The dollar continues to strengthen as the Euro weakens on concerns about Italy’s exit from the European Union
Geopolitical risks rose with progress in NAFTA and Chinese-US trade talks uncertain due to doubts from President Trump. Behind the scenes, trade negotiators remain committed to their tasks. The Dollar Index (USD/DXY) posted mild gains, up 0.17% to 93.48/ The yield on the US 10-year bond rose one basis point to 3.11% (3.10%). The Yen and Kiwi were the worst-performing currencies. Wall Street stocks reversed gains to close in the red. US data was mixed.
Outlook: Markets continued to ignore geopolitical risks. Italian markets held up better as the two ruling parties backed away from some of their extreme draft measures. Fears of an Italian Euro-exit remain. Brent Crude Oil prices rose above US$ 80.00 for the first time since December 2014 over US moves to restrict oil exports from Iran. Saudi Arabia and the UAE agreed to closely monitor the oil market.
While the US Ten Year yield was higher, the 2-year US bond yield fell 3 basis points to 2.56%.
Trading View: The Dollar extended its rise supported by higher yields and a more upbeat outlook for the US economy. The Federal Reserve is expected to raise rates at least two more times this year.
There was much for the market to digest on the economic and political front. In terms of price action, the currency markets were subdued.
US economic data was mixed. Philadelphia Fed Manufacturing Index beat forecasts while Claims for Unemployment Benefits rose.
The rise on the US Ten-year yield was more than matched by the other global yields. Germany’s ten-year Bund yield rose 3 basis points. The UK Ten Year Gilt yield rose to 1.56% from 1.50% yesterday.
Not much in the way of economic data today, watch the geopolitical developments.
The Dollar Index (USD/DXY) – finished with mild gains to 93.483 (93.366 yesterday). Most of the rise was from a lower Euro (virtually 60% for the weight) and Yen. Immediate resistance can be found at 93.50/60 (overnight high 93.565). Immediate support lies at 93.35 and then 93.10 (overnight low of 93.118). Likely range today 93.10/60. Look to sell rallies as the topside looks to be running out of momentum. Heightened geopolitical tensions may weigh on the Dollar Index.
EUR/USD – rallied off its lows at the 1.1775 level to an overnight high of 1.18375 as Italian asset markets stabilized. The immediate support level lies at that 1.1765/75 level and it looks formidable. Italy’s political situation remains shaky and the Euro speculative community is still long. Look for further consolidation within the 1.1760-1.1840 range today. Look to trade this range. The preference is to sell rallies at better levels toward 1.1900 on any rebound.
USD/JPY – rose finally on the back of the higher US Ten-year bond yield even as Japanese economic data underperformed of late. USD/JPY touched 110.858 overnight, a fresh 2018 high. Japans ten-year bond yield was flat at 0.05%. Which should see further upward pressure on the USD/JPY. Immediate resistance can be found at 110.90-111.00. The next resistance level lies at 111.50 with 112.00 possible. Immediate support can be found at 110.40 and then 110.00. The market’s appetite for risk remains healthy despite the geopolitical risks. This may change with the snap of a finger, so be flexible with this currency pair. Perhaps North Korea bears watching over the weekend. Likely range today 110-111. Just trade the range shag.
AUD/USD – performed well and finished little-changed at 0.7512 (0.7516 yesterday). Australia’s April Employment showed a healthy rise of 22,600 jobs (forecast 19,800). While the Jobless rate rose to 5.6% from 5.5%, the participation rate beat forecasts. The rise in Oil prices drove most base metals up, including copper. The overnight low of 0.74475 held and 0.7450 remains strong support. There is immediate support at 0.7475 and that should hold on the day. The yield on the Australian Ten-Year bond climbed 4 basis points to 2.92%. Let’s not forget either that the speculative community is currently short Aussie bets. Two compelling reasons to buy dips on a likely trading range today of 0.7490-0.7560.
GBP/USD – managed to close higher against the Greenback at 1.3514 from 1.3492 yesterday. The Telegraph reported a more conciliatory approach from the UK toward the EU, with plans to stay in the EU customs union until 2021. The six-basis point climb in UK ten-year gilt yields also supported the Pound. Immediate support can be found at 1.3500 and then 1.3480. The overnight low hit was 1.3474. Immediate resistance can be found at 1.3540 and 1.3570 (overnight high 1.35692). The 1.3450 low this week held well, and we may be forming a short-term base there. Likely range today 1.3490-1.3590. Look to trade this range.
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