The dollar continues to rise against the currency and Pound is dropping strongly after the negative GDP data
The Dollar Index (USD/DXY) closed flat on Friday as the US Ten Year bond yield slipped to 2.96% from 2.98%. US First Quarter Economic Growth slowed, however, the number beat forecasts. Sterling slumped over 1% on weaker-than-forecast UK Q1 GDP data, the biggest loser among the major currencies. The Australian Dollar outperformed, up 0.3% on a technical bounce off its lows while the Euro was little-changed.
The potential for a genuine sentiment shift on the US Dollar looms large as the bears begin to sweat and head for the exits. Markets are taking note of the contrast in data from the US and other economies. The initial read on US Q1 GDP beat forecasts while the UK’s first quarter economic growth had a terrible miss. On Friday traders squared their positions ahead of this week’s busy data releases which culminate with US Payrolls on Friday.
The latest CFTC/Reuters report (week ended 24 April) saw further covering of net speculative Dollar shorts. As sentiment shifts in favor of the Greenback, expect more of this in the weeks ahead.
The US Ten Year bond yield backed-off 3% after the initial move above it, finishing at 2.96%. Which resulted in a flat finish for the Dollar Index (USD/DXY). Immediate support for the US Ten-year yield lies at 2.91%. Immediate resistance is now at 3.0%.
We have highlighted that interest rates, differentials and market positioning matter. They do, and even more so now. On the political front, President Donald Trump’s efforts in brokering the two Koreas to talk peace has silenced his critics, for now.
In the forex markets, nothing goes in a straight line for long. We saw this over the weekend with the bounce in the Aussie, Euro, JPY and Emerging Market currencies. The shift is changing and further covering of Dollar shorts will see it higher.
US economic data has outperformed that of other countries in the past few months. This week’s data releases could further cement this trend.
The Dollar Index (USD/DXY) – finished flat at 91.529 (91.594 Friday). The Dollar Index traded to an overnight high of 91.986 before slipping at the close. USD/DXY has immediate resistance today at 91.80 and then 92.00, which is strong. A break above 92.00 is significant and could open the way to 95.00. Immediate support lies at 91.20 and then 91.00. A break below 91.00 could see a pullback to the 90.50 area.
EUR/USD – closed modestly higher to 1.2130 after trading to a low of 1.20554 on Friday. The yield on Germany’s ten-year Bund fell two basis points to 0.57%. EUR/USD has immediate resistance at 1.2150 and then 1.2180. Immediate support can be found at 1.2100 and then 1.2080. The support level between 1.2030 and 1.2050 is strong and we would need to see a sustained break below to head towards 1.1900. Euro Zone Q1 GDP data are due out on Wednesday with growth forecast to slow. Look to sell rallies to 1.1250 today with the likely range of 1.2080-1.2150.
GBP/USD – slumped on the bad miss of UK Q1 GDP (printed at 0.1% against the forecast of 0.3%). Sterling plummeted 1.05% to finish at 1.3780 (1. 3915 Friday). Overnight low traded was 1.3747. The prospects of any BOE rate hike in May appear bleak. GBP/USD has immediate support at 1.3740, 1.3700 and 1.3680. A clean break of 1.3680 could see the Pound back to 1.3550. Immediate resistance can be found at 1.3800 and 1.3830. Likely trading range today 1.3740-1.3840. Look to sell rallies.
USD/JPY – slipped to 109.10 at the NY close from 109.35 Friday. The Bank of Japan on Friday dropped its reference to a timeline for achieving its 2% inflation target (previously targeted for end of FY 2019). This is a slightly dovish switch. The Dollar though reacted to the two-basis point fall in the US Ten-year yield. In contrast, the Japanese Ten-year JGB yield was flat at 0.05%. Net speculative. USD/JPY has immediate support at 108.80. Immediate resistance can be found at 109.30. Look to buy dips with today’s likely range 108.85-109.45.
AUD/USD – bounced off its lows to close at 0.7580 (0.7552 Friday), up 0.3%. The Aussie started its downtrend ahead of the other currencies and found strong support near the overnight low of 0.7532. AUD/USD has immediate support at 0.7530 and then 0.7500. Immediate resistance lies at 0.7580 and then 0.7600. Likely range today 0.7540-0.7590. Look to trade this range shag.
Today sees German Retail Sales and Preliminary CPI for April, the US report on Personal Spending and Income.
The RBA Rate Policy Meeting and Statement is tomorrow (1 May) while Wednesday (2 May) sees UK Construction PMI, Euro Zone Preliminary Flash Q1 GDP Data, and US Private Sector (ADP) Employment.
The Fed FOMC Policy Meeting and Statement are out late Wednesday (early Thursday in Asia) while Friday sees the release of US April Payrolls and Wages.
USD/ZAR – The rand may have “run a little hard” in briefly falling below R12.50/$ on Wednesday, according to Andre Botha of Treasury ONE.
The local currency gained 0.3% against the dollar in early trade on Thursday morning. At 10:22 it was trading at R12.39/$, after opening at R12.44.
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