Euro jumps to record highs and Dollar to its lowest level after Jackson Hole symposium last week
The Euro jumped another 20 points in early Sydney after soaring over 1% on Friday. Mario Draghi did not single out the European currency’s strength in his speech at Jackson Hole, as many had expected. Traders took this as a green light to purchase Euros. Janet Yellen focused her speech on the US financial regulations. She made no mention of monetary policy. The Dollar’s fall was broad-based, although at varying extents.
German IFO Business Climate Index: 115.9 against a forecast 115.5 and previous 116.00
German Final Q2 GDP: 0.6% against forecast 0.65 and previous 0.6%
US Headline Durable Goods Orders: -6.8% against a forecast -6.0% and a previous -6.4%. This often includes aircraft orders.
US Core Durable Goods Orders (ex. Transportation): 0.5% against forecast 0.4% and previous 0.1%
Global Stocks rose. The US Dow finished up 0.14%, while the S&P 500 rose 0.17%.
Treasury prices climbed, yields fell. The yield on the US Ten Year Bond fell 3 basis points to 2.17%. The German Ten Year Bund yield closed flat at 0.38%.
USD/DXY – slumps 0.82% to close at 92.522 (against 93.22 Thursday)
EUR/USD – soars 1.08% to close at 1.0922 in NY. The Euro then jumps to fresh Jan 2015 highs to open at 1.1943 in early Asia.
USD/JPY –little-changed, closes at 109.35.
GBP/USD – rises on a weaker USD, closing at 1.2877 before settling higher at 1.2910 in early Asia
AUD/USD – up at close to 0.7930 (from 0.7905 on Thursday)
USD/SGD – falls to 1.3555 from 1.3610 on Friday. The Dollar fell against most EM currencies on lower US treasury yields.
Outlook: Friday’s price action after the Jackson Hole summit saw the Dollar’s consolidation for August end with a resumption to the downside. This could easily accelerate. However, there are a few factors that counter this. Stocks rose because US National Economic Council Director Gary Cohn said in an interview (with Bloomberg) that he expected to push Trump’s tax reform this week. Currency traders ignored this. The latest CFTC/Reuters Commitment of Traders report (week ended August 22) saw an increase in total speculative US Dollar shorts to US$ 9.40 billion.
Important Economic data releases this week include the Euro Zone CPI Data (August) on Thursday (31 Aug) and US Non-Farms Payrolls (August) on Friday (1 Sept).
Today’s Economic Data releases:
Euro Zone M3 Money Supply Data (GMT8am, Aug 26/Local Time 6 pm, Aug 26) – Annual forecast: 4.9% from the previous 5.0%.
US Dallas Fed Manufacturing Business Index (August): (GMT 2 pm, Aug 28/Local Time 12 am, Aug 29): previous reading was 16.8 with no forecasts given
Trading View: The Euro soared because the market was expecting Draghi to talk down the currency. He chose not to, and EUR/USD broke out of its consolidation phase. The Single Currency continues to grind higher in early Asia (up to 1.19 58 high so far). The next stop is the psychological 1.20 level. The US Dollar suffered a double-whammy because there was no perceived support coming from Yellen in the way monetary policy tightening. The speculative market has increased its Dollar short bets. And traders seemed to have forgotten that the Fed is likely to signal a formal start to its balance sheet unwinding in September.
The Dollar Index (USD/DXY) fell to its May 2016 lows at 92.42 lows. It needs a clean break of 92.00 to get going. Markets are expecting the pace of US jobs growth to slow in August. Friday’s US NFP data will reveal if this is the case. Traders ignored the fact that Trump’s agenda will revolve around tax reform according to US National Economic Council head Cohn. So there is good reason to be cautious about an accelerated Dollar decline from these levels.
EUR/USD – continues to rise in early Asia, trading to an intraday high of 1.1958 so far. The close in New York on Friday was at 1.1920. This should be short term support. Further support can be found at 1.1890-1.1900 (which was the highs seen earlier this month). The Euro Zone CPI data for August will be released later this week (Thursday). Before that sees the release national CPI data from Spain and Germany. Little change is expected from July. The Euro’s rise was also against the other currencies. EUR/JPY rose to 130. 65 from 128.75 Thursday while EUR/GBP soared to 0.9270, it’s highest level since October 2009. As the Euro rises, not just against the US Dollar but other currencies, one wonders who will be the next ECB official to signal discomfort. Draghi must be slapping himself for not saying anything Likely range today 1.1910-1.1970.
USD/JPY – The Dollar close little-changed against the Yen. The overall range of 108.70-109.70 should continue to cap the USD/JPY on both sides in this environment. There is short term resistance at 109.50 and then 109.70. Immediate support can be found at 109.00 and then at 108.70. Likely range today 108.70-109.70.
GBP/USD – Broad-based US Dollar weakness saw Sterling jump after it had been in the doldrums all of last week. GBP/USD finished at 1.2875 in New York before climbing to 1.2920 this morning. There is immediate resistance found at 1.2940. Short term support lies at the New York close of 1.2885. There is further support at 1.2860 and 1.2840. Likely range today 1.2875-1.2975.
AUD/USD – finished up at 0.7930 in New York before climbing further to 0.7950 in early Sydney. The Australian Dollar has immediate resistance at the 0.7950/60 level. The next level of resistance lies at 0.7970/80. Good support is found at 0.7910/20. Likely range today 0.7920-0.7970.
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