The pound is falling to record lows touching 1.3000 after negative inflation data and the Chinese yuan is falling strongly against the US dollar
The US Dollar was mostly up against its Rivals as Fed Chair Jerome Powell reinforced his strong economic outlook. The Fed’s Beige Book echoed Powell’s assessment of the economy. All 12 Fed districts expressed tariff concerns. Sterling plummeted to 10-month lows on weak UK inflation data.
Outlook: The Dollar Index (USD/DXY) ended 0.11% up on both Powell and the Fed Beige Books strong economic outlook. Gains were limited though as trade concerns, particularly among the Fed’s districts linger. Both sets of US data, Housing Starts and Building Permits, missed forecasts in June. US Housing Starts in June fell 12.3% from May, which was revised lower.
The yield on the US Ten-year bond climbed one basis point to 2.87%. The US Two Year yield fell to 2.61% from 2.62%. Yields from other global nations were mainly flat.
Trading View: The Dollar ended with mild gains versus the Euro, Yen and Swiss Franc. The British Pound managed to rally off its lows but was still down 0.29% against the Dollar.
The Aussie, Kiwi and Loonie all recorded 0.3% rallies against the Greenback as Oil, Copper and other base metals rebounded. Emerging Market currencies were mostly up against the US Dollar.
USD/CNH (Dollar/Offshore Chinese Yuan) rose 0.5% to 6.7480, its highest close in 2018. The Yuan’s depreciation is partially due to the overall strength of the Dollar. However, it’s continuing slide raises questions about whether Beijing is using its currency to boost exports and offset the impact of US tariffs. The Yuan is down over 3% against the Dollar this year. China has yet to respond to the introduction of new US tariffs. Trade issues are not going away, and the USD/CNH moves bear watching.
Today sees Australian Employment, Japanese Trade Balance, UK Retail Sales and US Philly Fed Manufacturing data.
USD/DXY – The Dollar Index traded to a high of 95.407 before slipping to close at 95.079, up 0.11% from yesterday. The 95.40/50 level remains immediate resistance and until we see a sustained break above those levels, the overall range between 94.20 and 95.50 remains intact. Immediate support can be found at 94.80 and then 94.60. Likely range today 94.70-95.20. Prefer to sell rallies.
GBP/USD – Sterling was pounded to an overnight low of 1.30097 after UK Headline and Core Inflation data were lower than expected. UK House Price Index also dropped below forecasts. GBP/USD, already under pressure from Brexit woes and an overall stronger US Dollar looked to be o the ropes just above the psychological 1.3000 level. The subsequent bounce was strong, and the Pound rallied back to 1.3080 as US Housing data underwhelmed. Today also sees the release of UK Retail Sales which could surprise to the upside considering the English Football Team’s success in the recent World Cup. GBP/USD has immediate support at 1.3030 and then 1.3000. Immediate resistance lies at 1.3100 and then 1.3130. We could be in for one of those wild rides in Sterling today. Likely range 1.3020-1.3120. Prefer to buy dips close to 1.3000 today.
AUD/USD – Once again the Aussie managed to bounce off its lows at 0.73431 yesterday. Copper rallied 0.55% leading most base metals higher. AUD/USD ended higher at 0.7400, up 0.28%. The overnight high traded was 0.74076. Immediate resistance today lies at 0.7410/20. The next level of resistance is 0.7440/50. Immediate support can be found at 0.7380 and then 0.7350. Australian Employment data for June are due out later this morning. The Australian economy is expected to have added 17,000 Jobs in June from May’s gain of 12,000. Likely range today 0.7370-0.7420. Prefer to buy dips near 0.7350. Any big moves in the Chinese Yuan may impact the Aussie.
USD/JPY – traded to 113.137 highs overnight before fading to close at 112.85, little-changed from yesterday. USD/JPY has immediate resistance at 113.10 and then 113.50. Immediate support lies at 112.70 (which was the overnight low), and 112.50. Japanese merchandise trade balance is due out today. Trade concerns will remain a headwind to further substantial US Dollar gains. The speculative community is also short Yen contracts. Likely range today 112.30 -113.10. Look to sell USD/JPY rallies.
EUR/USD – traded to an overnight low of 1.1602 before rallying to close at 1.1638, down 0.13% from yesterday (1.1660). The Euro was mainly sidelined with most of the action in Europe on the Pound. EUR/USD has immediate and good support at 1.1600/10 with further support at 1.1580. Immediate resistance can be found at 1.1660/70 (overnight high 1.1665). Strong resistance lies at 1.1700. There are no major Euro-area data releases today, so the Euro should trade on the back of US Dollar moves. Likely range 1.1620-1.1690. Just trade the range shag on this one for sure.
USD/ZAR– The rand was stable in the early afternoon on Wednesday, following the release of Consumer Price Index data by Stats SA.
CPI ticked up from 4.4% in May to 4.6% in June, which was slightly under the 4.8% expected by economists.
The local currency opened at R13.27 to the dollar and was trading at R13.33/$ at 12:18, 0.48% weaker on the day.
With no surprises in the CPI data, markets are expected to turn their attention to the SA Reserve Bank's repo rate announcement on Thursday afternoon.
Events and economic data releases today: Australian Employment Change, Unemployment and Participation Rate for June; Japan Merchandise Trade Balance, Imports and Exports, UK Headline and Core Retail Sales; US Weekly Jobless Claims, Philadelphia Fed Manufacturing Index.
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