Mid-East Tensions Rise, Stocks, Bond Yields Slide; Oil, Gold Soar

AUD, NZD Slump, Swiss Franc Outperforms; DXY Steady, Risk-Off

Summary:

Oil Prices and Gold soared while the Swiss Franc outperformed as Middle East tensions escalated. Bond yields tumbled while Wall Street stocks slid. The Dollar Index, which weighs the value of the Greenback against a basket of 6 major currencies, steadied to 106.65 (106.57).

Against the haven sought Swiss Franc, the US Dollar tumbled 0.9% to 0.8997 from 0.9085 Friday. Risk appetite soured even as the US and its allies attempted to contain the Israel-Hamas war.

Bond prices soared while yields fell. The US 10-year bond yield slid 9 basis points to 4.61%. Two-year US rates eased to 5.05% from 5.07%. Germany’s 10-year Bund yield settled at 2.73% (2.78% Friday).

The price for Brent Crude Oil jumped over 5% to US$90.90 (US$86.35 Friday). This lifted “oil” currencies like the Canadian Dollar against the Greenback. The USD/CAD pair slid 0.4% to 1.3655.

Risk leaders, the Australian and New Zealand Dollars slumped. A change of leadership in New Zealand over the weekend to a conservative government pushed the Kiwi down 0.65% to 0.5885.

After six years of a liberal government, New Zealand voters decided that the time for a Labour regime was due for change. New Prime Minister Chris Luxon, a former Air New Zealand chief executive, promised to bring a corporate approach to run the country.

Despite the higher oil prices, the USD/JPY pair eased to 149.55 from 149.85 weighed by the fall in US bond yields. Japan’s 10-year JGB yield was unchanged, at 0.75%.

The Euro (EUR/USD) dipped 0.33% to 1.0510 (1.0530 Friday). Sterling (GBP/USD) slid 0.5% to 1.2120 from 1.2175 Friday. Against the Asian and Emerging Market currencies, the Greenback rallied. The USD/CNH pair (Dollar-Offshore Chinese Yuan) edged higher to 7.3130 from 7.3100.

Economic data released on Friday saw China’s Annual CPI climb to 0.2% from 0.1% previously. Chinese Producer Prices fell -2.5%, slightly higher than median forecasts at -2.4%.

China’s September Trade Surplus in Dollar terms jumped to USD 77.71 billion from USD 68.4 billion. The Eurozone August Industrial Production (m/m) rose to 0.6% from -1.1% previously.

• AUD/USD – The Australian Dollar lost 0.47% against the Greenback, finishing at 0.6295 from 0.6315 Friday. Overnight the AUD/USD traded to a one-week low at 0.6289. Over the weekend, Australians voted an overwhelming NO to a historic referendum to give greater political rights to Indigenous people. The result was a blow to the ruling Labour party.
• USD/CHF- The haven sought Swiss Franc outperformed, with the USD/CHF pair plummeting to 0.8997 against Friday’s open at 0.9085. Risk aversion hit global stocks while lifting bond prices. The overnight low traded for the USD/CHF pair was at 0.8982.
• USD/JPY – Against the Japanese Yen, the Dollar eased to 149.55 (149.85 Friday). Lower US treasury yields weighed on the USD/JPY pair. Trading was subdued with the overnight low recorded at 149.43. The overnight high traded was at 149.83.
• EUR/USD – The shared currency dipped to 1.0510 US Dollars at the close of trade in New York. On Friday, the Euro opened at 1.0530. In choppy trade, the overnight low recorded for the EUR/USD pair was 1.0495. The Euro traded to a high against the Greenback at 1.0558.

On the Lookout:

The week ahead starts off with a light economic calendar for today. New Zealand kicks off earlier today with Services PMI for September which climbed to 50.7 from an upward revised 47.7 (from 47.1).

Japan follows with its Final August Industrial Production (m/m f/c 0% from -1.8%; y/y f/c -3.8% from -2.3% - ACY Finlogix), and Japanese August Capacity Utilisation (m/m f/c -0.8% from -2.2% - ACY Finlogix).

Germany starts off Europe with its September Wholesale Prices (m/m f/c 0.1% from 0.2%; y/y f/c -4.2% from -3.8% - ACY Finlogix). Italy follows with its September Final Inflation Rate (m/m f/c 0.2% from 0.3%; y/y f/c 5.3% from 5.4% - ACY Finlogix).

The Eurozone releases its August Balance of Trade (f/c +EUR 12.5 billion from +EUR 6.5 billion – ACY Finlogix). Canada starts off North America with its August Wholesale Sales (m/m f/c 2.6% from 0.2% - ACY Finlogix), Canada’s August Manufacturing Sales (m/m f/c 1% from 1.6% - ACY Finlogix).

Finally the US releases its October New York Empire State Manufacturing PMI (f/c -7 from 1.9 – ACY Finlogix).

Trading Perspective:

Risk aversion will continue to dominate sentiment in Asia today on the Israel-Hamas war.

Economic data releases pick up mid-week with the US Retail Sales report. China releases its trio of Retail Sales, GDP, Industrial Production and Fixed Asset Investment on Wednesday.

The focus remains on the Middle East today. Expect volatiliy to remain elevated and ranges to stay wide in FX.

Keep those tin helmets handy as we head into another riveting week in FX land.

• AUD/USD – The Aussie kicks off this morning with an offered tone. On the day, look for immediate support at 0.6285 followed by 0.6255 and 0.6225. On the topside, immediate resistance can be found at 0.6335 (overnight high) and 0.6365. Look for more choppy trade in this currency pair, likely between 0.6280-0.6380. Would be wary of getting short under 0.6285 for now. Trade the range.

(Source: Finlogix.com)

• USD/JPY – The Dollar eased against the Yen as haven flows supported the Japanese currency. On the day look for immediate support at 149.40 (overnight low traded was 149.43). The next support level lies at 149.10 followed by 148.80. Immediate resistance can be found at 149.80 (overnight high traded was 149.83). The next resistance is found at 150.10. Look for a likely range today between 148.80 and 149.80 today. Prefer to sell USD/JPY rallies in the current environment.
• EUR/USD – The Euro slid toward the lower end of its recent range, closing at 1.0510 against Friday’s 1.0530. On the day immediate support lies at 1.0500 followed by 1.0470. Immediate resistance can be found at 1.0540, 1.0570 and 1.0600. Look for more choppy trade in this currency pair, likely between 1.0480-1.0580. Trade the range, preference is to buy Euro dips.
• GBP/USD – Sterling edged lower against the broadly based firmer US Dollar to 1.2120 from 1.2177 Friday. Look for immediate support at 1.2100 followed by 1.2070. On the topside, immediate resistance can be found at 1.2150 (overnight high traded was 1.2142). The next resistance level can be found at 1.2180 followed by 1.2210. Look for another choppy trading day in this currency pair, likely between 1.2080-1.2180. Trade the range.

Have a good trading week ahead all. Happy Monday.

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