The Dollar is falling due to the rising unemployment rate and the low rate of wages and Pound rises to 1.3320 in the Asian market
The Dollar fell against its Rivals despite a better-than-expected gain in US Payrolls. A rise in the Jobless rate, tepid wage data, and fears of a full-blown trade war between China and the US weighed on the Greenback. Wall Street chose to focus on an economy with good momentum with continuing strength in the labour markets. The US S&P 500 finished up 0.86%.
Outlook: The US economy continues to move ahead with a labour market that has more room to expand. The rise in the unemployment rate (4% from 3.8%) was due to an increase in the size of the labour force. Wages though are not rising quick enough and US yields fell.
Trading View: With the US Payrolls out of the way the market’s immediate focus lies on the trade conflict between the world’s two largest economies. The enactment of trade tariffs between the US and China may go beyond the tit-for-tat measures and threaten an all-out trade war. One wonders if China uses its currency despite assurances to the contrary.
The USD/CNH closed little-changed at 6.6600 (6.6580 Friday). USD/CNH reached a high of 6.7300 on Thursday. Despite this, markets traded with more of a risk-on tone.
The US Dollar underperformed all the Majors, continuing its corrective down move which began post-FOMC meeting minutes. The slower rise in wages and continuing trade angst argue against any acceleration from the Fed in raising rates.
The yield on the US Ten-year slipped one basis point to 2.82%, its lowest level since May 30. The US 2-year yield dropped to 2.50% from 2.55% Friday, its low since early June.
We hear from the BOJ President Haruhiko Kuroda and ECB Head Mario Draghi at separate events today.
The Dollar Index (USD/DXY) – slipped further to close at 93.963, down 0.46%. USD/DXY broke through immediate supports 94.40, 94.20 and 94.00, closing just below it. The Dollar Index looks to have topped out at 95.50 and further correction is possible. Immediate support lies at 93.80 and the 93.50. This corrective move could take us to 93.50. Immediate resistance can be found at 94.00 and then 94.30. Expect the Dollar Index (USD/DXY) to remain heavy in the current environment with today’s likely range 93.90-94.20.
EUR/USD – The Euro had a strong move north to 1.71675 before settling to close at 1.1748 in New York. EUR/USD saw a short-term base at 1.1530 and it has steadily climbed higher since. Immediate resistance lies at 1.1770/80 and then 1.1810. A further correction could see the EUR/USD back through to 1.20/1.21. We look at the market’s positioning (CFTC/Reuters report) tomorrow. For today look for a likely trading range of 1.1710-1.1770. Prefer to sell rallies.
GBP/USD – Sterling got an additional boost from reports that Prime Minister Theresa May secured cabinet support for her pro-Europe Brexit plan. There were recent reports that Brexit Secretary David Davies had resigned. Sterling’s price in the markets though has hardly moved since it’s close. GBP/USD has edged higher to 1.3295 from it’s NY close of 1.3282. On a lighter note, England secured a place in the semi-finals of the World Cup, its first since 1990. The face Croatia for a place in the Finals. France faces Belgium in the other semi-final. The English want to take the trophy back home. It would be a good story for the UK and the Pound if they manage to do it.
GBP/USD has immediate resistance at 1.3320 and 1.3350. Immediate support can be found at 1.3270 and 1.3240. Overnight low traded was 1.3203. Strong support lies for the Pound now lies at 1.3210. Look to trade a likely range today of 1.3260-1.3310. Prefer to buy dips.
AUD/USD – Had a strong recovery off the lows at 0.7375 rallying to close at 0.7430, up 0.5% from Friday. Overnight high traded for the Aussie was 0.7444. Immediate resistance can be found at 0.7440/50. A break through the immediate resistance of 0.7450 would see 0.7480 and then 0.7500. Metals settled over the weekend although their prices are still at recent lows. The US Dollar will remain the biggest factor in the Aussie’s next move. For today look for a likely range of 0.7380-0.7450. Prefer to buy dips near the lows.
USD/JPY – mildly lower to 110.48, down 0.12% from 110.67 Friday. The Dollar traded to 110.3800 overnight lows. Immediate support lies at 110.30 and then 110.00. Immediate resistance can be found at 110.80 (overnight high 110.785), and then 111.00. The ten-year Japanese JGB Bond yield was one basis point lower to 0.02%. The Dollar should trade on the soft side given the trade angst in the market and generally lower US yields. Likely range today 110.20-110.70. Prefer to sell rallies.
Events and economic data releases today: BOJ President Haruhiko Kuroda speaks at the BOJ quarterly branch manager’s meeting in Tokyo; BOJ Economic Watchers Sentiment Index, German Trade Balance, Euro-Zone Sentix Investor Confidence Index, ECB President Mario Draghi speaks about the European economy, monetary policy, and virtual currency to the European Parliament Economic and Monetary Affairs Committee in Brussels.
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