DXY Soars to 106, US Labor Costs Accelerate into FOMC

AUD Tumbles, USD/JPY Rebounds, Metals, Crude Oil Slide

Summary: The US Employment Cost Index accelerated 1.2% in the first quarter, much higher than 0.9% previously. This data gives the Federal Reserve the ammunition to justify a hawkish shift in tomorrow’s FOMC meeting.

The Dollar Index, which measures the value of the Greenback against a basket of 6 major Rivals, soared to 106.00 (105.75). US bond yields rose, with the 10-year settling at 4.68% (4.63%).

Australia’s Retail Sales fell 0.4% in March, against expectations of a 0.2% increase, weighing on the Aussie. The AUD/USD pair tumbled to 0.6475 from 0.6530.

A decline in China’s NBS PMI to 50.4 from 50.8 added downward pressure on the Antipodean currency. The USD/CNH pair (Dollar-Offshore Chinese Yuan) rallied to 7.2550 (7.2450).

Against the Japanese Yen, the US Dollar rebounded to 157.75 from 156.80 yesterday. On Monday, the USD/JPY pair soared to 160 for the first time since 1990 before plummeting to 154.50 on suspected intervention by Japanese authorities.

The Euro (EUR/USD) settled lower against the US Dollar to 1.0695 (1.0720). Despite better-than-expected Eurozone economic data, the shared currency failed to hold its gains. Sterling (GBP/USD) slid to 1.2495 from 1.2535.

The widening gap between US and Japanese yields continued to provide fuel for another upside attempt in the USD/JPY pair. Japan’s 10-year JGB yield was last at 0.87% (0.88% previously).

Commodity prices finished lower. Brent Crude Oil slid 2.9% to USD 85.95 (USD 89.25). Gold slumped to USD 2,286 (USD 2336). Spot Silver dipped to USD 27.25 (USD 27.45).

Other economic data released yesterday saw the US Conference Board’s Consumer Confidence slump to 97 from 104.70 previously. It was the lowest reading since July 2022.

The US Chicago PMI tumbled to 37.9 from 41.4 previously, underwhelming median forecasts at 44.9. Earlier this morning, New Zealand’s Q1 Unemployment Rate rose to 4.3% from 4% in the previous quarter. The Employment Change dropped 0.2% in Q1 from a 0.4% rise previously.

    - AUD/USD – the Aussie Dollar tumbled below 0.65 cents to finish at 0.6475 in late New York (0.6530 yesterday). Broad based US Dollar strength and weaker-than-expected Australian Retail Sales data weighed on the Aussie. Overnight low traded was 0.6474.

    - USD/JPY – the Dollar rebounded against the Japanese currency to 157.75 from yesterday’s open at 156.80 in another roller coaster session. Overnight, the Greenback saw a low of 156.16 while the overnight high traded was 157.85.

    - EUR/USD – the shared currency fell under the weight of a robust Greenback, easing to 1.0695 (1.0720). Overnight, the Euro traded to a high at 1.0735 while the overnight low recorded was 1.0669.

    - GBP/USD – the British Pound eased against the US Dollar to 1.2495 against 1.2535 previously. Sterling soared to an overnight high of 1.2561 before tumbling in late New York. The overnight low recorded for the GBP/USD pair was 1.2491.

On the Lookout: Today’s economic data calendar is a busy one with the release of global PMI readings. Chinese markets are away today with the country celebrating it May Day holiday. Australia kicks off with its Judo Bank April Final Manufacturing PMI (f/c 49.9 from 47.3 – ACY

Finlogix). Japan follows with its Jibun Bank April Final Manufacturing PMI (f/c 49.9 from 48.2 – ACY Finlogix). Germany, France, and Italy are also away, celebrating their Labor Day. The UK releases its April Nationwide Housing Prices (m/m f/c 0.1% from -0.2%; y/y f/c 2.5% from 1.6% - ACY Finlogix). The UK also releases its UK S&P Global Final Manufacturing PMI (f/c 48.7 from 50.3 – ACY Finlogix). Canada kicks off North America with its S&P Global Manufacturing PMI (f/c 50.2 from 49.8 – ACY Finlogix). The US rounds off today’s calendar with its ADP Private Jobs Employment Change (f/c 179K from 184K – ACY Finlogix) and US S&P April Global Manufacturing PMI (f/c 49.9 from 51.9 – ACY Finlogix). The US Treasury follows with its Treasury Refunding Announcement. The FOMC releases its statement following its meeting. The US Fed Funds rate is expected to remain unchanged, at 5.5%. US Fed Chief Jerome Powell holds a press conference following the meeting.

Trading Perspective: The acceleration in US labor costs will keep the Dollar bid ahead of the FOMC meeting and announcement. The recent batch of strong US economic data strengthens the Fed resolve to keep interest rates higher for longer. Other US economic data released overnight though, saw weaker-than-expected US Consumer Confidence and Chicago PMIs. Which will keep the Fed in its holding pattern following the meeting. In Asia traders will focus once again on the Japanese Yen and the reaction from authorities, the MOF (Ministry of Finance) and (BOJ) Bank of Japan. Keep those tin helmets on, expect more volatility in store for FX traders. Happy days!

    - AUD/USD – the Aussie Battler tumbled under the weight of an overall stronger Greenback as well as a drop in Australia’s Retail Sales in March. On the day, look for immediate support at 0.6470 followed by 0.6440 and 0.6400. Immediate resistance lies at 0.6510, 0.6540 and 0.6570 (overnight high traded was 0.6565). Look for the Aussie to consolidate in a likely range today of 0.6450-0.6550. Prefer to buy Aussie on weakness.

   - USD/JPY – the Dollar rebounded against the Japanese Yen to finish at 157.75 from 156.80 yesterday. Despite verbal warnings and suspected intervention from Japan Inc, the USD/JPY pair stood firm. Immediate resistance lies at 158.00 followed by 158.40. On the downside, look for immediate support at 157.40 followed by 157.00 and 156.60. Look for more choppy trade, likely between 156-159. Prefer to sell the Greenback on any spike to 160. You know where to put a stop (160.50) in case Japan Inc does not show up.

    - EUR/USD – the Euro slid to 1.0695 following its rally overnight to 1.0735. Look for immediate support in the shared currency at 1.0665 (overnight low traded was 1.0669). The next support lies at 1.0635 and 1.0605. Immediate resistance can be found at 1.0715, 1.0735 (overnight high) and 1.0760. Look for a likely range today of 1.0650-1.0750 in the Euro. Trade the range.

    - GBP/USD – Sterling slid against the overall stronger Greenback to 1.2495 (1.2535 yesterday). Immediate support for the British Pound can be found at 1.2465 and 1.2435. On the topside, immediate resistance lies at 1.2530 and 1.2560 (overnight high traded was 1.2561). Look for Sterling to trade in a likely range today of 1.2470-1.2570. Trade the range, the preference is to buy GBP on weakness.

Tin helmets on, happy trading all. A top Wednesday ahead.

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