Euro has fallen to record levels in 13 months and Turkish lira is making little gains
The Euro dropped to fresh 13-month lows as concern rose on European bank exposure to Turkey. Meantime the Turkish Lira rebounded off an all-time low of 7.24 to 6.35 lifting EM currencies. Disappointing Chinese data pulled the Australian Dollar to its lowest since January 2017 (0.7224). The Dollar Index (USD/DXY) resumed its climb, closing 0.38% higher at 96.68 (96.28).
Outlook: The Dollar resumed its strong rally in August supported by fresh inflows from the EM currency crises triggered by the crash in the Turkish Lira. The TRY has fallen 25% in this month alone. When traders look at what currency is best to buy, it goes back to the US Dollar.
We need to keep in mind that these are still the northern hemisphere summer months. Trading is dictated by thin volumes which make for volatile moves.
Trading View: The Euro fell as concern also built on a slowdown in European investor and business confidence. The ECB is less likely to normalize policy in the current environment. After spending some time above 1.1400, the Euro plummeted to 1.1330, fresh 13-month lows.
European data releases were mixed. While German ZEW Economic Sentiment beat expectations, Euro-Zone Industrial Production fell short. Euro-Zone and German Flash Q2 GDP both bettered forecasts.
An improvement in the July UK Unemployment rate was offset by a fall in Earnings.
The trio of Chinese data (Industrial Production, Retail Sales, and Fixed Asset Investment) all missed forecasts. This pulled the Aussie down which was climbing off the floor at the time.
The Euro area and Chinese economies in the April-June quarter have slowed down from the steady pace at the start of the year. US Headline and Core Retail Sales data are due out later today followed by housing data on Thursday.
USD/DXY – The Dollar Index rallied 0.38% to close at 96.688 (from 96.28 yesterday). The Dollar Index traded to an overnight low of 96.16. Immediate support for today lies at 96.40 and then 96.15. Immediate resistance can be found at 96.90/97.00. The overnight high traded was 96.97. The Dollar’s rally was broad-based against the Major currencies. Today a trading range is likely between 96.30-96.80. Markets are expecting a healthy US Retail Sales data. Hmm. Preference is to sell rallies at current levels.
EUR/USD – plummeted to a fresh 13-month and overnight low of 1.1330 before bouncing to close at 1.1345 in New York. The Euro had been steady, trading above 1.1400 (overnight high of 1.1429) on better-than-forecast German economic data (Flash GDP and ZEW Business Confidence). In a quick move, someone pulled the rug under the Single Currency which saw EUR/USD drop like a stone. Whatever reason/excuse one will make for that, it was the thin volumes that moved the currency. EUR/USD has immediate support at 1.1330 and then 1.1300. Immediate resistance lies at 1.1380 and then 1.1410. Today look for a likely range of 1.1335-1.1425. Still prefer to buy the dip from here. We will get better levels to sell from.
AUD/USD – The disappointing Chinese data took the wind out of the sales of the Australian Dollar. The Aussie was rallying off the 0.7260 level to 0.7283 (which was the overnight high) when the data came out. Copper prices slid 1.7% to close near 2018 lows. While Asian and EM currencies rallied off their lows, the Aussie struggled to make the background. AUD/USD slumped to an overnight low of 0.7224, not seen since January 2017. AUD/USD closed at 0.7238 in New York. Immediate support can be found at 0.7220/30. The next support level comes in at 0.7200. Immediate resistance lies at 0.7260 and then 0.7290. Once again thin volume will keep Aussie trade volatile. The speculative community is still short AUD bets. The currency almost always looks the softest near its base. Likely range today 0.7220-0.7320. Prefer to buy dips.
USD/JPY – rallied as the pressure on risk and Emerging Markets eased. The yield on the US 10-year bond also rose 2 basis points to 2.90%. USD/JPY closed at 111.15 from 110.72 yesterday. Overnight high traded was 11.314. Immediate resistance on the day lies at 111.30 and then 111.60. Immediate support can be found at 110.90 and then 110.60 (overnight low, 110.587). Likely range today 110.70-111.40. Prefer to sell rallies from current levels.
GBP/USD – Sterling slid to 1.27045 overnight and fresh 14-month lows. The combination of a generally strong US Dollar and Brexit fears continue to weigh on the Pound. Skepticism is building that the UK will come out of negotiations with the European Union on a trade deal. The likely outcome is a no-deal Brexit. This was highlighted by British foreign minister Jeremy Hunt who said yesterday that “Everyone needs to prepare for a chaotic no-deal Brexit”. Hunt was speaking to reporters in Helsinki, Finland. And while he said that he hopes to avoid this outcome, the damage had been done. One wonders if he has a short Quid position like the rest of the market. GBP/USD closed at 1.1718. Immediate support lies at 1.2700 and then 1.2670. Immediate resistance can be found at 1.2750 and then 1.2800. Likely range today 1.2700/1.2800. Prefer to buy dips with this range in mind.
USD/ZAR – The rand (USD/ZAR) firmed by 2.55% against the dollar in early trade on Tuesday morning, nearing the R14/$ mark, after it breached the R15/$ level on Monday.
The local currency was trading at R14.05 to the greenback at 09:45.
The rand had reached its lowest level in two years on Monday to at one stage trade at R15.41/$. This was caused mainly due to the contagion of the financial crisis in Turkey, analysts from NKC African Economics said in a market update on Tuesday morning
Events and economic data releases today: Australia Westpac Q2 Wage Price Index; UK July Headline and Core CPI, PPI Input, RPI; US July Headline and Core Retail Sales, Empire State Manufacturing Index, Industrial Production,Q2 Preliminary Labour Unit Costs and Non-Farms Productivity.
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