Currencies and metals collapse against the US dollar and Trump is worry about the strong dollar and criticizes Powell and his policy
The action began in Asia yesterday as the PBOC (Chinese central bank) added to the Yuan weakness, officially fixing it lower against the Dollar. This was against the backdrop of broad-based Dollar strength following Fed Chair Jerome Powell’s upbeat comments on the economy. US President Trump, in an interview with CNBC, expressed his concern about the “strong Dollar”, adding that the Chinese Yuan has been dropping like a rock. The Dollar Index (USD/DXY) fell off its highs, but still ended 0.1% higher. The Euro ended flat, USD/JPY fell, the Aussie, Kiwi and EM currencies slumped.
Outlook: Its game on. Currencies welcome to the trade wars. While this is not the first time Trump voiced his displeasure with a strong Dollar, he openly criticized Fed Chair Jerome Powell and his policies. Trump also referred to the Euro, as the trade war between the US and the Euro-Zone heats up.
US bond yields dropped. The yield on the benchmark US Ten year fell to 2.84% from 2.87%.
Yesterday Beijing openly endorsed a weaker Chinese Yuan with the PBOC’s official fix lower. This is a dynamic new in the marketplace which could see some Dollar weakness in the short term.
Trading View: While the Dollar Index (USD/DXY) finished little-changed, trading in all currencies was volatile. Risk appetite suffered from the DOW dropping 0.48%. USD/JPY closed 0.32% lower at 112.43. Commodity prices slumped. Silver slid 1.45%. Copper prices were over 2% lower, weighing on other base metals. The Aussie and commodity/dollar-bloc currencies slumped. Sterling managed to close just above the 1.3000 psychological level after plummeting on markedly weaker Retail Sales data. The Pound was 0.29% weaker against the Greenback.
Both US sets of data released yesterday, Weekly Jobless Claims and Philly Fed Manufacturing Index beat expectations.
USD/CNH rose to fresh twelve-month highs at 6.8072 before easing to settle at 6.7800. This year the Dollar has gained almost 4 % against the Yuan. Traders will keep a close eye on the PBOC CNY FIX today.
The fall in US yields, both in the 10-year (-3 bp) and the 2-year (-2 bp) will serve as headwinds for the Dollar. Other global yields were a touch lower, or flat.
USD/DXY – The Dollar Index ended with modest gains at 95.18, up 0.1%. USD/DXY traded to an overnight high of 95.6523 before sliding at the New York close. The attempt above 95.50 failed following Trump’s comments. Immediate resistance remains at the 95.50 level. The next level of resistance is 95.70. Immediate support can be found at 94.90 (overnight low 94.933). We could well be back to the 94.20-95.50 trading range. Today look to trade between 94.90 and 95.30. Prefer to sell rallies.
AUD/USD – slumped to an overnight low of 0.73225 after initially climbing to a high of 0.7441 on robust Jobs data. The Australian economy created over 50,000 jobs in June (17,000 were expected) with a rise in youth employment. The Jobless rate remained at a low 5.4%. This lifted the Aussie to its highs yesterday. As the Dollar strength gained momentum with the Chinese Yuan and commodities weakening, the Aussie succumbed to the pressure. Trump’s US Dollar comments saw the Aussie rally off its lows to close at 0.7355. The backdrop of weaker commodity prices and its impact on global growth will weigh on the Aussie and dollar-bloc currencies. A weakening Chinese Yuan and Emerging Market currencies are not supportive of the Aussie. However, the speculative community is currently short Aussie bets. The immediate support at 0.7320/30 is strong and should hold. Immediate resistance lies at 0.7380 and then 0.7400. Likely range today 0.7330-0.7400. Prefer to buy dips.
USD/JPY – slipped to close at 112.42, down 0.32% from yesterday’s 112.86. USD/JPY traded to an overnight high of 113.177, close to 8-month highs before sliding lower. The fall in the US 10-year yield will keep a lid on the USD/JPY. Risk sentiment is also fragile now with the Trump toe-to-toe with China on the currency/trade wars. Let’s not forget that the speculative community is short JPY bets. Immediate support for USD/JPY lies at 112.10 (overnight low 112.055). The next support level can be found at 111.80. Immediate resistance is at 112.80 and then 113.10. Look to sell rallies with today’s likely range 112.00-113.00.
GBP/USD – Sterling plummeted after traders pounded the British currency with a weaker read on UK June retail sales. GBP/USD traded to an overnight low of 1.2957 before rallying to 1.3015 at the New York close. GBP/USD has immediate resistance at 1.3050 and then 1.3080 (overnight high 1.30831). Immediate support can be found at 1.3000 and 1.2970. Likely range today 1.2970-1.3040. Prefer to buy dips, the speculators are currently short Sterling.
EUR/USD – Against all the noise that went into the marketplace yesterday, the Euro ended little-changed at 1.1645 (1.1640 yesterday). EUR/USD slid to an overnight and 3-week low of 1.1575. Trading was volatile in the Single currency. EUR/USD has immediate resistance at 1.1680 and then 1.1710. Immediate support can be found at 1.1610 and then 1.1580. The Euro may become a hot topic as the trade conflict between the European Union and the US escalates. Expect more volatile times ahead. Likely range today 1.1610-1.1710.
Events and economic data releases today:
Japan National Core CPI (annual) and All Industries Activity Index; German June PPI; Euro-Zone Current Account; UK Public Sector Net Borrowing data; Canada CPI, Trimmed CPI, Core Retail Sales; G20 and OPEC Meetings.
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