Countdown to Jackson Hole – DXY Dips, AUD Outperforms

EUR Stable Below 1.00; JPY, Asian-EMFX Rally vs Dollar

Summary:

Position adjustment dominated FX trade ahead of the much-awaited Jackson Hole gathering which starts today.

Speculators trimmed their long US Dollar bets before Jerome Powell’s speech where he is expected to support the Fed’s tightening plans.

The benchmark US 10-year bond yield fell 5 basis points to 3.03% at the close of trade in New York.

Earlier in the day China’s State Council announced a host of stimulus measures equivalent to USD 146 billion aimed a kickstarting a recovery after its strict Covid lockdowns.

Markets went into risk-on mode which lifted stocks and weighed on the US Dollar.

A favoured gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) dipped 0.23% to 108.42 (108.60).

Risk leader, the Australian Dollar (AUD/USD) outperformed, soaring to 0.06991 highs from 0.6930, settling at 0.6980.

The Euro (EUR/USD) stabilised to finish little changed at 0.9975 after trading to an overnight high at 1.0033.

Sterling (GBP/USD) edged up to 1.1840 from 1.1810 after tumbling to 1.1784 low overnight.

Against the Japanese Yen, the US Dollar eased to 136.52 from 136.82.

The US Dollar slipped against the Asian and Emerging Market currencies.

USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 6.8500 from 6.8600 while the USD/THB pair (US Dollar-Thai Baht) was last at 35.80, down from 36.05.

Wall Street stocks edged higher.

The DOW settled at 33,257 (33,207) while the S&P 500 was last at 4,195, up from yesterday’s 4,178. Other global treasury yields settled lower.

Germany’s 10-year Bund yield eased to 2.61% (2.63%). Australia’s 10-year treasury yield was last at 3.59% (3.67%).

Economic data released yesterday saw New Zealand’s Q2 Headline Retail Sales fall to -2.3% from a previous downward revised -0.9%, and missing estimates at 1.7%.

NZ Q2 Core Retail Sales slid to -1.6% from -0.3%, lower than median expectations at 1.8%.

Germany’s IFO Business Climate Index rose to 88.5, beating estimates at 86.7.

German Final GDP (q/q) climbed to 0.1% from a previous 0.0%.

US Weekly Jobless Claims dipped to 243,000 from a previous 245,000 and better than estimates at 253,000.

US Preliminary Q2 GDP (y/y) was at -0.6%, better than estimates at -0.8% and a previous -0.9%.

US Q2 Personal Consumption Expenditures (q/q was at 7.1%, matching estimates and a previous 7.1%).

• EUR/USD – The Euro steadied to finish at 0.9975 in New York trade which was little changed from yesterday’s close. Overnight, the shared currency rallied to a high at 1.0033 before easing at the close. In volatile trade, the overnight low recorded was at 0.9949. Better-than-expected German IFO Business Climate buoyed the Euro.
• AUD/USD – The Aussie Battler soared to 0.6980 in late New York (0.6930 open yesterday) supported by risk-on and broad-based US Dollar weakness. Overnight, the AUD/USD pair rose to a high at 0.6991, just short of the 0.7000 cent barrier. The Australian Dollar saw an overnight low at 0.6902 before soaring on short covering.
• USD/JPY – Against the Japanese currency, the Greenback tumbled to 136.52 from 136.82. Overnight, the USD/JPY pair soared to a high at 137.20 before its slide. The fall in the US 10-year treasury bond yield weighed on this currency pair. The Yen was generally stronger against its other rivals, with EUR/JPY and GBP/JPY easing.
• GBP/USD – The British currency got a respite from broad-based US Dollar selling, rallying to finish at 1.1840, up from 1.1810 yesterday. Overnight, Sterling was pounded to a low at 1.1784, which was the previous night’s low, before soaring to its New York close. Overnight high traded was at 1.1864.

On the Lookout:

Today’s economic calendar kicked off with a speech from New Zealand’s RBNZ Governor Orr, who at the Jackson Hole symposium saw higher price pressures resulting in more rate hikes.

The Kiwi (NZD/USD) was little changed, at 0.6220.

Other central bank heads are also expected to highlight increased inflation and the likelihood of higher interest rates which evens out the currencies.

Meantime, Japan just released its Tokyo Headline and Core CPI data for August. Tokyo’s Headline CPI (y/y) rose to 2.9% from a previous 2.5% which was also the median forecast.

Tokyo’s Annual Core CPI (ex-food, energy) rose to 2.6% from a previous 2.5%.

The USD/JPY pair edged higher to 136.57 from 136.52.

Europe follows next with Germany’s GFK Consumer Confidence Survey for September (f/c -31.8 from a previous -30.6 – ACY Finlogix).

Switzerland follows next with its Non-Farm Payrolls (no f/c, previous was 5.227 million – ACY Finlogix).

Next up is French August Consumer Confidence (f/c 79 from 80 – ACY Finlogix).

Italy follows with its August Consumer Confidence (f/c 92.5 from 94.8), and Italian Business Confidence (f/c 104.4 from 106.7 – Acy Finlogix).

The US rounds up today’s data with its US July PCE Price Index (m/m no f/c, previous was 1%; y/y no f/c, previous was 6.8%), US July Core PCE Price Index (m/m f/c 0.3% from 0.6%; y/y f/c 4.7% from 4.8% - ACY Finlogix), US July Personal Income (m/m f/c 0.6% from 0.6% - ACY Finlogix), US July Personal Spending (m/m f/c 0.4% from 1.1% - ACY Finlogix), US July Trade Balance (f/c -USD 98.5 billion from previous -USD 98.6 billion – Forex Factory), US Revised University of Michigan Final Consumer Sentiment (f/c 55.2 from 51.5 – ACY Finlogix).

US Fed President Jerome Powell is scheduled to speak at the Jackson Hole symposium at 12 midnight Sydney time.

Trading Perspective:

With the Jackson Hole summit officially beginning today, traders will focus on Fed Chair Jerome Powell’s speech.

Traders widely expect him to support the Fed’s tightening plans, which increases the likelihood of a 0.75 bp rate increase in September.

Speculators have been loading up on their Dollar long bets in the weeks heading into today’s event.

Yesterday, net Dollar long bets were reduced as specs adjusted positions.

Which weighed on the Greenback and saw a weaker finish against all its Rivals. Expect more US Dollar weakness today, but with more two-way trade.

The one common denominator is heightened volatility.

It’s another roller coaster Friday ahead so keep those tin helmets on.

• EUR/USD – The Euro finished little changed but stable just under Parity (1.00), at 0.9975. Immediate resistance today lies at 1.00 followed by 1.0030 (overnight high traded was 1.0033). The next resistance level is found at 1.0060 and 1.0100. On the downside, look for 0.9950 as immediate support. The overnight low traded was at 0.9949. A drop below 0.9949 sees 0.9920 which is the next support. Expect a choppy one in the Euro, likely between 0.9930-1.0030. Ahead of Jackson Hole, look to trade the range with preference to sell rallies.
• AUD/USD – The Aussie Battler found its legs against the overall weaker Greenback and the market’s risk-on stance. After trading to an overnight low at 0.6902, the Aussie took flight to hit a high at 0.6991 before easing to 0.6980 at the close. For today, look for immediate resistance at 0.7000 and 0.7030 to cap. Immediate support lies at 0.6950 and 0.6920. Look for a likely trading range between 0.6910 and 0.7010 today. Prefer to sell rallies.

(Source: Finlogix.com)

• USD/JPY – The Greenback eased versus the Japanese Yen to 136.52 from 136.82 yesterday. Lower US treasury bond yields weighed on the USD/JPY. The overnight low traded was at 136.32. On the day, look for immediate support at 136.30 followed by 136.00 and 135.70. On the topside, immediate resistance lies at 136.85 and 137.25 (overnight high traded was at 137.20). Look to trade in a likely range between 136.20-137.20.
• GBP/USD – The British Pound found strength against the overall weaker US Dollar, closing at 1.1840 against 1.1810 yesterday. Overnight, Sterling traded to a high at 1.1865 before dipping in late New York. Immediate resistance today lies at 1.1870 and 1.1900. Immediate support can be found at 1.1810 and 1.1780. Look for the GBP/USD pair to trade a likely range of 1.1770-1.1870 today. Preference is to sell Sterling rallies.

Have a good Friday ahead, happy trading all. Top weekend.

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