USD is dominating the markets and rising against all the currencies and EUR is touching the 1.1530 level
Emerging Market agony spread around the globe belting currencies from Argentina to South Africa, Iran and Sri Lanka. The Dollar advanced, lifted by outflows from the EM markets and robust US ISM Manufacturing data that hit 14-year highs. Yields climbed while stocks fell.
Outlook: The pronounced weakness in Emerging Market currencies has seen the Dollar resume its uptrend. The acceleration in US manufacturing activity further boosted the Greenback.
However, ISM manufacturing prices underwhelmed missing forecasts. New Export Orders component underwhelmed, suggesting trade remains a worry.US August Construction Spending missed forecasts.
Trading View: The main game in town was the Emerging Markets. Argentina’s Peso slumped another 3 % despite a reaffirmation of support from President Trump. The Sri Lankan Rupee and Iranian Real hit all-time lows. Despite support from the central bank, the Indonesian Rupiah hit fresh decade lows. South African Q2 GDP showed a contraction of 0.7% following the Q1 contraction of 2.6%.
Markets fear that any further escalation in the trade conflict would negatively impact many of these export-oriented economies. The US Trade Balance is due later today and a weaker number will be a headwind for further Dollar gains.
Speculative Dollar Long Bets are at their highest since January 2017. The Greenback is at multi-year highs against some of the currencies.
The US Dollar rose modestly against the Majors. The resource currencies (Canadian, Australian and New Zealand Dollars) hardest hit. Commodities were lower across the board led by Copper’s 2.5% drop. Canada’s Loonieslumped 0.73% on further NAFTA delays. The Bank of Canada meets today on interest rates.
Watch the VIX (Volatility Index). It has slowly crept up as we start a new month. Further turmoil in the Emerging Markets will see volatility spike. We could be in for a real roller coaster ride this September.
Events and economic data releases today: Australian Q2 GDP; China Caixin Services PMI Data; French, German and Euro-Zone Markit Services PMI, Euro-Zone August Retail Sales; Canada Trade Balance, Q2 Labour Productivity, Bank of Canada Rate Policy Meeting and Statement
USD/DXY – The Dollar Index finished up 0.31% at 95.428 (95134 yesterday). Overnight high traded was 95.737. Immediate resistance today lies at 95.70/80 followed by 96.00. The overnight low traded was 95.139. Immediate support can be found at 95.10/20. The short-term momentum is up but the 95.80-96.00 should provide stiff resistance. Likely range today 95.20-70. Prefer to sell rallies.
AUD/USD – reversed gains made yesterday and slumped to a fresh low this week at 0.7157 before rallying at the close to 0.7180. AUD/USD has immediate support today at 0.7160, followed by 0.7130. Immediate resistance can be found at 0.7200 followed by 0.7230. Likely range today 0.7160-0.7260. Prefer to buy dips.
EUR/USD – finished with modest losses and closed at 1.1585 (1.1615 yesterday). The Euro hit an overnight low of 1.15302. Immediate support on the day lies at 1.1560 followed by 1.1530. Immediate resistance can be found at 1.1610/20. Euro area services PMI data as well as Euro-Zone Retail Sales are due later today. Look to trade a likely range of 1.1565-1.1625 today. Just trade the range shag on this one.
GBP/USD – The British Pound was little-changed, closing at 1.2856 (1.2870 yesterday). While UK Construction PMI missed forecasts, Sterling received a boost from BOE Governor Mark Carney. Carney said he was prepared to stay at his post before his planned leaving date. Carney also said that the BOE’s MPC does not have a forecast for a no-deal Brexit. Meantime Reuters reported that the EU could offer new guarantees to Britain to get support from London for their solution aimed at avoiding an Irish border after Brexit. Sterling has immediate resistance at 1.2880 (overnight high 1.28756) followed by 1.2900. Immediate support can be found at 1.28400 (overnight low 1.28103) followed by 1.2810. Look to trade a likely range today of 1.2820-1.2920. Prefer to buy dips, speculative long bets are at an extreme.
USD/JPY – grinded its way higher, closing at 111.45, 0.35% higher. The Dollar rose as US yields rallied. The yield on the US 10-year bond climbed to 2.9% (2.86% last Friday). Japan’s 10-year JGB yield was unchanged at 0.11%. Higher US yields will keep USD/JPY supported. However, waning risk appetite due to the Emerging Marker agony will be a headwind for further Dollar gains. Overnight high for USD/JPY was 111.53. Immediate resistance today lies at 111.60 followed by 111.90. Immediate support can be found at 111.20 and then 111.00. Look to trade a likely range today of 111.00-60. Prefer to sell rallies.
USD/ZAR After starting the week on the back foot, the rand continued to fall in early trade on Tuesday following the announcement by Stats SA that the country was in a technical recession.
The local currency, which lost 1.5% against the dollar at the start of the week, ended Tuesday at R15.34/$.
At 11:30, Stats SA announced that the country's real gross domestic product had contracted by 0.7% in the second quarter of the year. South Africa has now entered a technical recession, after GDP contracted by 2.2% in the first quarter.
The local currency soon fell to R15.23/$ at by noon, and continued to weaken during the afternoon.
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