Dollar Rebounds, Fed Dot-Plot Signals Just One Rate Cut This Year

US PPI Declines, Euro Slumps, USD/JPY Climbs Ahead of BOJ Meet 

Summary:

The Dollar Index (DXY)shrugged off softer than expected US Producer Prices, instead climbing 0.5% to 105.25 from 104.70 yesterday. The US Federal Reserve signaled just one rate cut this year, from three previously. 

Fed Chair Jerome Powell emphasized strength in the labor market, reassuring the markets that the US central bank is prepared to adjust policy according to evolving economic data. 

The US Producer Price Index, a gauge of prices and services that producers get from their goods and services in the open market, unexpectedly declined in May. Forecasts were for a 0.1% rise.

 US Bond yields moved lower, dragging other rival bond rates down. The US 10-year yield slid to 4.24% (4.31%). Germany’s 10-year Bund yield fell to 2.47% from 2.53%. 

Against the Japanese Yen, the Greenback (USD/JPY) rallied to 157.05 from 156.83 yesterday. The Bank of Japan is widely expected to keep interest rates ultra-low at their policy meeting today. 

The Euro (EUR/USD) extended its slide to 1.0737 from 1.0812. The shared currency erased almost all its gains as concerns rose on the political instability in France. President Emmanuel Macron suffered a crushing defeat in the EU Parliamentary elections. 

Sterling (GBP/USD) slid to 1.2760 from 1.2795. The British Pound pulled back from Thursday’s peak at 1.2860 against the broadly based stronger Greenback. 

The Australian Dollar (AUD/USD) retreated to 0.6635 from 0.6665 yesterday. Lower Asian and Emerging Market currencies against the Greenback, kept the Aussie Battler under pressure. 

Against the Offshore Chinese Yuan (USD/CNH), the Dollar climbed to 7.2700 from 7.2625. The USD/SGD (Dollar-Singapore Dollar) pair rallied to 1.3510 (1.3480). USD/THB (Dollar-Thai Baht) rose to 36.75 from 36.58. 

Wall Street stocks steadied. The DOW finished little-changed at 38,620 (38,645). The S&P 500 closed unchanged at 5,430. The NASDAQ gained modestly to 19,575 (19,570). 

Other economic data released yesterday saw US Initial Jobless Claims climb to 242,000 from 229,000 previously. US May PPI fell to 0.2% from 0.5%. May Core PPI slid to 0% from 0.5%. 

• EUR/USD – the shared currency renewed its slide, settling at 1.0737 after climbing to 1.0812 yesterday. Political turmoil in France continued to weigh on the Euro. Financial markets saw the prospect of Marine Le Penn, a conservative who swept to popularity promising stiff limits to immigration to France from both within and outside the E.U.
• USD/JPY – Despite a fall in US bond yields, the Dollar climbed against the Japanese Yen to 157.05 from 156.83 ahead of today’s Bank of Japan policy meeting. The BOJ is widely expected to keep its ultra-low monetary policy. FX traders will be monitoring any announcements regarding a potential reduction in the BOJ’s monthly bond purchases.
• AUD/USD – the Aussie Battler retreated to 0.6635 from 0.6665 against the broadly based stronger Greenback. Australia’s Jobless Rate in May dipped to 4.0% from 4.1% which was widely expected. The prospect of just one rate cut instead of three from the US Fed buoyed the Aussie.
• GBP/USD – Sterling eased 0.3% to 1.2760 from 1.2795 yesterday. The British currency soared to an overnight and three-month high at 1.2808 before slipping. Lower readings from the UK’s Manufacturing and Industrial Production data weighed on the British currency. Sterling slid to an overnight low at 1.2738 before steadying.

On the Lookout: 

Today’s economic calendar kicked off with New Zealand’s May PMI, which fell to 47.2 from 48.9 previously and lower than forecasts at 49.2. The Kiwi (NZD/USD) dipped to 0.6153 from its opening at 0.6166. The BOJ is expected to keep its Policy Rate unchanged, at 0.1%, at the conclusion of its meeting today. 

Later in the day, Japan releases its April Revised Industrial Production (m/m f/c -0.1% from 4.4%; y/y f/c -1.0% from -6.2% - ACY Finlogix). France starts off Europe with its French May Final Inflation Rate (m/m f/c 0% from 0.5%; y/y f/c 2.2% from 2.2% - ACY Finlogix). China releases its May New Yuan Loans (f/c CNY 1300B from CNY 730B – ACY Finlogix). Italy kicks off European data with its Italian April Trade Balance (f/c +EUR 4.25 billion from +EUR 4.341 billion – ACY Finlogix). 

The Eurozone follows with its April Balance of Trade (f/c +EUR 20 billion from +EUR 24.1 billion – ACY Finlogix). Canada kicks off North America with its Canadian April Manufacturing Sales (m/m f/c 1.2% from -2.1% - ACY Finlogix), Canadian April Wholesale Sales (m/m f/c 2.8% from -1.1% - ACY Finlogix). The US rounds up today’s busy economic calendar releases with its June Preliminary Michigan Consumer Sentiment (f/c 72 from 69.1 – ACY Finlogix).

Tomorrow, Saturday, 15 June, China releases its May FDI (Foreign Direct Investment), forecast at -28.1% from -27.9% previously (ACY Finlogix). 

Trading Perspective:

The Dollar finishes the week on a strong note following the Fed’s less dovish dot-plot. Softer than expected US Producer Prices limited the Greenback’s upside. 
Today expect profit-taking and position adjustments to dictate trade in FX. Which could see limited topside for the US Dollar. Despite the hectic week that is about to end, expect more volatility today amid political uncertainty in Europe and a cautious Federal Reserve. 

• USD/JPY– all eyes on the Bank of Japan today as they conduct their policy meeting. FX markets see the BOJ keeping their ultra-low interest rate policy with the Policy Rate unchanged at 0.1%. Immediate resistance today lies at 157.25 followed by 157.50 and 157.80. Immediate support can be found at 156.80, followed by 156.50 and 156.20. Look for more choppy trade in the USD/JPY, likely between 156.50-157.50. Heading into the BOJ, stay neutral and trade the range, nice and wide.

• EUR/USD – the shared currency extended its slide to 1.0737 from 1.0812 as France’s, and thus Europe’s political uncertainty continues. Immediate support lies at 1.0720, which is this week’s low. The next support level can be found at 1.0690. Immediate resistance lies at 1.0770, 1.0800 and 1.0830. Look for more choppy trade in the Euro, likely between 1.07 and 1.08 today. Tin helmets on, prefer to sell Euro on strength.
• AUD/USD– the Aussie Battler eased to 0.6635 from 0.6665 against the overall stronger US Dollar. Look for immediate support today at 0.6600 followed by 0.6570. Immediate resistance can be found at 0.6670 (overnight high traded was 0.6676). The next resistance level lies at 0.6710. Look for consolidation, likely between 0.6610 and 0.6710. Trade the range, with the preference to sell Aussie rallies.
• GBP/USD – the British Pound dipped to 1.2760 at the New York close from its 1.2795 opening. On the day, look for immediate support at 1.2730 (overnight low traded was 1.2738). The next support level lies at 1.2700 followed by 1.2670. On the topside, immediate resistance can be found at 1.2780 followed by 1.2810 (overnight high traded was 1.2808). Look for more choppy trade in this currency pair, likely between 1.2720 and 1.2820. Trade the range, the preference is to sell Sterling on strength.

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

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