Euro is rising and breaching 1.17 after the Trump trade agreement with EC President Claude Juncker
Recap: The Euro rose, benefitting from an agreement between EC President Claude Juncker and US President Donald Trump, averting a trade war. The EU has agreed to expand European imports of LNG (Liquid Natural Gas) and soybeans. The US and the EU have also resolved to lower industrial tariffs. The US Dollar fell across the board. The positive risk tone lifted Wall Street stocks. Bond yields climbed. The Australian Dollar lifted despite a lower
Outlook: The trade agreement between US President Trump and EC Head Juncker is viewed as a positive development because it takes away uncertainty for the markets. Naturally stocks rose. Earnings however, which lifted stocks yesterday, were mostly below expectations. While the Dollar traded lower, the recent ranges remain. And should continue to do so.
Trading View: In past sessions the risk of a trade war has pushed the Greenback lower. Now, a trade agreement which averts a war still sees a lower Dollar. Trump managed to get these concessions, and he wants a lower Dollar.
Recent PMI and IFO data out of Europe and Asia fell due to the trade tariff threat. The trade agreement may enable more positive economic data which could lead to a quicker pace of central bank policynormalisation.
US Bond yields climbed with the 2-year up four basis points to 2.67%. The yield on the benchmark 10-year US treasury rose 2 basis points to 2.97%. We are three basis points away from 3.0%. In contrast, Germany’s 10-year Bund yield closed flat at 0.39%. Japan’s Ten-year JGB yield slipped to 0.06% from 0.07%. Fed Fund Futures are now almost fully pricing in two more Fed rate hikes in 2018. At the end of the day, yields and differentials matter. Which is Dollar supportive.
USD/DXY – The Dollar Index closed at 94.196, down 0.44% from yesterdays 94.603. USD/DXY traded to an overnight high of 94.665 before drifting lower. Overnight low traded was 94.142. Immediate support for the Dollar Index lies right here between 94.10/20. The next support level is at 93.80. Immediate resistance can be found at 94.50 and then 94.70. Higher US yields across the board should see the USD/DXY steady at these lower levels. Likely range today 94.10-94.70. Prefer to buy dips.
EUR/USD – The Euro rallied to an overnight high of 1.17386 on the trade agreement news between Junker and Trump. EUR/USD closed at 1.1732, up 0.37% from 1.1685 yesterday. Euro area date released yesterday saw Germany’s IFO Business Climate Index match forecasts. EUR/USD has immediate resistance between 1.1740/50. The next resistance level is found at 1.1780. Immediate support lies at 1.1710 and then 1.1680. Later today sees the ECB rates policy meeting where the ECB are expected to keep their Main Refinancing Rate unchanged at 0.00%. Mario Draghi is not expected to make any changes to the ECB’s recent message that the taper is on track. Likely range today 1.1650-1.1750. Prefer to sell rallies from here.
AUD/USD – The Aussie rose supported by a generally weaker US Dollar, higher metals prices (Copper up 1.6%), a stronger Chinese Yuan and Emerging Market currencies. AUD/USD closed at 0.7460, a two-week high. Yesterday Australian Headline CPI missed forecasts and saw the Aussie immediately drop to a low of 0.7392. The yield on the Australian 10-year treasury dropped 4 basis points to 2.68%. Against the backdrop of higher US yields, the Aussie Dollars topside is limited. Immediate resistance lies at 0.7470 (overnight high traded was 0.74645). The next resistance level is at 0.7500. Immediate support can be found at 0.7420 and then 0.7390. Likely range today 0.7400-0.7470. look to sell rallies.
USD/JPY – drifted lower to finish at 110.95, down 0.28% from 111.22 yesterday. With a positive risk tone, and a higher US Ten-year yield one would have expected the Dollar Yen higher. However, with the BOJ meeting early next week, speculation remains that the BOJ may modify its stimulus program. That said, Japan’s 10-year JGB yield slipped one basis point to 0.06%. USD/JPY traded to a low of 110.664. Immediate support lies at 110.70 and then 110.40. Immediate resistance can be found at 111.15 and then 111.35. Likely trading range today 110.70-111.40. Prefer to buy dips.
USD/CAD – The US Dollar slumped to 1.3040 Canadian at the New York close from 1.3158 yesterday giving the Loonie, best-performing currency status. Last week we saw a strong rise in Canadian retail sales. The trade agreement between the US and the EU has renewed optimism on a NAFTA deal. The US prefers bilateral deals with Canada and Mexico but both countries are still pushing for a 3-way NAFTA. USD/CAD traded to an overnight and 6-week low at 1.30244. Immediate support lies at 1.3020 and then 1.3000. Likely range today 1.3025-1.3125. Prefer to buy dips from here.
USD/ZAR – After rallying Tuesday on news that China had committed to investing $14.7bn in SA, the rand continued to trade stronger on Wednesday, strengthening by 0.4% at noon.
The local currency opened at R13.28 to the greenback, and was trading at R13.23/$ at 12:27.
Events and economic data releases today: Spain Unemployment Rate; ECB Main Refinancing Rate Decision and ECB Rates Press Conference; US Headline and Core Durable Goods Orders; US Weekly Jobless Claims, US Kansas City Fed manufacturing activity