Dollar Runs Out of Steam into November Data Dump

AUD Steadies Ahead of RBA Meet, JPY Shorts Surge

Summary:

The Dollar Index (DXY), a popular gauge of the US currency’s value against a basket of 6 major rivals eased to 110.67 from 110.84 as markets prepare for a November data dump this week.

The week ahead sees 3 central banks (RBA, BOE, and the US Federal Reserve) hold rate setting policy meetings. Economic data releases include China’s PMI Surveys, Eurozone Q3 GDP, US ISM Manufacturing PMI, culminating with the US Payrolls report on Friday (4 November).

In a Bloomberg survey, some economists said that the strong Dollar is likely to weigh negatively on the US economic outlook and could alter how high the Fed ultimately raises interest rates.

Market positioning on the Yen saw speculative JPY short bets climb to their largest total since May. The Yen fell as low as 151.94 per US Dollar last week before Japan Inc stepped in to stem the tide. At the close of trade in New York, the USD/JPY pair closed at 147.52, up slightly from 147.29.

Following last week’s volatile trade, the British Pound (GBP/USD) continued to grind higher, settling at 1.1587 (1.1478). Sterling reversed its downtrend after plunging to 1.0795 in September.

The Euro (EUR/USD) settled at 0.9945 after short-covering last week lifted the shared currency to 1.0082. Last week the ECB raised its Main Refinancing Rate 75 bps to 2.0% which was expected.

The Australian Dollar (AUD/USD) eased to 0.6415 after a reversal saw the Battler jump to 0.6520 on Thursday. Strong selling interest pushed the AUD/USD pair to 0.6170 earlier this month.

New Zealand’s Kiwi (NZD/USD) steadied to 0.5810 after trading to 0.5870 on Thursday. On Friday the Kiwi traded to a low of 0.5787.

The Greenback was lower against the Asian and Emerging Market currencies. The USD/SGD (US Dollar-Singapore Dollar) eased to 1.4102 from 1.4165 last week. Against the Chinese Offshore Yuan, the Greenback (USD/CNH) slid to 7.2700 (7.3150).

Global bond yields fell. The US 10-year Treasury rate slid to 4.01% from 4.10% mid-week. Germany’s 10-year Bund yield fell seven basis points to 2.09%. Japan’s 10-year JGB yield was flat at 0.24%.

Wall Street stocks rallied on Friday. The DOW closed at 32,952 (31,845) while the S&P 500 gained 3.46% to 3,912. Other global equities also rose.

Other economic data released Friday saw Spain’s Annual Flash CPI ease to 0.2% against median estimates at 0.3%, and a previous upward revised 1.5% (from 1.1%).

Germany’s Preliminary GDP (q/q) climbed to 0.3% from a previous upward revised 0.1%, beating estimates at -0.2%. Italy’s October CPI (m/m) rose to 3.5%, beating expectations at 1.1%.

Canada’s GDP (m/m) edged up to 0.1%, against forecasts at 0.0%, matching a previous 0.1%.

US Core PCE Price Index matched forecasts with a 0.5% increase.

US Pending Home Sales slumped to -10.2%, from median estimates at -4.4%. Revised University of Michigan Consumer Sentiment edged up to 59.9 from a previous 59.8 and forecasts at 59.7.

• USD/JPY – Against the Japanese Yen, the Greenback continued its choppy trade. The US Dollar hit a high at 147.68 before settling in late New York trade to 147.52. Overnight, the USD/JPY tumbled to a low at 146.30. Earlier in the week, USD/JPY saw a low at 146.30. The Greenback traded to an October high at 151.94 before Japanese authorities stepped in.
• GBP/USD – Trade in the British Pound was more subdued on Friday. Sterling rallied to 1.1630 overnight high before easing to 1.1587 in late New York. Overnight low traded was at 1.1585. There were no major UK economic data releases on Friday. The week ahead sees the Bank of England hold its rate policy meeting (Thursday, 3 November).
• AUD/USD – The Aussie Battler slid to finish at 0.6415 after trading to an overnight high at 0.6520 on short-covering. The RBA meets on policy tomorrow with the Australian central bank widely expected to raise the Overnight Cash Rate by 25 basis points to 2.85% (2.60%).
• EUR/USD – The shared currency steadied to settle at 0.9945 after soaring to a weekly high at 1.0082 as speculative shorts ran for cover. Overnight low traded for the Euro was at 0.9930. Last week the ECB hiked its Main Refinancing Rate by 75 basis points to 2%, which was widely expected.

On the Lookout:

Look for a data dump this week which is the busiest for November. Japan kicks off Asia with its September Retail Sales report (m/m f/c 0.8% from previous 1.4%; y/y f/c 4.1% from a previous 4.1%), Japanese September Preliminary Industrial Production (m/m f/c -1% from a previous 3.4%; y/y f/c 2.7% from 5.8% - ACY Finlogix). Australia follows with its September Private Sector Credit (m/m f/c 0.7% from 0.8%; y/y f/c 9.4% from 9.3%), Australian September Retail Sales (m/m f/c 0.6% from 0.6% - ACY Finlogix). China releases its NBS October Manufacturing PMI (f/c 50 from 50.1 – ACY Finlogix). This is followed by Japan which releases its September Housing Starts (y/y f/c 2.3% from 4.6%), Japanese October Consumer Confidence (f/c 30 from 30.8 – ACY Finlogix). Germany kicks off Europe with its September Retails Sales (m/m f/c -0.3% from -1.3%; y/y f/c -4.9% from -4.3%). The UK releases its Nationwide October Housing Prices (m/m f/c 0.4% from 0%; y/y f/c 9.2% from 9.5%). Switzerland follows with its September Retail Sales (m/m f/c -0.4% from 1.2%; y/y f/c 2.3% from 3%). Italy releases its Advance GDP (q/q f/c 0% from 1.1%; y/y f/c 2% from 5%). The UK follows with its September Net Lending to Individuals (f/c GBP 7 billion from GBP 7.2 billion). The Eurozone releases its Flash October CPI (m/m f/c 1.3% from 1.2%; y/y f/c 10.2% from 9.9%), Eurozone Flash GDP (q/q f/c 0.2% from 0.8%; y/y f/c 2.1% from 4.1% - ACY Finlogix). Finally, the US releases its Chicago October Purchasing Manager’s Index (f/c 47.1 from 45.7 – FX Street) and Dallas Fed Manufacturing Business Index for October (f/c -15 from a previous -17.2 – FX Street).

Trading Perspective:

Ahead of a busy economic data week, expect more volatile trade in FX. That said, there is more likelihood of further position adjustment for the Greenback against its Rivals. Part of that has already been occurring. The latest Thomson Reuters CFTC report saw net speculative US Dollar long bets pared in the October 19-25 period. Which is clearly seen in the easing of the Dollar Index (USD/DXY). On Friday, the Dollar Index dipped to 110.67 from 110.84 late last week.

The RBA, BOE and Fed all have policy rate meetings this week which will add to volatility. We are in for another roller coaster week in FX land.

• EUR/USD – The Euro steadied to a 0.9945 finish on Friday after a choppy session on Friday. The ECB raised it Main Refinancing Rate when it met last week (Thursday) to 2% from 1.25% which was widely expected. This saw the shared currency initially rally to a weekly high at 1.0082 as speculative short bets ran for cover. Overnight low traded on Friday was at 0.9930. Look for consolidation today in a 0.9910-1.0010 range. Just trade the range shag.
• USD/JPY – The Dollar steadied against the Japanese Yen to finish at 147.52 on Friday, up slightly from 147.29. Overnight high traded was at 147.85. On Friday the US 10-year bond yield dipped to 4.01% (4.10%) which prevented a further rise in the Greenback. The benchmark treasury rate is still above 4% which will support the USD/JPY pair. Likely range today, 147.00-148.00. Trade the range.
• GBP/USD – Sterling continued its grind higher to settle at 1.1587 from 1.1478 late last week. Overnight high traded was at 1.1630 which is today’s immediate resistance. Short covering has supported the British currency since its slide to 1.0795 last month. Which may have run its course. Immediate support for today lies at 1.1550 followed by 1.1500 and 1.1470. On the topside look for immediate resistance at 1.1630 and 1.1680. Look for consolidation with Sterling likely to drift lower in a likely range of 1.1520-1.1620.
• AUD/USD – The Aussie Battler soared to an overnight high at 0.6480 before sliding to close at 0.6415. On Thursday, the AUD/USD pair jumped to a high at 0.6520. Overnight low traded on Friday was at 0.6390. For today look for immediate support at 0.6390 followed by 0.6350 and 0.6320. Immediate resistance is found at 0.6450, 0.6480 and 0.6520. Look for further choppy trade in this currency pair, likely between 0.6370-0.6470. Tin helmets on here.

Ahead of a busy data-dump week, get ready for more choppy FX trading. Have a good Monday and top week all.

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