Euro continues to rise and Dollar is down after Jerome Powell’s speech
Investors chose to put their rosy shades on, lifting risk appetite as the US and Mexico agreed to a trade deal. Mexico’s Peso rallied 0.7% against the US Dollar. The Dollar Index (USD/DXY) fell another 0.4% to 94.756 (95.164) following a dovish leaning speech at the weekend by Jerome Powell. Wall Street stocks hit record highs, bond prices fell. Yields climbed higher.
Outlook: While a trade agreement has been reached with the US and Mexico, a market positive, US trade issues with other countries remain unresolved. China-US trade talks failed yet again amidst fresh Russian sanctions. While most EM currencies lifted, the Turkish Lira and Russian Rouble fell.
Markets have interpreted Jerome Powell’s speech as dovish, simply not bullish enough to carry net speculative long Dollar bets any higher.
Trading View: The lift in stocks and bonds saw yields climb higher. The benchmark US 10-year yield climbed 3 basis points to 2.85%, lifting off the 2.80% base. Other global yields were flat apart from Germany’s 10-year Bund yield,up to 0.37% from 0.34%. Which should be mildly supportive of the US Dollar today. There was one major data release yesterday. Germany’s IFO Business Climate beat forecasts rising to 103.8 from 101.7.
Long US Dollar market positioning will keep the Dollar under pressure. And with the northern hemisphere summer period ending soon (next week), liquidity and volumes will rise. This may see currencies back into more range-like trading. That said, risky events have not gone away. Trump’s legal woes, pessimism over Brexit negotiations, Emerging market meltdowns still exist. Turkey’s return from an extended holiday saw the USD/TRY rally just over 2% to 6.1200 (6.00 last week).
USD/DXY – extended its drop to finish 0.4% lower at 94.756 from 95.164 yesterday. The Dollar Index has lost 1% from last week. USD/DXY traded to a high just under 97.00 a little less than two weeks ago. Overnight we saw the Dollar Index hit a low of 94.687. There is immediate support right here at 94.70, followed by 94.40. Strong support lies at 94.00. While this corrective move lower can take us to 94.00, the rise in the US 10-year yield should see a pause at current levels. Immediate resistance can be found at 95.00, followed by 95.30 (which was the overnight high). Expect a likely trading range today of 94.60-95.10. Prefer to buy dips today.
EUR/USD – lifted on the combination of a generally weaker US Dollar and a strong rise in German business confidence. The Euro rallied to finish up 0.51% to 1.1682 (1.1622 yesterday), best performing currency among the Majors. EUR/USD traded to an overnight high of 1.16936. Immediate resistance lies at 1.1700. The next resistance level can be found at 1.1730. Overnight low reached was 1.15946. EUR/USD slid all the way down to 1.1301 in mid-August as fears of contagion from Turkey’s blow-up rose. We also highlighted yesterday that net speculative Euro bets increased modestly. Expect a pause from here with more two-way trading. Likely range today 1.1610-1.1690. Prefer to sell rallies today.
AUD/USD – following all the political drama that unfolded last week, the Aussie settled, rallying 0.46% yesterday. The lift in Asian currencies led by the resurging Chinese Yuan (due to PBOC measures), higher metal prices and an overall weaker US Dollar have lifted the Aussie. AUD/USD closed at 0.7348 in New York (0.7325 yesterday). AUD/USD traded to an overnight high of 0.7356. Immediate resistance for today lies at 0.7360, followed by 0.7390/0.7400. Immediate support can be found at 0.7320, followed by 0.7300. Overnight low traded was 0.73074. Likely range today 0.7320-0.7370. Look to trade the range shag.
USD/JPY – the rise in risk appetite kept the USD/JPY buoyed albeit in a tight range. The Dollar closed at 111.07 Yen, from 111.25 yesterday. Overnight low traded was 110.935. Immediate support on the day lies at 110.90. The next support comes in at 110.60. Overnight high traded was 111.347. Immediate resistance lies at 111.30 followed by 111.60. The rise in US 10-year yields was not matched by its Japanese counterpart which closed flat at 0.09%. This should keep the USD/JPY in a likely trading range of 110.90-111.40.
GBP/USD – The British Pound lifted on the back of the weaker US Dollar, closing 0.44% higher at 1.2895. GBP/USD has immediate resistance at 1.2900 (overnight high) followed by 1.2930. Immediate support can be found at 1.2870 and then 1.2840. The UK was on holiday yesterday, so no Brexit news is good news. Look for a likely range today of 1.28650-1.2900. Content to trade this range today.
Events and economic data releases today: Japan BOJ August Core CPI (Y/Y); US Conference Board Consumer Confidence Index (August), US July Goods Trade Balance, June Case Shiller Home Price Index (Y/Y).
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