The Euro is falling to its lowest level this year to reach 1.1763
Currency markets put in a mixed performance on a combination of geopolitics, economic data, and rate differentials. Italy formed a coalition after months of negotiation, North Korea threatened to cancel its meeting with the US (not according to Trump), Japanese and US data were mixed, and the 10-year US bond yield hit 3.10%. Wall Street stocks rose.
Outlook: The net moves of the currencies indeed reflect a “comfortably numb” result. Within the trading ranges, there was enough volatility though. While the Dollar Index (USD/DXY) continued it’s push higher, it’s overall performance against a variety of currencies was mixed.
The bond markets had moments of chaos following political developments in Italy. Italian Ten-Year bond yields rose 16 basis points while Germany’s 10-year Bund yield fell 4 basis points (0.60%). The Euro rallied off its lows after trading to December 2017 lows. The Aussie, Asian and Emerging Markets outperformed, Sterling and the Euro slipped, while the Yen was flat.
Trading View: Despite the higher US yields, economic data releases were mixed. US Industrial Production for April rose more than expected while Housing Starts and Capacity Utilisation were both lower than forecast. German and Euro Zone Inflation data were exactly what was expected. Japanese Preliminary Q1 GDP fell from the previous quarter although there was a rise in the GDP Price Index.
Geopolitical developments, far from ideal, have not seen any significant impact on the markets. The Italian coalition, a mix of the populist Five Star and rightist Lega parties are both considered eurosceptic. North Korea said that it doesn’t want to deal away its nuclear weapons in exchange for economic benefits. Which has cast doubt over Trump’s scheduled summit with them on June 12.
What effect with geopolitics have on the currency markets this time? That remains to be seen. As last night’s price action showed, markets reactions are much more short-lived than they used to be.
Economic data and events today: Australian Employment Change and Unemployment Rate (April); Australian Consumer Inflation Expectations; New Zealand Budget Release Report; US Philadelphia Fed Manufacturing Index, US Weekly Jobless Claims
The Dollar Index (USD/DXY) jumped to 93.632, a fresh 5-month high on Italian political developments which pressured the Euro. USD/DXY ended with marginal gains at 93.366 (93.239 yesterday). Immediate resistance lies at 93.50/60, followed by 94.00. Immediate support can be found at 93.20 and 93.00. Likely range today 93.10-93.60.
EUR/USD – slumped to 1.17632, lows not seen since mid-December 2017. The Euro plummeted on reports that the Italian eurosceptic 5-Star anti-establishment and Lega anti-immigration parties would ask the ECB to forgive EUR 250 billion in debt. The EUR/CHF cross, in a flight-to-quality, fell to 5-week lows at 1.17708 from 1.1860 yesterday. EUR/USD rebounded to close at 1.1808 as the US Dollar eased. Immediate resistance lies at 1.1850 and then 1.1880. Immediate support can be found at 1.1780 and then 1.1760. With the speculative community still long of Euro bets and a generally stronger Greenback, look to sell any Euro pullbacks. Likely range today 1.1780-1.1850.
AUD/USD – The Australian Dollar outperformed buoyed by rises in oil and base metal prices. Asian and Emerging Market currencies rose against the Greenback which supported the Aussie. The South African Rand was up 1.17%. USD/SGD dropped to 1.3405 from 1.34455 yesterday. The yield on the Australian Ten-year bond rose 6 basis points to 2.88%. Australian Employment report, released late today, is expected to show a healthy increase in Jobs creation (+20,000 from +4,900). AUD/USD bounced off it’s low at 0.7447 trading to a high of 0.7523 before settling at 0.7515. AUD/USD has immediate resistance at 0.7520/30 and then 0.7550. Immediate support can be found at 0.7480 and 0.7450. Likely range today 0.7475-0.7535. Prefer to buy dips.
USD/JPY – finished flat at 110.35. The Dollar failed to gain despite the higher US Ten Year yield. Japan 10-year JGB yield was up one basis point to 0.05%. USD/JPY should be higher but it's not. Japanese economic data was mixed with the slowdown in Q1 GDP offset by a rise in prices. USD/JPY has immediate resistance at 110.50 which remains strong. Immediate support can be found at 110.00 and then 109.80. Likely range today 109.85-110.55. Prefer to buy dips
USD/SGD – fell against the US Dollar together with other Asian currencies. USD/SGD closed at 1.3405 after trading to an overnight high of 1.34562. The USD/SGD peaked at 1.3490 ahead of the Malaysian election result. Singapore Ten-year bond yields were up 2 basis points yesterday to 2.63%. USD/SGD has immediate resistance at 1.3420 and then 1.3450. Immediate support can be found at 1.3385 and then 1.3350. Likely range today 1.3385-1.3455. Look to buy dips toward 1.3380.
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