Dollar Index Slides to Monthly Low; US Treasury Yields Tumble

JPY Outperforms, Stocks Jump; Risk-On, USD Longs Squeezed

Summary:

The Dollar Index (DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, slid 0.30% to 104.20 from 104.65, a monthly low. Despite a solid US ISM Services report released on Friday, US treasury yields tumbled.

The benchmark US 10-year note slid 12 basis points to 3.95% which forced Dollar long bets to bail. US 2-year yields slid to 4.86% from 4.91% Friday. Other global rates eased to a lesser extent.

Risk appetite gained, boosting US shares. The DOW soared 1.17% to 33,400 (32,980) while the S&P 500 rallied to 4,047 from 3,977 Friday. Japan’s Nikkei rose 0.56% to 28,207 (27,694).

Over the weekend, speculation grew that the US Federal Reserve would not raise interest rates beyond what US money market futures expect. Which forced long USD bets to cover.

Against the yield sensitive Japanese Yen, the US Dollar (USD/JPY) slumped 0.75% to 135.82 (136.72 Friday). Risk leader, the Australian Dollar (AUD/USD) climbed 0.45% to 0.6765 from 0.6729.

Sterling (GBP/USD) rebounded above the 1.20 threshold to 1.2043 (1.1953). Short covering lifted the Euro (EUR/USD) to 1.0633 from 1.0597.

The US Dollar finished lower against the Asian and Emerging Market currencies. USD/SGD (US Dollar-Singapore Dollar) fell to 1.3440 (1.3480) while the USD/CNH (Dollar-Offshore Chinese Yuan) closed at 6.8965 against 6.9245 Friday.

US ISM Services PMI in February grew to 55.1, which exceeded economist’s forecasts at 54.5 but was lower than the previous 55.2. Other global services PMIs were mixed. China’s February Caixin Services PMI rebound to 55 from 52.9, beating estimates at 54.3.

Germany’s February Trade Balance jumped to +EUR 16.7 billion, up from a previous +EUR 10.0 billion and bettering expectations at +EUR 11.1 billion.

Canada’s Building Permits (February m/m) plummeted -4.0% from a downward revised -7.7% (-7.3%) and lower than analyst’s predictions at +1.7%. The USD/CAD pair settled at 1.3595 (1.3602).

Commodity prices rose. Brent Crude Oil recovered to finish up 0.11% to USD 85.88 (USD 84.58). Metals rallied. Spot Gold climbed to USD 1,857 from USD 1,836 Friday.

• USD/JPY – The drop in US treasury yields weighed heavily on the Dollar-Yen pair, which slumped to 135.82, down 0.75% from Friday’s open at 136.72. In volatile trade, the Greenback hit a low at 135.70 while the high recorded was at 136.77.
• AUD/USD – The Australian Dollar rebounded in true Battler fashion, soaring to 0.6775 overnight highs in choppy trade. On Friday, the AUD/USD pair finished at 0.6765, up from its opening at 0.6728. In contrast to the slide in US bond yields, Australia’s 10-year treasury yield settled at 6.9% (6.86%).
• GBP/USD – Sterling jumped against the Greenback above the 1.20 threshold to close at 1.2043 from 1.1953 Friday. Overnight saw the British Pound rally to a high at 1.2049 before easing at the close. Overnight low traded in the GBP/USD pair was at 1.1948.
• EUR/USD – The shared currency benefitted from the overall weaker US Dollar, closing up 0.31% to 1.0633 (1.0597 Friday). Overnight, the Euro traded to a high at 1.3639 while the overnight low reached was 1.0588. Euro area Services PMIs were mostly higher than previous reads.

On the Lookout:

Today’s economic calendar is light, with the rest of the week picking up. Australia kicks off with its Australia’s TD-MI Inflation Gauge for February (m/m f/c at 0.6% against a previous was 0.9% - ACY Finlogix).

Switzerland starts off European data with its Swiss February CPI ((f/c 105.4 from 105 – ACY Finlogix), Swiss February Inflation Rate (m/m f/c 0.4% from 0.6%; y/y f/c 3.1% from 3.3% - ACY Finlogix).

Germany follows with its February S&P Global Construction PMI (f/c 45.1 from 43.3 – ACY Finlogix). Italy releases its February S&P Global Construction PMI (f/c 49.5 from 48.2 – ACY Finlogix).

The UK is next with its February New Car Sales (y/y f/c 11.0% fro 14.7% - ACY Finlogix); UK S&P Global Construction PMI for February (f/c 49.1 from 48.4 – ACY Finlogix).

France releases is January Retail Sales data (m/m f/c0.5% from -1%; y/y f/c -3.2% from -0.5%).

The Eurozone releases its February Retail Sales (m/m f/c 1% from -2.7%; y/y f/c 1.9% from -2.8% - FX Street).

Canada kicks off North America with its February s.a. IVEY PMI report (f/c 55 from 60.1). The US rounds up today’s data releases with its January Factory Orders (m/m f/c -1.8% from 1.8% - ACY Finlogix).

The week ahead sees Australia’s RBA Interest Rate decision (Tuesday, 07 March), US Fed Chair Powell’s Testimony to Congress (Wednesday, 08 March).

The Bank of Canada has its interest rate decision as well as China’s February Inflation report (Thursday, 09 March).

On Friday, (10 March), the Bank of Canada and the Bank of Japan have their interest rate decision meetings as well as the release of Canadian and US Jobs data. A busy week in store.

Trading Perspective:

The rally in risk appetite triggered by a slump in US bond yields saw Dollar longs pare their bets which weighed on the US currency.

Expectations that the US Federal Reserve will not raise interest rate beyond what money market futures expect weighed on the Greenback.

While we can expect more position adjustments as we begin a new week, volatility will remain elevated.

Data releases, central bank meetings, and the testimony of Fed Chair Jerome Powell on Capitol Hill will both money market and currency traders on their toes. Happy days!

• USD/JPY – US treasury bond yields will continue to drive this currency pair. Overnight the Dollar tumbled to a low of 135.82 Japanese Yen (136.72 Friday). Look for immediate support at 135.70 to contain initial sellers. The next support level lies at 135.40 followed by 135.00. On the topside, immediate resistance can be found at 136.10, 136.40 and 136.70. Expect more choppy trading with a likely range today of 135.60-136.60. Trade the range.

• AUD/USD – The Australian Dollar rebounded in true Battler fashion to 0.6765 from 0.6729 as risk appetite improved. Overnight high traded was at 0.6775, which provides immediate resistance for today. The next resistance level lies at 0.6805 followed by 0.6845. On the downside, look for immediate support at 0.6735 and 0.6705. Expect another choppy trading day in the AUD/USD pair, likely range today – 0.6710 to 0.6810. Prefer to sell rallies today.
• GBP/USD – The British Pound roared back against the broadly based weaker US Dollar to 1.2043 from its opening at 1.1953 Friday. Look for immediate resistance today at 1.2050 followed by 1.2080 to cap advances. On the downside, immediate support can be found at 1.2010, 1.1980 and 1.1950. Look for further choppy trading in a likely 1.1950-1.2050 range.
• EUR/USD – The shared currency rallied against the overall weaker US Dollar to 1.0634 against 1.0597 Friday. Overnight, the Euro saw a high at 1.0639 which puts immediate resistance today at 1.0640. The next resistance level lies at 1.0670. Immediate support can be found at 1.0590 (overnight low traded was at 1.0588). The next support level comes in at 1.0560 followed by 1.0530. Look for a likely range today between 1.0570 and 1.0650.

A lot to look forward to in terms of economic data releases as well as various central bank interest rate meetings. Expect another riveting week ahead in the FX markets. Happy days indeed!

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