The dollar is down against most currencies except the Turkish lira, which is falling to record highs
A rally in Chinese stocks and the Yuan lifted market risk in extended slow, summer-type trading. Shanghai’s Composite Index rose 2.74%. The CBOE Volatility Index extended its drop, falling under 11% for the first time since May. The Aussie climbed 0.5% after the RBA left policy unchanged. USD/DXY failed to break through key resistance, slipping 0.19%. The Euro rallied off its lows. Global yields rose.
Outlook: The days of the northern hemisphere summer continue to see quiet conditions in the markets. The lethargy enabled traders to shrug-off the escalating trade war between China and the US. But, the days of summer are numbered and soon will be gone. The VIX Index fell 3.02% to 10.93%, its lowest close since January. In the current environment, volatility can’t stay low for long.
Trading View: Current market positioning (long USD bets) will remain a headwind for the Greenback. The Dollar Index (USD/DXY) backed off the resistance level of 95.50 despite higher US yields. The speculative long Dollar bets are beginning to look a bit tired and crowded. The risk is for a corrective move south. The yield on the US 10-year bond rose 3 basis points to 2.97%. Germany’s 10-year Bund yield closed at 0.40% from 0.38% yesterday. The yield on Japan’s 10-year JGB rose 1 basis point to 0.10%.
The Dollar finished lower against the Asian and EM currencies except for the Turkish Lira. Rising US-Turkey tensions have seen the Turkish Lira (TRY) sink more than 40% against the US Dollar this year. USD/CNH fell 0.7% to 6.8220 from 6.8650 after the PBOC initiated measures on Sunday which make shorting the Yuan expensive.
Watch the Kiwi. The RBNZ is expected to keep its cash rate at 1.75% at its policy meeting early tomorrow morning (Sydney 7 am). RBNZ Press Conference follows (Sydney 8 am).
Economic data was mixed yesterday. Japan’s wages (Average Cash Earnings) for July beat forecasts by more than double, hitting a 21-year high. US JOLTS Job Openings in July matched June’s upwardly revised number but fell short of expectations. Germany’s Trade Balance for July remained in Surplus but missed forecasts.
USD/DXY – The Dollar Index closed at 95.18, down 0.19% from yesterday’s 95.368. The overnight high traded was 95.368. Immediate resistance for today lies at 95.35 with the 95.50 level formidable. After several attempts to breach that level, a corrective move down is possible given the market’s positioning. Unless we see the US 10-year bond yield break through 3.0% the likely move first is lower. Immediate support can be found at 95.00 and then 94.80. Today’s range should be 94.85-95.35. Prefer to sell rallies.
EUR/USD – bounced off the overnight low of 1.15489, finishing at 1.1600, up 0.34%. The Euro benefited from the lower Dollar against the CNH and EM currencies. The support between 1.1520 and 1.1550 remains strong. Immediate support on the day comes in at 1.1575. The overnight high traded was 1.16082. Immediate resistance lies at 1.1610. With no major economic data out of Europe today expect a likely range of 1.1575-1.1625. Look to trade this range shag.
AUD/USD – strong bounce after the RBA left rates and policy unchanged. The rise in Shanghai stocks and Chinese markets buoyed risk appetite which lifted the Aussie. Base metals rose with Copper leading the way, up 0.8%. Today RBA Governor Philip Rowe speaks to the Anika Foundation in Sydney on “Demographic Change and Recent Monetary Policy”. The northern hemisphere summer doldrums are keeping the Aussie within a recent range of 0.7320-0.7480 (since mid-June). But as Don Henley sang in his “Boys of Summer” 1987 tune, “I feel it in the air, the summer’s out of reach”. This may well be the case soon, and we may see more volatility. Immediate resistance lies at 0.7440 (overnight high) and then 0.7480. Immediate support is found at 0.7400 and then 0.7380. Likely range today 0.7400/50. Just trade the range shag on this one too.
USD/JPY – finished flat at 111.38. The Dollar rose to 111.478 overnight highs before slipping at the New York close. USD/JPY traded to an overnight low of 110.99. The rise in Japanese wages failed to ignite the currency which is also experiencing the summer doldrums. Japan’s traditional OBON (summer) holidays are between August 11-19. The BOJ Summary of Opinions, Japanese trade and current account data are released today. Immediate support for USD/JPY lies at 111.00 and then 110.70. Immediate resistance can be found at 111.50 and 111.70. Likely range today 110.85-111.55. Prefer to sell rallies.
GBP/USD – little-changed as the Pound continues to hug its recent ranges. Brexit woes continue to constrain Sterling’s topside. Traders fear that the UK could crash out of the EU without a securing a trade deal. While the Pound traded flat against the US Dollar, it fell against the Euro. The EUR/GBP cross rose to 5-month highs at 0.8965. GBP/USD closed at 1.2942 (1.2944 yesterday). UK Halifax Bank of Scotland House Price Index beat expectations by a huge margin. GBP/USD has immediate support at 1.2920 (overnight low 1.2924) and then 1.2900. Immediate resistance can be found at 1.2975 (overnight high 1.2973) followed by 1.3000. Summer doldrums are keeping the Pound eerily quiet. However, this currency won’t stay still for long and volatility will return. But for today 1.2920-1.2990 is the likely range. Prefer to buy dips.
Events and economic data releases today: Japan BOJ Summary of Opinions, Trade and Current Account Surplus for July; China July Trade Balance, Exports, Imports; Australia Westpac Consumer Confidence, Home Loans; RBA Governor Lowe speaks in Sydney; New Zealand RBNZ Q2 Inflation Expectations.
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