as this currency pair attempts to settle. Likely range 109.10-109.90. We’re mid-range here but the preference is to buy on USD weakness.

AUD/USD –The Australian Dollar rebounded in true Battler style hopping to an overnight high at 0.7427 as shorts scrambled for cover. AUD/USD opened at 0.7392 yesterday and traded to a low of 0.7370 before rallying late in New York to close at 0.7380. Immediate support for the Aussie is at 0.7360 followed by 0.7330. Immediate resistance lies at 0.7400 and 0.7430. Look for more choppy trade in a likely 0.7340-0.7440 range today. Just trade the range shag on this one today.

GBP/USD – Ahead of today’s Bank of England policy meeting and announcement, the British currency is evenly poised at its New York close of 1.3887. Overnight high traded was 1.3958 which followed the weak US ADP report and saw broad-based USD selling. The Bank of England reduced its asset purchases earlier this year. The BOE is expected to raise its inflation and growth forecasts at the conclusion of its meeting today. GBP/USD has immediate resistance at 1.3920 followed by 1.3960. Immediate support can be found at 1.3880 and 1.3850. Look for more choppy trade in the Pound today with a likely range of 1.3860-1.3960.

EUR/USD – The Euro slid to close at 1.1837 after soaring to its overnight peak at 1.1900 on the weaker US Dollar. As the Greenback recovered, the shared currency lost its strength and wilted. The overnight low traded for the EUR/USD pair was at 1.1833. Immediate support can be found at 1.1830 followed by 1.1800. Immediate resistance lies at 1.1860 and 1.1890. Look for the Euro to trade a likely 1.1820-1.1920 range today. At current levels, prefer to buy dips.