Euro is rising to record highs and Gold is settling above the 1350 level
Global tensions eased and fears of a trade war abated as China sought ways to maintain negotiations with the US. The Yen reversed gains and dropped against the US Dollar as risk appetite returned while an internal Japanese scandal deepened. The Dollar, however, continued to drop against the rest of its Rivals with sentiment towards the Greenback decidedly negative. In Europe, Jens Wiedemann, Bundesbank (German central bank) President said that market expectations of a rate hike toward next year were “not completely unrealistic”. EUR/USD hit fresh 5-week highs.
Outlook: The Dollar still can’t seem to find a friend. The market uses any excuse to sell Dollars and buy its Rivals. The Euro extended its rally supported by Wiedemann’s comments. New Zealand’s trade balance surprisingly swung into a surplus from a deficit. Which boosted the Kiwi.
A lot of currency strength against the US Dollar came from purchases made against the JPY. Cross currency pairs like the EUR/JPY, GBP/JPY, AUD/JPY and NZD/JPY, including the USD/JPY were bought across the board.
Trading View: While the Dollar fell against most of its Rivals, US Treasury yields rebounded. The two-year yield rose 3 basis points to 2.28%. The benchmark Ten Year yield rose to 2.85% from 2.81%. Other global bond yields were mostly flat. At some stage, this dynamic will bring the Greenback needed support. Apart from risk appetite returning, a deepening Japanese internal political scandal involving Prime Minister Abe weighed on the Yen.
Jens Wiedemann is Germany’s candidate for the next ECB President so what he says does carry some weight with traders. However current President Mario Draghi’s term does not end until October 2019. As far as the Euro is concerned, Super Mario still calls the shots.
Market positioning saw net speculative Total Dollar shorts increased. We look at the current breakdown which as we highlighted yesterday saw notable shifts income currencies.
Dollar Index (USD/DXY) – dropped further, extending its losses to finish down 0.44% at 89.035 (89.84 yesterday). The Dollar Index traded to an overnight low of 88.979. We can find immediate and fairly strong support at 88.90 and 89.00. The next support level is at 88.50 (88.56 was the low on Feb 16). Had the USD/JPY not rallied and instead dropped we would probably be at those levels now. Immediate resistance lies at 89.30 and then 89.50. Likely trading range today 89.00-50.
EUR/USD – while the Dollar can’t seem to find a friend, the Euro has friends everywhere. Any reason to purchase Euros, snap it up. The German Bundesbank President alludes that a rate hike next year is possible, buy Euros. The Euro hit a fresh 5 week high, trading to 1.2462 before settling at 1.2445 at the NY close. The German Ten Year Bund Yields did not move overnight, stuck at 0.52%. The yield on the US Ten year bond rose to 2.85% from 2.81%. While speculative net Euro longs were trimmed, the net total is still at multi-year highs. EUR/USD has immediate resistance at 1.2480 and then the big 1.2500. Immediate support can be found at 1.2420 and then at 1.2400. Likely range today 1.2360-1.2460. Look to sell rallies.
USD/JPY – had a good bounce from the lows at 104.62 to an overnight high of 105.48. The Dollar settled at 105.47 in New York. Part of the USD/JPY fall was the market’s selling other currencies and purchasing JPY. As risk appetite returned, the safe haven Yen reversed. A deepening political scandal over a cover-up involving Prime Minister Shinzo Abe and his wife has seen a loss of confidence in his government. A gain of 4 basis points in the US Ten year yields (Japan’s ten-year JGB yield was stuck at 0.01%) also buoyed the Greenback. USD/JPY has immediate resistance at 105.70 and then 105.90. Immediate support lies at 105.20/30 (previous support). Likely range today 105.20-105.90. Look to buy USD dips.
GBP/USD – closed higher on broad-based Dollar weakness. Sterling has also benefited from the market’s view that the BOE will likely hike rates in May. The transition deal on Brexit between the UK and the European Union started the ball rolling in the Pound’s favour. GBP/USD traded to an overnight high of 1.4245, near 3-week highs before settling to close in NY at 1.4233. GBP/USD has immediate resistance at 1.4250 and then 1.4280, Brexit negotiations will be much more complicated than the market makes it out to be. The yield on the Ten years UK Gilt was unchanged at 1.44%. Like the Euro, it’s difficult to get bulled up on the Pound up here. Likely range 1.4170-1.4250. Look to sell rallies.
USD/ZAR – The rand ( USD/ZAR) may again test the R11.50 level against the dollar on the back of positive economic developments in SA, including Moody's decision to not cut the rating on the country's sovereign debt. The local currency was trading at R11.63 to the dollar at 10:26, after briefly touching R11.60 to the greenback, its best level in a month. It opened at R11.67/$.
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***Information contained in this newsletter are gathered from third parties and should not be regarded in any way as trade advice or recommendations by CM Trading. CM Trading does not recommend or advise traders or investors in their decision making but merely provides information from the market for its clients as additional information is made available as per the events occurring in the financial markets.
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