Forex today: Dollar ended U.S. session on front-foot, Asia shrugs-off Wall Street

  • Consumer confidence the latest in a series of upbeat US data.
  • DXY and U.S. Yields supported technically. 

Asian equity markets have ignored last Friday's poor performance om Wall Street related to losses on Wall Street at the start of this week and bourses have reacted to regional developments including better than expected Japanese GDP and Australian PM Morrison's surprise election victory. the ASX 200 is up +1.0% at the time of writing, the Nikkei 225 was higher by +0.7% and the KOSPI climbed 0.8%.

However, as a recap and while the tides still may turn, Wall Street's closing session benchmarks ended as follows:

  • The Dow Jones Industrial Average (DJIA), fell 98.68 points, or 0.4%, to close at 25,764.
  • The S&P 500 index lost 16.79 points, or 0.6%, to 2,859.53. 
  • The Nasdaq Composite Index slid 81.76 points, or 1%, to end at 7,816.28.

Investors offloaded risk on concerns that the U.S. / Sino trade negotiations had stalled. Chinese state media was reporting that there has been little appetite in Beijing to resume negotiations following the Trump administration’s hike in tariffs on Chinese imports and a more recent combative move in the Huawei order that came into effect on Friday, announced yesterday by Commerce Sec. Wilbur Ross. 

However, there was some reprieve in the data again. US consumer confidence surprised markets, beating expectations in May, surging to a 15-year high at 102.4 (from 97.2 in the month prior). The dollar also got a boost from the inflation expectations that picked up with 1-year expectations rising to 2.8% (from 2.5% in the month prior) and 5-10-year inflation expectations measure rising to 2.6% (from 2.3% in the month prior). 

DXY and U.S. yields on the rise

The DXY rallied onto the 98 handle and gold plummetted. The greenback was showing a mixed technical picture with short term indicators overstretched following a number of positive days advancing a whole point on the week in the DXY although daily stochastics offer some room to go yet which opens room to 98.50 and then 98.70 and the top of the rising wedge formation. US 10 years are trading off a double bottom and 2015 historic resistance line in oversold territory which should be supportive of the greenback and negative for gold prices. As the day ended, the US 10yr treasury yield ranged sideways between 2.36% and 2.41%. With the FOMC minutes around the corner, it is worth noting that the chance of a Fed rate cut by December, implied by Fed fund futures, remained at 120%, with September priced at 60%.

Currency action

In the rest of the FX space, the majors which analysts at Westpac reported on in a summary below performed as follows:

  • EUR/USD fell slightly, to 1.1165. Sterling underperformed with Brexit once again in focus, -0.5% over the day to 1.2735. 
  • USD/JPY bounced from 109.50 to 110.20. 
  • AUD/USD fell from 0.6890 to 0.6865 – marking a fresh three-year closing low – but squeezed as high as 0.6938 this morning in the wake of the Coalition’s surprise win in the Australian federal election. The pair then steadied around 0.6900. 
  • NZD/USD fell from 0.6545 to 0.6514 – a seven-month low. 
  • AUD/NZD closed around 1.0540 on Friday, then probed 1.0600 this morning before steadying around 1.0565/70.

Key events ahead: 

"The busy Fed calendar includes Governor Clarida and NY Fed president Williams at another ‘Fed listens’ event. Fed Chair Powell will deliver the keynote speech at the Atlanta Fed’s annual Financial Market’s Conference at 7pm EST Monday (9am Syd/ 7am Sing/HK Tuesday)," analysts at Westpac explained. 


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