USD/DXY pulls back, China GDP slumps on COVID-19 lockdowns

AUD/USD Reverses Slide; EUR/USD Rebounds Off Parity

Summary: The Dollar Index (USD/DXY) which gauges the value of the Greenback against a basket of six major currencies yielded to pre-weekend profit taking after reaching 109.29, its highest level since mid-2002. By the close of trade in New York Friday, the DXY settled at 107.98, down 0.52%. The Euro, which carries the most weight in the Dollar Index amongst the majors, rebounded off parity as various buyers stepped in. The shared currency (EUR/USD) was last at 1.0087 from its 1.0015 open. Against the Japanese Yen, the US Dollar (USD/JPY) eased 0.42% to 138.50 (138.95 Friday). After falling to near mid-2020 lows at 0.6681, the Australian Dollar (AUD/USD) reversed higher, rallying to just under 0.68 cents, at 0.6793. Sterling (GBP/USD) rallied to 1.1870 from 1.1822 against the overall weaker Greenback. The US Dollar eased against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 6.7570 from 6.7635 while the USD/SGD pair (US Dollar- Singapore Dollar) slid to 1.3995 from 1.4022. Economic data released on Friday saw China’s Q2 GDP growth fall 2.6% (q/q), lower than economist’s forecasts at 1.5% decline. Widespread Covid lockdowns in the world’s second largest economy painted a gloomy picture of the global economy moving forward. Elsewhere, Thursday’s stronger than expected rise in US CPI (above 9%) was offset by a fall in June Industrial Production (to -0.2% from 0.2%). Other data released on Friday saw New Zealand’s BusinessNZ Industrial Manufacturing Index ease to 49.7 from a previous 52.9. US Headline Retail Sales rose to 1.0% against forecasts at 0.9%. Core US Retail Sales climbed to 1.0%, higher than expectations of 0.7%. US Capacity Utilisation Rate slid to 80.0% from an upward revised 80.3%. US Preliminary University of Michigan Consumer Sentiment climbed to 51.1 from 50.0. Global equities steadied into the weekend. The DOW edged higher to finish at 31,282 from 30,638 while the S&P 500 rallied 3,863 (3,793). Bond Yields eased. The benchmark US 10-year Treasury note settled with a rate at 2.92% from 2.96% Friday. Germany’s 10-year Bund yield was last at 1.12% (1.17% Friday). Japan’s 10-year JGB yield was unchanged at 0.22%.

• EUR/USD –Aggressive selling of the shared currency was met by an assortment of buying interest around the 1.00 (parity) level. The Euro rebounded to finish at 1.0087 after trading to an overnight low at 1.0007. Overnight peak recorded was at 1.00979. Political uncertainty in Italy weighed on the EUR/USD pair.
• AUD/USD – The Aussie Battler held its own against the US Dollar, rebounding to 0.6793 at the close of trade in New York on Friday. Overnight, the AUD/USD was sold to a low at 0.6719 before settling. Overnight high recorded was at 0.6806 in choppy trade.
• USD/JPY – Against the Japanese Yen, the Greenback slid o 138.50 from 138.95 on Friday. The fall in the US 10-year bond yield weighed on the USD/JPY pair. Overnight low traded was at 138.38 while the high recorded was at 139.09. On Thursday, USD/JPY hit a 25-year peak at 139.39. Friday’s trade was also volatile in this currency pair.
• GBP/USD – The British Pound rallied against the Greenback to 1.1870 (1.1822 Friday). Overnight, the GBP/USD pair traded to a low at 1.1804. On the topside, Sterling saw an overnight peak at 1.1875. There were no significant economic data out of the UK Friday.

On the Lookout: The week ahead kicked off earlier this morning with New Zealand’s Q2 Headline CPI (Y/Y) firm to 7.2%, up from median expectations at 7.1% and a previous 6.9%. On a Quarterly basis, NZD CPI rose to 1.7%, against estimates at 1.5%. The NZD/USD pair, or Kiwi jumped to 0.6177 from Friday’s close at 0.6157 immediately following the release. Japanese markets are closed today, celebrating Marine Day. Other data releases scheduled in today’s light calendar are Italy’s May Trade Balance (f/c -EUR 2.32 billion from previous -EUR 3.666 billion – Forex Factory). Canada releases its June Housing Starts (y/y no f/c, previous was +CAD 287,300 – FX Street). Finally, the US releases its NAHB Housing Market Index for July (f/c 68 from 67 – FX Street). The week ahead sees Australia’s RBA release its latest meeting minutes tomorrow, as well as UK Employment data (19 July). On Wednesday (20 July), UK and Canadian CPI data are due out. The Bank of Japan and Bank of England have their monetary policy meetings on 20 July (Thursday). Friday sees French, German and US Flash Manufacturing and Services PMIs.

Trading Perspective: While Friday’s slide in the Greenback was mostly due to profit-taking, it may be the beginning of further unwinding of long Dollar bets. As we head into a busy economic calendar ahead, traders will keep their positions light and their powder dry. After trading to a September 2002 peak at 109.29, the Dollar Index (USD/DXY) reversed back to 107.98 at the close of trade on Friday. In early Asia, further selling has pushed the DXY to its current 107.60 level. Expect immediate support at the 107.50 level to hold, preventing a further fall. The tops are coming lower with today’s immediate resistance found at 108.20 This will set the tone for the other major USD pairs. Once again keep an eye on the bond yields. On Friday, the US 10-year treasury note rate fell 4 basis points to 2.92%. Any further falls will erode support for the Dollar.

• EUR/USD – The Euro postponed its destiny with parity, rebounding to finish just under the 1.0100 level (1.0087 NY close). Overnight high traded was at 1.0098. Immediate resistance today can be found at 1.0100 followed by 1.0130. On the downside, immediate support lies at 1.0055, 1.0025 and 1.0005. While the market is still short, look for any rebounds to sell into. Likely range today 1.0025-1.0125.
• AUD/USD – The Aussie Dollar rebounded in true Battler fashion climbing off its Friday open at 0.6745 to 0.6793 New York close. Overnight high traded for the AUD/USD pair was at 0.6806. In early Asian trade today, the AUD/USD pair soared to a high at 0.6815 before settling to its current 0.6812. Immediate resistance today lies at 0.6820 followed by 0.6850. Immediate support can be found at 0.6780, 0.6750 and 0.6720. Look for further choppy trade, likely range 0.6740-0.6840. Preference is to sell on AUD/USD strength.

(Source: Finlogix.com)

• USD/JPY – Against the Japanese Yen, the Greenback slid to 138.50 New York close from 138.95 Friday open. Overnight low traded was at 138.38. This morning, fresh selling has pushed USD/JPY down to a 138.26 low so far. The catalyst overnight was the easing in US bond yields. Further easing in US yields will push USD/JPY lower. For today, look for immediate support at 138.20, 137.90 and 137.60. Immediate resistance lies at 138.60, 138.90 and 139.10. Looking to trade a likely range of 137.80-138.80.
• GBP/USD – Sterling rebounded against the broadly based weaker Greenback to 1.1870 from Friday’s open at 1.1822. Overnight high traded was at 1.1875. This morning, in early Asia, the GBP/USD pair climbed to 1.1892 before settling to its current 1.1888. For today, look for immediate resistance at 1.1900 followed by 1.1930 and 1.1960. On the downside, support is likely at 1.1840, 1.1810 and 1.1780. Likely range today, 1.1825-1.1925. Prefer to sell rallies.

Have a good Monday and week ahead all, happy trading.