Dollar Stays Bid, DXY Hits 6-month Peak

Euro Slides Below 1.07, Stocks Mixed

Summary:

The Dollar Index, which weighs the value of the Greenback against a basket of 6 major currencies, soared to 105.05 from 104.85, a six-month high. Stronger-than-expected US economic data continued to underpin the Dollar.

Initial Claims for Unemployment benefits in the US declined to 216k, surpassing market estimates of 234k and better than the previous 228k. It was also the lowest number in 6 months.

US ISM Services PMI rose to 54.5 in August, bettering economist’s expectations at 52.5. It was also the highest read since March. The strong data increased the pressure for higher US interest rates.

The Euro (EUR/USD) slid below 1.0700, finishing at 1.0695, its lowest level since June. In contrast to strong US data, Germany’s July Industrial Production fell to -0.8%, weaker than expectations at -0.5%.

Against the Japanese Yen, the Dollar eased to 147.30 (147.80 yesterday). Growing expectations that the Bank of Japan would take action to stem the Yen’s decline weighed on the Greenback.

The US Dollar finished modestly higher against most Asian and Emerging Market Currencies. The USD/CNH (Dollar-Offshore Chinese Yuan) pair rallied to 7.3350 (7.3250). Against the Singapore Dollar, the Greenback (USD/SGD) edged higher to 1.3655 from 1.3635 yesterday.

Global bond yields eased. The 10-year US bond rate settled at 4.24% (4.29%). Germany’s 10-year Bund yield slipped to 2.61% from 2.65%. Australia’s 10-year rate dipped to 4.16% (4.17%).

Other economic data released yesterday saw China’s August Trade Surplus slip to USD 68.4 billion from a previous USD 80.6 billion, and lower than economist’s forecasts at USD 73.9 billion.

Australia’s July Building Permits (m/m) fell to -8.1%, matching expectations at -8.1% but lower than June’s -7.9%. The Australian Dollar (AUD/USD) was little changed, finishing at 0.6375.

Wall Street stocks were mixed. The DOW finished at 34,500 against yesterday’s 34,440. The S&P 500, however, eased to 4,452 (4,465 yesterday). Other global share markets eased.

• EUR/USD – The Euro slid under the 1.0700 level to 1.0695, its lowest finish in 3 months. The shared currency settled lower against the broadly based stronger Greenback. Contrasting softer European economic data against better-than-expected results in the US weighed on the Euro. The Euro traded to a low at 1.0688 before steadying.
• USD/JPY – Intervention threats from Japanese officials prevented the Greenback from rallying further against the Yen. Masato Kanda, Japan’s top currency diplomat stated that Japanese authorities are considering intervention to end “speculative movements”. Which was enough to push the USD/JPY pair lower to 147.30 from 147.80 yesterday.
• AUD/USD – The Australian Dollar finished little changed against the Greenback at 0.6375. Overnight, the Aussie Battler traded to a high at 0.6395 before easing. The overnight low recorded was 0.6362 in subdued trade.
• GBP/USD – Sterling slid against the broadly based stronger US Dollar to 1.2470 from yesterday’s 1.2497. The British Pound traded to an overnight low at 1.2445 before rallying in late New York. In choppy trade, the overnight high recorded was 1.2508.

On the Lookout:

Today’s economic calendar kicks off with a raft of data from Japan. Among primary reports, is Japan’s July Average Cash Earnings (f/c 2.1% from 2.3% - ACY Finlogix).

Next up is Japanese July Current Account (f/c +JPY 2295.7 billion from a previous +JPY 1508.8 billion – ACY Finlogix).

Next up is Japan’s Final GDP Growth Rate (q/q f/c 1.3% from 0.9%’ y/y f/c 5.5% from 3.7% - ACY Finlogix). Finally, Japan releases its August Economic Watchers Survey Current (f/c 54.4 from 54.4 – ACY Finlogix).

Germany starts off Europe with its German August Final Inflation Rate (m/m f/c 0.4% from 0.3%; y/y f/c 6.1% from 6.2% - ACY Finlogix).

France follows with its July Industrial Production (m/m f/c 0.1% from -0.9% - ACY Finlogix).

Canada starts off North America with its Canadian August Unemployment Rate (f/c 5.6% from 5.5% - ACY Finlogix), Canadian August Employment Change (f/c +2K from -8.1K – ACY Finlogix).

The US rounds up today’s economic data releases with its July Wholesale Inventories (m/m f/c -0.1% from -0.7% - ACY Finlogix).

On Saturday (8 September), China releases its August PPI (y/y f/c -3% from -4.4% - ACY Finlogix), Chinese August Inflation Rate (m/m f/c 0.3% from 0.2%; y/y f/c 0.1% from -0.3% - ACY Finlogix).

Trading Perspective:

The US Dollar stayed bid against its Rivals supported by stronger than expected economic data which keeps interest rates tight.

A larger then expected fall in China’s August Trade Surplus weighed on the Chinese Yuan and other Asian and EMFX.

At the end of the trading week which has resulted in Dollar gains, the risk is for an adjustment in positions.

Economic data released today from the rest of the globe will be closely scrutinized as well.

The Dollar is widely expected to consolidate its gains heading into the weekend. But the risk for correction is firmly in place.

• EUR/USD – The Euro finished on a soft note at 1.0695 against the Greenback. Immediate support today can be found at 1.0685 (overnight low traded was 1.0686). The next support level can be found at 1.0650. Immediate resistance lies at 1.0730 (overnight high traded was 1.0732). The next resistance level is found at 1.0760 and 1.0790. Look for the Euro to trade a range today of 1.0680-1.0780. Wouldn’t want to get caught short down at current levels.

(Source: Finlogix.com)

• USD/JPY – Against the Japanese Yen, the Greenback eased to 147.30 from 147.80 following intervention threats from Masato Kanda. The overnight high traded for the Dollar was 147.87. Look for immediate resistance at 148.00 followed by 148.50. On the downside, immediate support lies at 147.00, 146.70 and 146.40. Look for more volatile trade today, likely between 146.70 and 148.20. Trade the range today, there will be opportunities.
• AUD/USD – The Australian Dollar held its own against the firmer Greenback, settling at 0.6375, little changed from yesterday’s 0.6377. Look for immediate support at 0.6360 followed by 0.6330. Immediate resistance lies at 0.6400 (overnight high traded was 0.6395). The next resistance level is found at 0.6430 followed by 0.6480. Look for the Aussie to trade in a likely range today between 0.6350 and 0.6450. Prefer to buy dips today.
• GBP/USD – Sterling slipped against the Greenback to finish at 1.2470 from 1.2497 yesterday. On the day, look for immediate support at 1.2440 followed by 1.2410. On the topside, immediate resistance can be found at 1.2510 (overnight high traded was 1.2508). The next resistance level lies at 1.2540. Look for more choppy trade in the British Pound, likely between 1.2430-1.2530. Trade the range, nice and wide.

Happy trading and Friday all. Have a top weekend too.

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