The Dollar is starting to recover and Gold down to 1323
Market fears were calmed as no missiles were fired by North Korea in their anniversary celebrations. Hurricane Irma’s damage proved less than initially anticipated and risk appetite returned. The Dollar Yen reversed losses, rallying 1.47% to close at 109.47. There were no major economic data releases yesterday.
The yield on the US Ten Year Treasury rose 8 basis points to 2.13%. The US Two year note yielded 1.32%, up 6 basis points (1.26% yesterday). Meantime the Japanese Ten Year JGB bond yield slipped to -0.02%, off 1 basis point. Germany’s Ten Year Bund yield closed up 2 basis points at 0.33%.
Stocks rallied as global markets took on a risk-on stance. The US Dow (US30) rallied 1.19 %. The S&P 500 (US500) finished 1.07% higher at 2490.00 (2463 yesterday). Germany’s DAX Index (DE30) gained 1.4%.
USD/DXY – Index bounces off lows to close up 0.52% at 91.948, it’s first rise in 8 days.
USD/JPY – jumps to finish at 109.48 from Friday’s close of 107.88 and yesterdays open at 108.25.
EUR/USD – retreats off it’s highs to end at 1.1956 from 1.2032 yesterday.
GBP/USD – mildly lower to end at 1.3168 (1.3198 yesterday) ahead of UK CPI data later
AUD/USD – slips to close at 0.8027 (0.8053 yesterday), just above support levels.
Outlook: The impressive bounce in US yields supported the Dollar’s recovery. It’s likely a bottom is in place for the Greenback. Ten year US yields rallied from it’s base around 2.05%. Futures market pricing for a December rate hike have improved to 41% from 27% last week. While bond yields lifted across the globe, the differentials have widened in favour of those in the U.S. Speculators continue to carry long positions in currencies such as the Euro, Australian, Canadian, New Zealand Dollars, and the Mexican Peso. We highlighted yesterday that speculative Euro longs are their largest since May 2011. Last night the EUR/USD retreated 0.65% to 1.1956. The Euro is starting to falter, and may lead to further US Dollar recovery is likely.
Economic Data and Events today:
Australian National Australia Bank Business Conditions and Confidence Difussion Index: (GMT 1.30 am, Sept 12, Local Time 11.30 am) previous Conditions Diffusion Index was 15 while the previous Confidence Diffusion Index was 12.
China August Foreign Direct Investment: (GMT 2 am, Sept 12, Local Time 12 pm, Sept 12): July’s foreign investment was -1.2%
UK August Monthly and Annual Core and Headline CPI, PPI and PPI Input, and RPI: (GMT 8.30 am, Sept 12/Local Time 6.30 pm, Sept 12) forecast(s): Headline Monthly CPI 0.5% from -0.1%; Headline Annual CPI 2.8% from 2.6%; Core Annual CPI 2.3% from 2.4%;
Headline Monthly PPI Input 1.2% from 0.0%; Core Annual PPI 2.5% from 2.4%
Annual Retail Price Index 3.7% from 3.6%%
US JOLTS Job Openings (GMT 2 pm, Sept 13, Local Time 12 am, Sept 13): forecast: 5.96 million from previous 6.16 million
Trading View: The Euro’s retreat from the 1.20 handle could bring about further weakness for the Single currency. Yesterday ECB Governing Council member Benoit Coeure said that further Euro strength could drag down inflation. He added that policy will remain more accomodative for longer. Traders took notice of this and sold the Euro against both the US Dollar and Sterling. If the Euro continues to falter, this could lead to further Dollar strength. The Dollar rose against the offshore and onshore Chinese Yuan after the China started to unwind extraordinary policies aimed at bolstering the CNY. Clearly the PBOC are concerned about further currency appreciation. There were gains in the Dollar against the Singapore Dollar and other Asian currency pairs.
EUR/USD – slip sliding away.. The Euro closed at 1.1956 from the 1.2030 opening yesterday, which was the day’s high. Immediate resistance lies at 1.1980 and then at 1.2010. The overnight low traded was 1.19479 which has held so far this morning. There is short term support found at 1.1915-20. A break of the 1.1920 level could see further correction toward the 1.18 70-80 area. The German elections are held on September 24. Currently it seems like there is nothing to stop Angela Merkel from winning the election. The composition of the next German coalition though is far from certain. In France, new President Macron’s approval rating is roughly the same as Donald Trump’s. The political landscape in Europe might just be shifting to a more risky one. Market positioning remains at extremes. Speculative Euro longs are at multi year highs. Likely trading range today, 1.1920-1.1980. Look to sell rallies.
EUR/GBP – also retreated and is in corrective mode. Current support can be found at 0.9070 and then at 0.9030. Immediate resistance lies at 0.9110/20. A strong UK CPI number could see further deterioration of this cross. Look to sell rallies as the market is also long of EUR/GBP.
GBP/USD – suffered mild losses to finish at 1.3168 from 1.3198 yesterday. UK CPI and PPI data are forecast to rise from previous levels. The BOE meets a couple of days after. Markets are leaning toward a more hawkish BOE stance. Unlike the Euro and other currencies, speculators are short of Sterling. In the latest CFTC/Reuters report (week ended Sept 5) net speculative Sterling shorts increased to -GBP 52,927 contracts from -GBP 51,555. The Pound rose to a 5 week high against the US Dollar on Friday bolstered by strong UK Manufacturing Production data. Sterling rose to 3 week highs against the Euro last night. While Brexit negotiations remain a headwind, the UK economy has held up well. If the CPI and PPI data releases are close to expectations, Sterling should stay stable against the US Dollar. There is more room for the Pound to rally against the Euro given the current market positioning in both currencies. Immediate support lies at 1.3160 and then at 1.3140. Resistance can be found at 1.3190/00. Likely range 1.3120-1.3190.
USD/JPY – had a good bounce to finish at 109.50, near it’s overnight highs. USD/JPY has immediate resistance at 109.70/80. There is support found at 109.20. The Dollar will continue to be influenced by moves in the US Ten year yields. Likely range today 109.10/90.
AUD/USD – drifted lower against a stronger US Dollar to close at 0.8030 from 0.8058 yesterday. The Aussie has immediate support at 0.8015/20 (overnight low was 0.80185). A break of 0.8015 could see 0.80 cents challenged with a move back to 0.7960. Resistance can be found currently at 0.8060, and then at 0.8080. Australian Employment data are due on Thursday. Until then the Australian Dollar will be influenced by the moves in the US Dollar. Likely range 0.8000/50. Look to sell rallies
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