Risk-Off, FX Volatility Soars, Euro Slumps, Sterling Slides

French Protests Erupt, Far Right Party Gains; DXY Advances 

Summary:

Political uncertainty in France and the UK dominated pre-weekend FX trade. The Euro (EUR/USD) slumped to 1.0700 from 1.0740 while Sterling (GBP/USD) tumbled 0.8% to 1.2694 from 1.2762. Risk aversion pushed the Dollar Index (DXY) higher to 105.52 from 105.20. 

In France, President Macron’s election call after he suffered a crushing defeat, weighed on the shared currency. The prospect of a victory by the French far-right party saw hundreds of thousands take to the streets across the country. 

Close by in the UK, the latest polling ahead of Britain’s July 4 election showed Reform support overtaking the Conservatives. The Bank of England also has its policy meeting on Thursday. 

Against the haven associated Swiss Franc, the US Dollar (USD/CHF) fell to 0.8900 from Friday’s open at 0.8940. The EUR/CHF pair, often a gauge for European risk, plummeted 0.92% to 0.9530 from 0.9600 Friday. 

The Dollar Index (DXY) advanced despite a fall in the US Michigan Consumer Sentiment Index to 65.6 from a previously upward revised 69.1 (from 67.4). Analysts had forecasted 72.1. 

Against the Japanese Yen, the Greenback grinded higher to 157.35 from 157.05. In volatile trade, the USD/JPY pair rocketed to an overnight high at 158.25 before easing at the close. The Bank of Japan kept its Policy Rate unchanged, at 0.1%. 

Risk leader, the Australian Dollar (AUD/USD) slid to 0.6610 from 0.6640 Friday. Broad-based USD strength and a weaker finish by the Asia- EMFX pairs weighed on the antipodean currency. 

The Greenback advanced against the Asian and Emerging Market Currencies. The USD/CNH pair rallied to 7.2710 (7.2690), while USD/SGD (Dollar-Singapore) rose to 1.3532 (1.3510). 

Risk aversion saw global bond yields tumble. The US 10-year treasury rate eased to 4.22% from 4.24%. Germany’s 10-year Bund yield plummeted 11 basis points to 2.36%. The UK 10-year Gilt yield fell 7 basis points to 4.05%. 

Global stocks slipped. The DOW finished at 38,540 (38,620). Japan’s Nikkei slipped to 38,562 from 38,585. Australia’s ASX 200 tumbled to 7,705 from 7,745 Friday. 

Other economic data saw France’s Final CPI (m/m) unchanged, at 0.0%. China’s New Loans climbed to CNY 950 billion from CNY 730 billion, but lower than forecasts of CNY 2250 billion. 

• EUR/USD – France’s political turmoil weighed on the Euro, pushing it to 1.0705 from its opening at 1.0740. The shared currency traded to an overnight high at 1.0745 before tumbling lower. The overnight low recorded was 1.0667. Euro crosses also fell.
• GBP/USD – the British currency fell against the Greenback weighed by the UK political uncertainty ahead of July 4 elections. Sterling closed at 1.2695, down from Friday’s open at 1.2763. Rising support for the UK Reform movement weighed on the British Pound.
• USD/JPY – against the Japanese currency, the Greenback closed at 157.35 (157.05 Friday). In another choppy trading session, the USD/JPY pair traded to an overnight high at 158.25 before plummeting. The overnight low recorded was 156.77.
• AUD/USD – The Aussie Battler eased to 0.6605 at the New York close. The Australian Dollar traded to an overnight high at 0.6641 while the overnight low recorded was 0.6591. The visit of Chinese Premier Li Qiang to Australia on Saturday was the highest ranking official to do so in seven years. The visit offered the prospect of greater trade between the two nations, thawing icy relations.

On the Lookout: 

The new week sees a light economic calendar today. New Zealand kicked off with its New Zealand May Services PMI which eased to 43.0 from 46.6 previously. The Kiwi (NZD/USD) edged higher to 0.6136 from 0.6130 open.

Japan follows with its April Machinery Orders (m/m f/c -3.1% from 2.9%; y/y f/c -0.1% from 2.7% - ACY Finlogix). Australia releases its ANZ May Job Ads (m/m f/c -1.2% from 2.8% - ACY Finlogix).

China follows with its trifecta of data, starting with May Industrial Production (y/y f/c 6% from 6.7% - ACY Finlogix), Chinese May Retail Sales (y/y f/c 3.0% from 2.3% - ACY Finlogix), Chinese May Industrial Production (y/y f/c 6.0% from 6.6% - ACY Finlogix), Chinese May Fixed Asset Investment (f/c YTD 4.2% from 4.2% - ACY Finlogix). China’s May Unemployment Rate is expected to remain unchanged, at 5% (ACY Finlogix).

Europe starts off with Italy’s Final May Inflation Rate (y/y f/c 0.8% from 0.8% - ACY Finlogix). Canada starts off North America with its Canadian May Housing Starts (f/c 241K from 240.2 K).

North America rounds today’s relatively light calendar start with Canada’s May Housing Starts (m/m f/c 241K from 240.2K – ACY Finlogix) and US New York Empire State June Manufacturing Index (f/c -13 from -15.6 previously – ACY Finlogix). 

Trading Perspective: 

The Dollar extended its advance against most of its Rivals on risk-off as political unrest in Europe and the uncertainty of elections in the UK supported the US currency. Expect consolidation today as we begin a new week. The one unifying factor for all markets is that heightened volatility will continue to dominate trade. It’s a week to get those tin helmets on and prepare for more choppy trading ahead. 

• EUR/USD – the shared currency takes center stage with the political situation in France causing turmoil. Expect volatility in the Euro to climb with the current turmoil in the French political landscape. Immediate support lies at 1.0670 (overnight low traded was 1.0674). The next support level is found at 1.0640 and 1.0610. Immediate resistance can be found at 1.0740 (overnight high traded was 1.0745). The next resistance lies at 1.0770. Look for volatility to stay elevated with a likely range today of 1.0630-1.0730. Keep watch over the political developments in France and the rest of Europe.

• GBP/USD – Sterling slid against the Greenback, weighed by polls in the UK which suggest the Reform movement overtaking the Conservatives. Britain prepares for its July 4 election. Moderating inflation expectations over the coming year, 2.8% in May, down from 3%, also weighed on the British currency. Immediate support lies at 1.2650 (overnight low traded was 1.2649). The next support level is found at 1.2620. Immediate resistance lies at 1.2730, 1.2770 (overnight high traded was 1.2763). Look for Sterling to remain heavy in a likely range of 1.2650-1.2750 today. Prefer to sell rallies.
• AUD/USD– the Aussie Dollar dipped against the overall stronger Greenback to 0.6605. Look for immediate support today at 0.6585 followed by 0.6555. Immediate resistance can be found at 0.6640 (overnight high traded was 0.6641). The next resistance level can be found at 0.6670 and 0.6700. The thawing of trade relations between China and Australia is Aussie supportive. Look for the Aussie to trade a likely range of 0.6585-0.6685. Trade the range, nice and wide.
• USD/JPY– The Dollar Yen pair settled at 157.35, up from 157.05 previously. On the day, look for immediate resistance at 157.65, 157.95 and 158.25 (overnight high). Immediate support can be found at 157.00, 156.70 and 156.40. Look for the USD/JPY pair to trade in a likely range today of 156.50-158.00. With political uncertainty in Europe and the UK weighing, expect the Japanese Yen attract inflows. Likely range today, 156.50-158.00. Prefer to sell USD/JPY on strength.

Have a top trading week ahead, happy Monday all. 

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