The Dollar continues to rise and Euro breaks the 1.22 level
As the US benchmark Ten Year Yield gravitated towards 3 %, markets finally took notice of widening interest rate differentials. Currency traders purchased Dollars across the board with the Aussie, Yen and Emerging Market currencies bearing the brunt. The Dollar Index (USD/DXY), a measure of the Dollar’s value relative to a basket of currencies, rallied to close near 91.00 (90.264 yesterday), a significant level.
Outlook: The rise in US yields overnight was matched this time by rises in rival global rates. The US Ten year bond yield closed at 2.98%, 2014 highs. The 3.0% level is important for the Ten-year yield. The yield on Germany’s ten-year Bund rose 4 basis points to 0.63%. Australia’s ten-year bond yield rose six basis points to 2.86%.
As for the Dollar Index (USD/DXY), 91.00 is important. The Euro closed just above 1.2200 against the Dollar, a strong support level. USD/JPY powered through 108.00 and 108.50. We can expect some short-term consolidation as the markets face these important levels.
Trading View: Interest rate differentials matter and one should watch the relative moves in other global yields as well. Market positioning is also crucial and we highlighted yesterday that speculators remain bearish and short US Dollars. We can assume that some of these Dollar shorts have been corrected, particularly against the Pound, Yen, and Euro. In the Australian Dollar, speculators increased their net Aussie Dollar shorts.
Economic data released yesterday were mixed. German and French Manufacturing and Services PMI’s mostly beat expectations. Euro Zone Flash Manufacturing PMI however, missed forecasts. US Existing Home Sales beat consensus expectations while US Markit Composite PMI for April missed the median forecast.
The improved outlook on trade and geopolitical tensions has also supported the Greenback. While this is the case, any deterioration could derail this recovery. Be aware.
Economic data and events due today include Australia’s March Quarter Headline and Trimmed Mean CPI.Germany reports it’s IFO Business Climate Index while the UK releases Public Sector Net Borrowing data for March. The US CB Consumer Confidence data for March is also released.
The Dollar Index (USD/DXY) – closed at 90.937 after hitting a high of 90.985 overnight, up 0.64% from 90.264 yesterday. The Dollar Index stopped just short of the 91.00/10 significant, and now immediate resistance. We would need a clean break from this level to see it higher. Immediate support can be found at 90.80 and then 90.50. The overnight low was 90.32. We need to stay above 90.30 to keep this uptrend alive. Look for consolidation today with a likely range of 90.75-91.05.
EUR/USD – fell 0.64% to close at 1.2205 (1.2290 yesterday). EUR/USD succumbed to the overall stronger Dollar grinding its way to an overnight low of 1.21976. Immediate support lies at the 1.2190/1.2200 level with further support at 1.2160. Immediate resistance can be found at 1.2230 and 1.2260. The ECB rate policy meeting is on Thursday and markets are not expecting a material change instance. The Euro closed at lows not seen since early March. The 1.2150/1.2200 level has held since the start of this year. Euro-area economic data has underperformed of late which has contrasted with that of the US. Expect short-term consolidation with the 4-month support levels to hold, for now. Likely range today 1.2175-1.2225. Look to sell rallies
USD/JPY – broke through 108.00, 108.20 and then 108.50. It was a matter of time given the rise in the US Ten year yield to which this currency pair is particularly sensitive. USD/JPY closed up 0.99% at 108.70 (107.68 yesterday). Immediate and strong resistance lies at 108.80/85 (overnight high 108.753). A break of this level will see 109.30. Expect this to hold for today. Immediate support can be found at 108.50 and then 108.30. The BOJ has its rate policy meeting this Friday. BOJ Governor Kuroda and his colleagues will be pleased with the USD/JPY at current levels (108.70) rather than 105.00 (where it was at the last meeting). The BOJ is in no hurry to begin winding down its extraordinary monetary stimulus. Kuroda said that they would start within the next 5 years. Likely range today 108.35-108.85.
AUD/USD – crashed through the strong support level of 0.7650 to 0.75997, overnight lows, settling at 0.7608 at the close. AUD/USD fell to fresh 4 month lows. The Aussie was pressurised with a fall in precious and base metal prices. Aluminum fell a spectacular 9% after the US softened its position on Russia’s main producer, Rusal. AUD/USD has immediate support at 0.7580 and then 0.7550. Today’s March CPI release is crucial for the short-term direction of the currency. Inflation is expected to remain tame. Likely trading range today 0.7590-0.7640. Look to trade the range shag.also
GBP/USD – Sterling’s spectacular slide slowed against the Dollar. GBP/USD slipped to close at 1.3942, down 0.37% from 1.4007 yesterday. British PM May was reported to be battling to avert a Cabinet revolt over Brexit. Nothing new and the Pound had already been hammered this week. On Monday the Pound was fetching 1.4205 US Dollars. GBP/USD has immediate support at 1.3920/30 (overnight low of 1.3925). Immediate resistance can be found at 1.3970/80 and then 1.4000. UK March quarter GDP data is due on Friday which should help determine the chances of a BOE rate hike next month. Likely range today 1.3930-1.3980. Look to sell rallies.
USD/ZAR – The rand (USD/ZAR) lost more than 1% against the US dollar in early trade on Monday on the back of a rally in US assets and a spike in the oil price. By 11:21 the local unit was trading 1.43% weaker at R12.27 against the greenback. The rand last traded at this level in mid-January 2018
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