US Dollar soars, strong economic data outweighs debt concerns

AUD, NZD plunge, USD/JPY ratchets higher; bond yields climb

Summary

Better-than-expected US economic data lifted the Dollar higher even as the debt ceiling talks failed to generate an agreement. Claims for Unemployment benefits in the latest week fell to 229,000, bettering estimates at 242,000. US Q1 GDP rose by 1.3%, up from 1.1% previously.

The Dollar Index (DXY), which weighs the value of the Dollar against a basket of 6 majors, broke through the 104.00 barrier, finishing at 104.22, its highest level since mid-March (103.15 yesterday).

Treasury yields climbed. The US 10-year Yield rose to 3.82% from 3.69% yesterday. Other bond yields were higher but to a lesser degree US rates. Germany’s 10-year Bund yield settled at 2.52% (2.46%).

Against the yield sensitive Japanese Yen, the Greenback ratcheted higher to finish at 140.05 against 138.57 yesterday. Overnight, the USD/JPY pair soared to 140.23, not seen since November 2022.

Antipodean currencies were crushed by the Greenback’s rally. The Kiwi (NZD/USD) tumbled 0.71% lower to 0.6060 from its 0.6247 open yesterday. The AUD/USD pair plunged to 0.6505 (0.6610).

The Euro (EUR/USD) fell to 1.0725, a 2-month low against yesterday’s 1.0770. Germany’s Q1 GDP fell -0.3%, lower than expectations of 0.0%. Sterling (GBP/USD) slid to 1.2320 from 1.2415 yesterday.

The Greenback rallied against the Asian and EMFX. The USD/CNH (Dollar-Offshore Chinese Yuan) pair rallied to 7.0910 (7.0660), while USD/SGD (Dollar-Singapore) climbed to 1.3545 (1.3472).

Other data released yesterday saw New Zealand’s Q1 Retail Sales slump to -1.4% from a downward revised -1.0%, and weaker than forecasts at 0.2%. UK Annual April Core CPI rose to 6.8% from 6.2%.

Germany’s IFO Business Climate in May fell to 91.7, lower than expectations at 93.0 and a previous 93.6.

• AUD/USD – The Aussie Battler extended its losses against the Greenback, plunging to an overnight and November 2022 low at 0.6489, before settling at 0.6505. The overnight high traded was at 0.6544. Yesterday, the Aussie Dollar opened in Asia at 0.6610.

• USD/JPY – The US Dollar ratcheted higher against the Japanese Yen, trading to an overnight and November 2022 high at 140.23. The Greenback eased to settle at 140.05 in late New York. In volatile trade, the overnight low recorded was 138.81.

• EUR/USD – The shared currency fell under the weight of the broadly based stronger Greenback, settling at 1.0725 against 1.0770 yesterday. Overnight, the Euro traded to a high at 1.0732, while the overnight low recorded was at 1.0707.

• GBP/USD – Sterling slid against the Greenback to 1.2320, down 0.4% from yesterday’s open at 1.2415. In choppy trade, the British Pound hit an overnight high at 1.2387 while the low recorded was at 1.2308.

On the lookout

Today’s economic data calendar starts off with Japan’s Annual Tokyo Headline (Headline CPI f/c 3.5% from 3.5% - ACY Finlogix) and Core CPI for May (Core CPI y/y f/c 3.3% from 3.5% - ACY Finlogix).

Australia follows with its April Retail Sales report (m/m f/c 0.2% from 0.4% - ACY Finlogix).

The UK starts off European data with its UK April Retail Sales (Headline m/m f/c 0.3% from -0.9%; y/y f/c -2.8% from -3.1% - ACY Finlogix).

France releases its May Consumer Confidence (f/c 84 from 83 – ACY Finlogix).

Italy releases its May Consumer Confidence (m/m f/c 105.2 from 105.5 – ACY Finlogix).

The US rounds up today’s economic data releases with its April Durable Goods Orders (m/m f/c -1% from 3.2% - ACY Finlogix), US Durable Goods Orders Excluding Transport (m/m f/c -0.1% from 0.3% - ACY Finlogix), US April Core PCE Price Index (m/m f/c 0.3% from 0.3%; y/y f/c 4.1% from 4.2% - ACY Finlogix), US April Personal Income (m/m f/c 0.4% from 0.3% - ACY Finlogix), US Personal Spending (m/m f/c 0.4% from 0% - ACY Finlogix), US Goods Trade Balance (f/c -USD 85.7 billion from a previous -USD 84.6 billion – ACY Finlogix), and finally University of Michigan May Final Consumer Sentiment f/c 57.7 from 63.5 – ACY Finlogix).

Trading perspective

While the Dollar finished higher against all its Rivals, we can expect profit taking and weekend position adjustments to prevent more upside to the US currency. Economic data releases will also impact markets. Failure to reach an agreement on the US debt ceiling by lawmakers is a real risk to the Greenback. Expect a reversal of the US currency as we approach the weekend with volatility remaining high.

• USDJPY – The Dollar soared against the Japanese Yen supported by higher US bond yields and stronger than expected economic data. The Greenback soared to an overnight and November 2022 high at 140,23 before easing to settle at 140.05. Look for immediate resistance at 140.20 followed by 140.50 and 140.80. On the downside, immediate support lies at 139.70, 139.40 and 139.00. Look for further choppy trade, likely between 139.20-140.20. Trade the range, nice and wide. Prefer to sell rallies.

• AUD/USD – The Aussie Battler fell under the weight of the broadly based stronger Greenback, settling at 0.6505 (0.6610 yesterday). Immediate support on the day is at 0.6480 (overnight low traded was 0.6489). The next support level is found at 0.6450. On the topside, immediate resistance can be found at 0.6540 (overnight high traded was 0.6544). The next resistance is at 0.6580. Likely range today: 0.6480-0.6580. Short covering is likely. Buy dips.

• EUR/USD – The shared currency eased against the US Dollar to 1.0725 at the close of trade in New York. Yesterday, the Euro closed at 1.0770. Look for immediate support on the EUR/USD pair at 1.0705 (overnight low traded was 1.0707). The next support level lies at 1.0685. On the topside, look for immediate resistance at 1.0740 (overnight high traded was at 1.0737). Look for the Euro to trade a likely range today of 1.0685-1.0785. Prefer to buy dips today.

• GBP/USD – Sterling tumbled against the US Dollar to 1.2320 in late New York from 1.2415 yesterday. In choppy overnight trade, the British Pound hit a low at 1.2308. Look for immediate support at 1.2300 followed by 1.2270 to hold. Immediate resistance lies at 1.2350 followed by 1.2380 and 1.2410. Look for further volatile trade, likely between 1.2280 and 1.2380.

The Dollar has been climbing all week supported by rising bond yields and robust US economic data. Speculative Dollar long bets are at risk of a corrective move today. The catalyst could be from weaker than expected economic reports as well as an agreement to avoid default on the US debt ceiling.

Get ready for another roller coaster ride in the FX markets today. Happy Friday and trading all. Top weekend as well.