The dollar is rising strongly after comments on the increase in interest rates and Pound falls to its lowest level of the year
The yield on the benchmark US Ten Year Treasury lifted off the 3% launch pad, to 3.07%, the highest since July 2011. Relatively solid US data and upbeat comments from the San Francisco Fed President Williams pushed yields higher. This contrasted with stagnating economic signals from Europe, adding to the Greenback’sresurgence. Gold and Silver prices plummeted, Wall Street stocks closed lower.
Outlook: While US April Retail Sales were lower than forecasts, March’s data were revised upward. In Europe, German Q1 GDP missed forecasts while Euro Zone Industrial Production was lower than expected. The UK Unemployment rate remained at a 42-year low.
Global bond yields also rose but did not keep pace with its US counterparts. The widening rate differentials support the narrative that the US economy is outpacing the rest of the globe.
Trading View: Emerging Market currencies felt the brunt of rising US yields. The Dollar jumped 1.9% against the South African Rand (USD/ZAR) and 1.84% against the beleaguered Turkish Lira (USD/TRY). The New Zealand Dollar fell 0.81%, the worst performer among the major currencies.
San Francisco Federal Reserve President John Williams said that 3-4 rate hikes this year are still warranted. Williams will take over the New York Fed Presidency next month (June 18).
We have highlighted that yields and interest rate differentials. matter Further widening will see a continues Dollargrind higher.
There were reports that North Korea canceled it’s meeting with South Korea over ongoing military drills by the USA and South Korea. While South Korea has reportedly pulled out of it’s scheduled a meeting with US President Trump in Singapore (June 12). This may ignite the geopolitical scene which has been relatively quiet. This may prove a headwind for the US Dollar.
Events and economic data releases today: German and Euro Zone Annual Inflation data for April. Asia sees Australian Wage Price Index and Japanese Preliminary Q1 GDP. US data released later are April Building Permits, Housing Starts, Industrial Production and Capacity Utilisation.
The Dollar Index (USD/DXY) – soared to a high of 93.477 overnight before settling to 93.239 at the New York close, up 0.62%. The Dollar Index has further upside potential if it can manage to stay above 92.50 and break through 93.50. The next target is 95.00. Immediate resistance is at 93.50 and then 93.80. Immediate support can be found at 93.00 and then 92.80. Likely range today 92.90-93.50. Prefer to buy dips to 92.80.
EUR/USD – slumped to a fresh 2018 low of 1.18202 on the back of the overall stronger US Dollar. European data has been slowing down in contrast with mostly outperforming US data. Today’s Euro Zone April Final Headline and Core CPI, as well as that of Germany, will be of interest to traders. EUR/USD has immediate and strong support at the 1.1820 level. The next support level can be found at 1.1780 and then 1.1740. Immediate resistance lies at 1.1870 and then 1.1900. This should keep the Euro on the defensive. Likely range today 1.1785-1.1885. Prefer to sell rallies to 1.1885-1.1900
USD/JPY – Breezed through the 110.00/20 resistance level as US yields lifted. The yield on Japan’s ten-year bond stayed flat at 0.04%. The Dollar traded to a high of 110.45 (109.65 yesterday), up 0.58% before settling at 110.35 this morning. I’m surprised it's not higher although the immediate resistance which lies at 110.50 is strong. Next resistance level is found at 110.70 and then 111.20. The next topside target is January’s high of 112.00. The latest reports from North Korea may be keeping a lid on the Dollar-Yen with any risk aversion favoring the Yen. Keep an eye out for that. Likely range today 109.70-110.70. Prefer to buy dips to 109.60/70.
AUD/USD – dropped to 0.7448 low on broad-based US Dollar strength. Most metals were also weaker with the slump in Gold and Silver prices. The Aussie closed at 0.7475. Immediate support lies at 0.7440/50 and then at 0.7420. Immediate resistance can be found at 0.7500 and then 0.7520. The 0.7520 is now strong resistance. The Australian Ten-Year bond yield rose 6 basis points to 2.82%. AUD/USD should see a trading range of 0.7440-0.7520 today. Look to trade that range.
GBP/USD – dropped to fresh 2018 lows of 1.3451 overnight before rallying to close at 1.3510 on the back of the UK Jobs data. The Jobless rate remained at a 42-year low although average earnings rose less than forecast. GBP/USD has immediate support at 1.3480 and then 1.3450. Immediate resistance can be found at 1.3520 and then 1.3550. The US Dollar will dictate Sterling’s next moves with more pressure on the downside. Likely range today 1.3450-1.3530. Look to sell rallies.
USD/ZAR – The rand tanked more than 2% on Tuesday afternoon after US retail sales showed a rise of 0.3% during the month of April.
“This has caused the USD to continue its gains against its peers and is currently trading at 12.60 against the ZAR and 1.1850 against the EUR,” TreasuryONE said in a snap note.
By 15:21 the local unit was trading at a four-month low of R12.62 to the greenback, 2.35% weaker than its previous overnight close in New York.
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