The dollar to Highest level against all currencies ahead of the release of non-farm payrolls today
A mix of solid US factory orders, better-than-expected Unemployment Claims and hawkish Fed speak propelled the Dollar higher. While other factors weighed on the Dollar’s Rivals. The Euro fell as minutes of the latest ECB meeting revealed policy maker’s concerns over the Single currency’s rapid appreciation. Sterling was pounded lower as questions on PM May’s leadership increased. The Australian Dollar slumped on a large miss in retail sales.
Australian Retail Sales in September fell 0.6% against a forecast rise of 0.3%. August Retail Sales were revised lower to 0.0 % from a 0.2% gain. The decline in retail sales was the largest in 4 years.
Canadian Trade Balance worsened to -CAD 3.4 billion from the previous -CAD 3.0 billion
US Weekly Jobless Claims were better with 260,000 claims against a forecast 266,000 and a previous 272,000.
US Factory Orders in September rose 1.2% against a forecast rise of 1.0% and previous -3.3%
The US Trade Deficit fell to US$ 42.4 billion against a forecast -US$ 42.7 billion on a marked improvement in exports. Exports of US goods and services rose to the highest in over 2.1/2 years.
Wall Street led global stocks higher. The S&P 500 closed up 0.49%, it’s eighth straight gain.
The yield on the Ten Year US Treasury rose to 2.35% from 2.33% yesterday. Germany’s Ten Year Bund yield closed flat at 0.45%.
USD/DXY – The Dollar Index closed up 0.5% at 93.96 (93.45 yesterday).
EUR/USD – fell to 1.1705 at the New York close from 1.1765 yesterday.
GBP/USD – dropped to end at1.3113 (1.3257 yesterday).
AUD/USD – slumped, finishing at 0.7790 from 0.7865 on the big retail sales miss.
USD/JPY – mild gains to close at 112.83 (112.75).
Outlook: The factors for a trend change in the US Dollar continue to increase. Recent US economic data have indicated a steady pace of growth for the world’s largest economy. Chances for a December rate hike have increased. This was supported by hawkish rhetoric from a couple of Federal Reserve Presidents. San Francisco’s John Williams and Philadelphia’s Patrick Harker both indicated that they anticipate a rate hike in December.
The Dollar has also been able to rally as the overbought condition of it’s Rivals corrects. In Europe and the UK the political landscape is deteriorating. Official concern about the rapid rise in the Aussie, Euro, Kiwi and Canadian Dollar has been evident for a few months now. Speculative short USD positions remain a multi-year highs.
Events and economic data releases today:
UK Halifax House Price Index: (GMT 7.30 am, Oct 6/Local Time 6.30 pm, Oct 6) forecast: 0.0% from previous 1.1%
BOE MPC Member Andy Haldane speaks at a function for the Royal Society of Arts, Manufacturers and Commerce in London: (GMT 12 pm, Oct 6/Local Time 11 pm, Oct 6)
Canadian Employment Change and Unemployment Rate: (GMT 12.30 pm, Oct 6/Local Time 11.30 pm, Oct 6) forecast for Employment Change: 13,900 from previous 22,200; forecast for Unemployment Rate: 6.3% from 6.2%
US Non-Farms Payrolls Employment Change and Unemployment Rate, Average Hourly Earnings: (GMT 12.30 pm, Oct 6/Local Time 11.30 am, Oct 6): forecast range for Payrolls Change: 80,000-90,000 from previous 156,000; forecast for Unemployment Rate: 4.4% from 4.4%; forecast for Average Hourly Earnings: 0.3% from 0.1%
US Federal Reserve President of New York and FOMC Member William Dudley speaks at a function for the Council for Economic Education in New York: (GMT 4.15 pm, Oct6/Local Time 3.15 am, Oct 7)
US Federal Reserve President of Dallas and FOMC Member Robert Kaplan speaks at a Federal Reserve function in Austin, Texas: (GMT 4.45 pm, Oct 6/Local Time 3.45 am, Oct 7)
Trading View: Once again it boils down to the Payrolls data due out later on today. A better-than-forecast number will cement the Dollar’s trend change, and result in a more sustained rise. Markets are prepared for a downward revision to the September employment change due to the effects of both hurricanes that hit the US. Revisions for the Payrolls number later range from 80,000 to 90,000. Anything bigger than this will see the Dollar rise immediately. We would have to see a number of less than 50,000 for the US Dollar to trade lower. The wages data (Average Hourly Earnings) and revisions to previous numbers will also be important.
The Dollar Index (USD/DXY) traded to an overnight high of 93.990, just under the strong resistance level of 94.00. A sustained break of 94.00 could see us back 95.00, eventually 96.00.
EUR/USD – traded to an overnight low of 1.1699. The ECB’s latest meeting minutes revealed that policymakers were concerned about the rapid rise of the Euro. I’ve copied a few excerpts from the transcript for our readers. EUR/USD has immediate resistance at 1.1740/50 followed by 1.1770/80. Immediate support lies at 1.1700 and then 1.1670-80. A break of 1.1670 could see us back down to the 1.1500 area. Look to sell rallies ideally around 1.1750. Today’s likely range (until the data), 1.1685-1.1745. Here are a few of the excerpts from the ECB Meeting minutes transcript:
“ Members expressed concerns about the risk of exchange rate overshooting. It was recalled that in the September 2017 ECB staff projections the exchange rate was assumed to be constant over the projection horizon. In this context, the speed of the recent appreciation was underlined, including after the cut-off date of the projections.
Overall, there was broad agreement among members that the recent volatility in the exchange rate of the euro was a source of uncertainty which required monitoring with regard to its possible implications for the medium-term outlook for price stability.”
AUD/USD – slip sliding away. The Aussie buckled under the weight of a stronger US Dollar, whose rally was much more broad-based. The trigger for the move lower was the much weaker than forecast print in Retail Sales, slumping -0.6%. A rise of 0.3% had been expected. This was the largest decline in 4 years. AUD/USD has immediate resistance at 0.7840/50. Immediate support can be found at 0.7785 (overnight low was 0.77869). A break of the 0.7780 level could see the Aussie trading back down to 0.7700 cents and eventually 0.7650. Speculative Aussie Dollar longs are at multi-year highs from the latest CFTC/Reuters report (week ended 26 Sept). Look to sell rallies with today’s likely range 0.7780-0.7830.
GBP/USD – Sterling got pounded last night as questions on current UK Prime Minister Theresa May’s leadership abound. This is a result of the pressure put on the UK government from uncertainty surrounding the Brexit negotiations. Which is what pushed the Pound to its lows earlier this year. Sterling rallied as economic data improved and more BOE members turned hawkish. This enabled GBP/USD to rally just under 1.3700. GBP/USD closed at 1.3113 after trading to an overnight low of 1.31077. Immediate support can be found at 1.3100. Further support comes in at 1.3060. Another factor contributing to Sterling’s fall is the fact that speculators are no longer short of GBP. In fact, they are long. Latest CFTC/Reuters report (week ended Sept 26): +GBP 5,054 from previous -GBP 10,161. Look to sell rallies with today’s likely 1.3080-1.3140.
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