Euro climbing to its highest level since 2015 and US policy turmoil is weakening the dollar
The Euro powered ahead in thin month-end trading to end up 0.8%. Sterling followed close behind as traders anticipate a hawkish Bank of England in their upcoming monetary policy meeting on Thursday. This fuelled further technical selling of the Greenback, already the victim of overwhelming bearish sentiment. The Dollar Index (USD/DXY) was dragged lower to close down 0.54% at 92.817. (93.34).
The US political landscape soured further as President Trump removed his communications director, hired just 10 days ago.
Japanese Preliminary Industrial Production: 1.6% against previous downwardly revised -3.6%
China Manufacturing PMI: 51.4 against a forecast of 51.5 and a previous 51.7.
China Non-Manufacturing PMI: 54.5 from the previous 54.9
NZ ANZ Business Confidence: slipped to 19.4 from 24.8
German Retail Sales (July): monthly sales rose to 1.1% from the previous 0.5%
Euro zone Flash Headline CPI: 1.3% (vs forecast 1.3%), previous 1.3%
Euro zone Flash Core CPI: 1.2% (vs forecast 1.1%), previous 1.1%
US Chicago PMI: slipped 58.9 against forecast 60.8, previous 65.7
US Pending Home Sales: rose to 1.5% against a forecast rise of 0.9% and previous fall -0.7%
Global stocks finished mixed. The US DOW closed at a record high, up 0.3%. The NASDAQ dropped 0.42% on further tech stock selling.
Yields had little movement. The Ten Year US Treasury yield finished flat at 2.29%. The yield on the German Ten Year Bund was unchanged at 0.54%.
EUR/USD – jumped higher to finish at 1.1841 (1.1753 yesterday) before settling at 1.1830.
GBP/USD – soared to 1.3202 at the close, up 0.71% from 1.3135 yesterday.
USD/JPY – slipped to 110.25 (110.75) in line with the Dollar’s weakness against the Majors.
AUD/USD – rose marginally to close at 0.7999 after a brief stint above 0.80 cents
USD/CAD – finished higher against the general trend at 1.2475 (from 1.2435 yesterday). Technical month end adjustments dominated trade.
Outlook: The Euro extended it's gained and powered through, trading above 1.1800 for the first time since January 2015. Euro zone inflation held steady at 1.3 % and German retail sales saw a healthy rise of 1.1%. While US economic data was uneven. Chicago Purchasing Managers Index fell to 58.9 from 65.7. US Pending Home Sales rose 1.5% against a forecast rise of 0.9%. The Dollar sentiment remains overwhelming bearish. However, the Dollar’s fall was not broad-based. Yesterday’s moves were exaggerated by thin month-end trading conditions and position adjustments. The US Dollar managed strong gains against the Canadian Dollar, (up 0.62%), Mexican Peso (up 0.62%) and South African Rand (up 1.55%). The Aussie, Kiwi and Swiss Franc were little-changed.
Today’s data and events:
China July Caixin Manufacturing PMI (GMT 1.45 am, Aug 1, Local Time 11.45 am, Aug 1) – forecast at 50.5 from previous 50.4
RBA Interest Rate Decision and Rate Statement (GMT 4.30 am, Aug 1/Local Time 2.30 pm, Aug 1) – The RBA is expected to leave it’s cash rate steady at 1.5%
UK Manufacturing PMI (GMT 8.30 am, Aug1/Local Time 6.30 pm, Aug 1) – expected 54.4 (54.3)
Euro zone Flash Q2 GDP (q/q) – (GMT 9 am, Aug 1/Local Time 7 pm, Aug 1) – forecast 0.6% vs Q1 0.6%
US June Personal Spending (monthly) – (GMT 12.30 pm, Aug 1/Local Time 10.30 pm, Aug 1) – expected 0.1 % from previous 0.1%
US June Core PCE Price Index – (GMT 12.30 pm, Aug 1/Local Time 10.30 pm, Aug 1) – The goods and services price index is forecast at 0.1% against the previous 0.1%
US ISM Manufacturing Index – (GMT 2 pm, Aug 1/Local Time 12 am, Aug 2) – forecast 53.2 from 53.2
Trading View: The market remains overwhelmingly bearish on the US Dollar. It’s favored vehicle to express that is via the Euro. EUR/USD has risen almost 12.5% this year, much of that coming in April after the French election. This month alone the Single Currency is up 3.5% against the Greenback. This has pushed the Dollar Index (USD/DXY) to 92.82, its lowest close since January 2015. The Euro has come a long way in a short period of time and a correction should be expected. Yesterday the Dollar rose against the Loonie and most Emerging Market currencies. The Aussie and Kiwi were little-changed. The events and data ahead could have a strong impact on the currency markets which could see a more sustained and powerful Dollar correction. Tonight sees key US Core PCE Price Index and ISM Manufacturing data.
EUR/USD – the Euro had a strong turn-around on Friday in spite of stronger US Q2 GDP growth. Traders chose to focus on the employment cost and price index (which were lower). The break above 1.1800 came in thin markets as the political situation in the US deteriorated further with Trump’s dismissal of his communications director. EUR/USD has resistance at 1.1850 (overnight high was 1.1845). Immediate support is found at 1.1770/80. Speculative Euro longs remain at multi-year highs. Likely range today 1.1770-1.1850 with the preference to sell rallies.
AUD/USD- traded marginally higher to close just under 0.80 cents after trading to an overnight high of 0.8003. This morning the Aussie has been stuck to a tight 0.9798-04 trading range so far. The RBA Board meets on interest rates today and is expected to keep its cash rate unchanged at 1.5%. However, traders will closely scrutinise the RBA’s statement following its decision. The Australian central bank is expected express its displeasure with the strong Australian Dollar after speeches made last month by Governor Lowe and his Assistant, Debelle. Markets saw their protests as “low-level” and the Aussie rallied off its lows. Metal prices remain robust with Copper and Iron Ore extending their gains. Speculative Aussie Dollar longs increased to their highest since April 2016. The AUD TWI remains elevated above 67, closing at 67.3 yesterday. AUD/USD has resistance at 0.8020 and then at 0.8050. There is good support at 0.7950/60. Likely range prior to the RBA 0.7970-0.8020. Sell rallies.
USD/JPY – slipped to close at 110.25 from 110.75 yesterday. Japanese Industrial rose 1.6% after a fall of 3.6%. USD/JPY has immediate support at 110.20 ( overnight low) and then at 109.80. Resistance comes in at 110.60/70. The driving force for the USD/JPY remains the US yields. There was no net movement in the Ten year US and Japanese Treasury yields yesterday. Likely range today 110.00-70.
GBP/USD – rallied strongly to close at 1.3210 after trading to an overnight high of 1.3212. The Bank of England’s Monetary Policy Committee meets on Thursday to discuss interest rates. Hawkish comments from a few BOE officials have fuelled speculation of a possible rate change. GBP/USD has resistance at 1.3220 and then 1.3250. There is good support found at 1.3160 (which has been the previous top). Sterling has had a solid rally but Brexit negotiations ahead remain a headwind. Likely range today 1.3160-1.3220.
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