Euro broke 1.19 for the first time this year after weak German economic data
Weaker-than-expected German factory orders and Euro-Zone Sentix Investor Confidence saw the Euro push under 1.1900 for the first time this year. This enabled the Dollar Index (USD/DXY) to a 2018 high in thin low volume trading. Oil prices extended their gains as the US prepares for possible sanctions against Iran. President Donald Trump tweeted he will make an announcement later today.
Outlook: The Dollar’s rise was not broad-based with Sterling, Yen and the Kiwi up. The Greenback was flat against the Yen and modestly higher versus the Aussie. While Friday’s lukewarm Payrolls data did not alter the market’s view of further Fed rate hikes, the Dollar’s upside pace may be waning.
US Treasury yields were flat with the benchmark Ten Year’s stuck at 2.95%. The yield on the Two- year bond was unchanged at 2.50%.
Trading View: Weak Euro area data yet again has undermined the Euro. This has been the pattern for a few weeks now and looks set to continue. This saw the Euro slide to just under 1.19 before recovering to close 0.27% lower at 1.1925. Strong support at 1.1900 may exhaust further Euro selling as the Dollar’s upside momentum appears overextended.
Asian Emerging Market Currencies extended falls in thin and illiquid trading, characteristics of EM markets. Northeast Asia generates a significant amount of Oil demand. The virtual collapse in the Venezuelan economy has seen some Latin American currencies like the Argentinian Peso slump.
Fed speakers stuck to their script. The dovish Bostic said he favours two more rate hikes while Kaplan (hawk) said he favours 3 rate hikes at a minimum.
Without fresh yield support, the Dollar’stwo week rally may be over with.
Events and economic data are in full swing with a busy day ahead. The Australian Treasurer, Scott Morrisonannouncesthe Australia’s Annual Budget tonight.
Events and economic data releases today: Australian April Retail Sales, and Chinese trade data (April). Germany releases its Industrial Production and Trade Balance while UK has its Halifax House Prices data.
Federal Chair Jerome Powell speaks in Zurich on “Monetary Policy Influences on Global Financial Conditions and International Capital Flows”
Australian Treasurer Scott Morrison announces Australia’s Annual Budget (2018)
The Dollar Index (USD/DXY) – rose to 2018 highs mainly on the back of the Euro’s fall. The Dollar Index hit a high of 92.974 before closing at 92.770, up 0.19%. Immediate resistance remains at 93.00 which should cap USD/DXY on the day. Immediate support can be found at 92.50 (overnight low 92.448) and then 92.30. Likely range today 92.45-92.95. Prefer to sell rallies today.
EUR/USD – undermined by the disappointing Euro area data, hitting a 2018 low of 1.18976 before climbing to settle at 1.1927 in New York. EUR/USD has immediate and strong support at 1.1900. The next support level is 1.1880 and then 1.1830. The Euro fell against the Pound and Yen as well. Let’s not forget that the speculative community is still long Euro bets. However, they have cut their long positions by 10,000 contracts to the lowest total for 2018. German Industrial Production and Trade data are released later today. Further disappointing data should see the 1.1900 support level break. Immediate resistance lies at 1.1950 and then 1.1980. Likely range today 1.1900-1.1980. Look to trade this range.
AUD/USD – The Aussie’s recovery stopped short at 0.7543 (overnight high) where immediate resistance is found. The 0.7550 level will need to break to see further Aussie Dollar strength. AUD/USD hit a low of 0.74933 overnight. Immediate support lies at 0.7490/0.7500 with further strong support at 0.7475. Unlike the Major currencies, the speculative community is short Aussie. Net speculative Aussie short bets increased in the latest CFTC/Reuters report. With the Dollar’s two-week bounce looking a tad overdone, the Aussie is a buy on any dips with today’s likely range 0.7490-0.7550. Australian April Retail Sales and Chinese Trade data are due today.
USD/JPY – ended flat at 109.07 after hitting a low of 108.649. The Dollar slipped against the Yen as the US Ten-year yield stuck at 2.95%. With London on their May Day holiday, trading volumes were low. USD/JPY has immediate resistance at 109.30 (overnight high 109.27). Immediate support can be found at 108.80 and then 108.60. Topside momentum on the USD/JPY has slowed. Unless we see fresh yield support, expect the Dollar to drift lower with a likely range of 108.60-109.20. Look to trade this range.
GBP/USD – The British Pound finished with a 0.2% gain at 1.3560 (1.3534 yesterday). London was closed for its May Day observance. The Bank of England has their policy meet this Thursday. Markets have reversed their expectations of a rate hike as recent UK domestic data fell short of forecasts. The focus from here will be the MPC’s tone and guidance from the meeting. GBP/USD has immediate resistance at 1.3575 (overnight high). Next resistance lies at 1.3600. Immediate support can be found at 1.3535 and 1.3515 (overnight low). Likely range 103530-1.3580. Look to trade this range.
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