Markets are quiet due to the lack of economic data awaiting the meetings of central banks in Britain and Switzerland this week
The Dollar Index (USD/DXY) closed little-changed yesterday even as trade tensions simmered. China retaliated to US trade tariffs with a levy on US products that saw the Offshore Chinese Yuan hit 2018 lows against the Greenback (USD/CNH). China and Hongkong were closed yesterday. Muted trading becalmed markets with little movement in the Majors. Wall Street stocks pared earlier falls, ending with modest losses.
There were no major economic data released yesterday. Traders were more focused on the World Cup than the world bourses. Global yields were little changed. The US Ten Year bond yield was steady at 2.92%. Germany’s 10-year Bund yield closed at 0.39% from 0.40% yesterday. Today sees the minutes from the RBA’s latest meeting released, as well as US Housing data. This week sees the Bank of England and Swiss Central Bank monetary policy meetings.
Trading View: Market positioning saw few changes in the currencies in the latest CFTC report.
Net speculative Euro long bets saw a minor drop to +EUR 88,000. contracts (week ended 12 June) from +EUR 89,000. Amazing considering the Euro slump last week. There was a change in JPY net positioning from -JPY 3,000 contracts to +JPY 5,000. Meantime, speculators added to their long GBP bets to total GBP 11,000 bets from +GBP 7,000. Net speculative Aussie shorts were pared to -AUD 15,000 bets from -AUD 20,000.
Following last week’s Fed and ECB policy meets, the Dollar remains bid on dips. Speeches from central bank leaders (Draghi, Kuroda, Powell, Lowe) at the ECB Sintra Forum in Portugal will be closely monitored.
Events and economic data releases today: RBA Monetary Policy Meeting Minutes, Australian Q1 House Price Index, Euro-Zone Current Account, US Building Permits and Housing Starts
While the trade impact of China’s reciprocal tariffs on US products (autos, soybean, seafood) are small, there is a clear risk of further escalation. This would affect risk sentiment and weigh on the Dollar.
The Dollar Index (USD/DXY) – finished little-changed at 94.752 (94.788 Friday). USD/DXY traded to an overnight high at 95.048 before drifting lower on trade concerns. Immediate resistance remains at the 95.00/10 level. The next level of resistance can be found at 95.50. Immediate support lies at 94.60 and then 94.20. Expect further consolidation today between 94.70 and 95.20.
EUR/USD – Last week’s divergence in policy and outlook between the ECB and Fed saw the Euro plummet from 1.1800 to 1.1500. Yesterday’s trade was muted with the Euro holding 1.1565 (overnight low) before climbing to close at 1.1623, up 0.20%. Yesterday tensions arose between Germany’s political parties on migrant controls putting a strain on Merkel’s coalition. The migrant crisis in Europe which has subsided still weighs on European politics and has seen the rise of right-wing and populist governments across the continent. Sweden is next with their general election in September where immigration policy is a key factor. There was little change to the speculative community’s long Euro bets, although total EUR longs are at their lowest since mid-December 2017. EUR/USD has immediate support at 1.1580 and then 1.1550. Support at 1.1500 remains strong. Immediate resistance can be found at 1.1650 and then 1.1680. Likely range today 1.1585-1.1655. Look to sell rallies to 1.1680
USD/JPY – saw mild losses on the Yen’s haven status to close at 110.54 (110.67 Friday). There was little movement in net speculative JPY positioning. Any souring of risk sentiment due to global trade tensions will keep a lid on the USD/JPY. The US Ten Year bond yield was steady, closing at 2.92%. Japanese JGB Ten-year yield was unchanged at 0.03%. USD/JPY has immediate resistance at 110.70 and then 111.00. Immediate support can be found at 110.30 (overnight low) and then 110.00. Likely range today 110.20-110.90. Prefer to sell rallies.
AUD/USD – drifted lower in quiet trading to close at 0.7422 (0.7445 Friday). The Aussie remains heavy following last week’s miss on Employment and the generally stronger US Dollar. Although Emerging Market currencies were a touch stronger yesterday, they remain weak and vulnerable to further fall. Which is Aussie negative, particularly Asian EM currencies. The Thai Baht remained soft after falling 1.4% on Friday (USD/THB 32.65 from 32.15). RBA meeting minutes are released today. The speculative community trimmed their Aussie short bets in the latest report (week ended June 15) to -AUD 15,000 from -AUD 20,000. The US Dollar and market positioning will be the main determining factor for Aussie trading. Immediate resistance can be found at 0.7460 and then 0.7500. Immediate support lies at 0.7400 and then 0.7390. This morning AUD/USD slumped to 0.7393 lows. Likely range today 0.7385-0.7465. Prefer to buy dips.
GBP/USD – slipped to 1.3247 from 1.3277 Friday. While Brexit uncertainties remain, the Bank of England policy meeting on Thursday will be the main factor for Sterling trading. Net speculative GBP long bets increased to +GBP 11,000 from +GBP 7,000 in the latest CFTC/Reuters report. GBP/USD has immediate support at 1.3225 (overnight low) and then 1.3210. Immediate resistance can be found at 1.3280 and 1.3300. Likely range today 1.3230-1.3330. Look to sell rallies.
USD/ZAR – The rand (USD/ZAR) continued to trade at six-month lows on Monday, skidding more than 1.7% to the US dollar as global developments continued to weigh on the local currency.
“The latest round of trade tariff retaliations between the US and China is dragging down emerging markets as investors return to the safety of the USD for now.
“How this trade spat plays out will remain unknown for now, keeping the market cautious,” said TreasuryOne dealer Wichard Cilliers in a snap note.
By 16:47 the local unit was trading 1.74% weaker at R13.66 against the greenback.
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