The Dollar is shaking the throne of the currencies again and rises strongly and Gold drops to the level of 1324
The dollar is shaking the throne of the currencies again and rises strongly and gold drops to the level of 1324. A Yen led dive following Tokyo’s Daily Currency Fix yesterday initiated a broad-based Dollar rally. The traditional repatriation from Japanese corporations which sees Yen demand saw the USD/JPY Fix at 105.50 for the fiscal year-end. This was quickly reversed which saw the USD/JPY surge to one-month highs. Japanese investors redressed their portfolios and the Dollar rocket took off. Traders adjusted their positions (mostly short USD) ahead of the long weekend. An upward revision to US Q4 GDP aided the Greenback. The Dollar Index (USD/DXY) was up 0.86% to 90.14.
The big moves made yesterday that resulted in broad-based US Dollar gains were mainly due to position adjustments for the month/quarter and (for some) year end. Markets will consolidate today. The long weekend will see thin and illiquid trading conditions set in. That said, the Dollar has maintained its bid tone. Global stocks settled but expect more volatile times ahead.
While yesterday’s Dollar gains were mostly technically inspired (position and portfolio adjustments), the fundamentals are sound. US economic data continue to outperform for the most part. US Pending Home Sales also beat expectations.
US bond yields were flat while those in Rival countries mostly fell. The yield on the benchmark US Ten year was unchanged at 2.78%. UK’s Ten-Year Gilt yield fell 6 basis points to 1.36% while the yield on Ten-year German Bunds closed flat at 0.50%. Japan’s Ten-year JGB yield was down to 0.02% from 0.03%.
The Dollar Index (USD/DXY) climbed to an overnight high of 90.147 overnight before settling at 90.07 this morning. Yesterday the Index closed at 89.38. USD/DXY has immediate resistance at 90.20/30 and then 90.50. A clean break up through 90.50 should see the strong resistance at 90.80-91.00 tested. It does look like we are building a base to test higher. Look to buy any dips back to 89.80. Likely range today 89.80-90.30.
USD/JPY – “What a difference a day makes”. Yes indeed. USD/JPY gains may have been initiated by the Tokyo Fix yesterday but we are now finding it’s true levels. Yesterday we were at 105.35 and still looking shaky. Today we are sitting just under 107.00 and the Dollar looks bid. The Japanese currency also lost ground against the Euro, Aussie, GBP and other currencies. We highlighted yesterday that market positioning in the JPY had a big shift which resulted in a hefty reduction of JPY short bets. The total of net speculative JPY shorts (-JPY 22,000) were the smallest since November 2016. There is immediate and strong resistance at the 107.00/20 level (106.978 was the overnight high). Immediate support can be found at 106.50 and then 106.35. Expect some consolidation with today’s likely range 106.60-107.20. Look to buy dips still the preferred trade.
EUR/USD – Once again we have seen an ECB official come out and shout “dovish” on interest rates every time the Euro approaches 1.2500. Tuesday’s overnight high was 1.27477 which prompted the comments from ECB Board member Liikanen. The Euro fell to 1.2300 overnight low on the overall US Dollar strength, settling at 1.2310 this morning. Immediate resistance can be found at 1.2330 and then 1.2360. EUR/USD has immediate support at 1.2300 and then 1.2280. Market positioning is still heavily long Euro bets. Look to sell rallies with today’s likely range 1.2280-1.2330.
GBP/USD – Sterling has had an amazing turn-around from looking bid to just plain ordinary today. Much of that is due to US Dollar strength however UK data yesterday disappointed. The UK Confederation of British Industry retail sales fell when a gain had been expected. Market positioning also saw an increase of long GBP bets. The market’s view of a likely BOE rate hike in May and less negative press on Brexit have seen the Pound rally as high as 1.4245 this week. Sterling closed down 0.69% at 1.4075 in New York before settling at 1.4080 currently. GBP/USD has immediate support at 1.4060/70 (overnight low 1.40707). Immediate resistance lies at 1.4100 and then 1.4120. A break through 1.4050 could see us back to 1.4000. Likely range today 1.4050-1.4120. Look to sell rallies.
AUD/USD – also fell given the strong broad-based US Dollar rally. However the Aussie’s fall compared to the other currencies was mild. Why? Because the Aussie was relatively weak already, having fallen much harder yesterday. AUD/USD closed at 0.7662 from 0.7678 yesterday, down 0.3%. AUD/USD has immediate and strong support at 0.7650 (overnight low 0.76535). Immediate resistance can be found at 0.7700 (overnight high 0.77024). Am a bit more neutral on the Aussie however the general direction remains south. Likely range today 0.7650-0.7710. Just Trade The Range Shag.
USD/ZAR – The rand (USD/ZAR) was trading more than 1% weaker on Wednesday following the decision by the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) to cut interest rates by 25 basis points.
SARB governor Lesetja Kganyago announced on Wednesday the first repo rate cut since July last year, reducing the repo rate to 6.5% from 6.75%.
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