US Dollar on Steroids, Soars to 24-Year High against Japanese Yen

DXY (Dollar Index) Hits 2002 Peak; Welcome to Payrolls Friday!

Summary: 

The Dollar was on steroids ahead of today’s US Payrolls report, skyrocketing to a 24-year high against the Japanese Yen at 140.23 from 139.25 yesterday. The widening chasm between the US Fed and Bank of Japan on monetary policy weighed on the Yen. In early Asia, USD/JPY opens at 140.15.

Overnight, Cleveland Fed President Loretta Mester said that the US central bank would push rates to 4% and keep them there until inflation is under control.

Elsewhere, the British Pound (GBP/USD) sunk to March 2020 lows at 1.1498 (1.1604 yesterday). Rising food and energy prices in the UK has resulted in a cost-of-living crisis with a new Prime Minister still to be named next week.

A favourite gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) soared to 109.77 overnight, its highest since June 2002 before settling at 109.45 (108.84).

The Greenback’s ascent was broad-based. The Euro (EUR/USD) slid to 0.9947 in late New York, down 1.07% from yesterday’s 1.0047. Overnight, the shared currency tumbled to a low at 0.9911.

The Australian Dollar (AUD/USD) slumped to 0.6785 in late New York against 0.6835 yesterday. Lower commodity prices amidst broad based US Dollar strength saw the Aussie drop to an overnight low at 0.6771.

Against the Asian and Emerging Market Currencies, the US Dollar extended its gains. USD/THB (US Dollar vs Thai Baht) rallied to 36.75 (36.55) while USD/SGD (Dollar vs Singapore Dollar) soared to 1.4027 against 1.3995. The USD/PHP pair (Dollar-Philippine Peso) jumped to 56.90 from 56.35.

Global bond rates were mixed. The US 10-year treasury yield rose 4 basis points to 3.25%. Germany’s 10-year Bund yield was last at 1.56% (1.53%). Australia’s 10-year bond rate fell to 3.68% (3.72%).

Wall Street stocks edged up ahead of today’s US August Non-Farms Payrolls report. The DOW finished at 31,660 against 31,435 yesterday. The US S&P 500 was last at 3,965 (3,935 yesterday).

Data released yesterday saw Japan’s Final Manufacturing PMI climb to 4.6% beating forecasts and a previous 3.0%. Australia’s Private Capital Expenditure slumped to -0.3% from an upward revised 0.4%.

China’s Caixin Manufacturing PMI dropped to 49.5 from a previous 50.4, missing estimates at 50.1.

Germany’s Retail Sales rose to 1.9% from a previous fall of -1.6% and beating estimates at 0.1%.

UK Nationwide House Price Index climbed to 0.8% from 0.2%, higher than forecasts at 0.1%.

German Final Manufacturing PMI dipped to 49.1 from 49.8. The Eurozone Final PMI eased to 49.6 from a previous 49.7. UK Final Manufacturing PMI rose to 47.3 from a previous 46. The Eurozone Unemployment Rate was unchanged at 6.6%.

Canada’s Building Permits slumped to -6.6% from a previous -0.6%, and forecasts at -0.3%. Canada’s Manufacturing PMI fell to 48.7 from 52.5, missing expectations at 52.0.

US Claims for Unemployment Benefits fell to 232,000 from a previous 243,000 and better than median estimates at 250,000. US ISM Manufacturing PMI eased to 52.5 from a previous 52.8 but bettering estimates at 52.1. US Final Manufacturing PMI rose to 51.5 from 51.3.

• USD/JPY – The Greenback skyrocketed against the Japanese Yen to 140.23, overnight and fresh 24-year high before settling to its current 140.12. Yesterday, the USD/JPY pair settled at 139.25. In volatile trade, the low recorded was at 139.06.
• GBP/USD – Sterling was pummelled lower to 1.1543 (1.1604 open yesterday) as the UK faced a cost-of-living crisis with a new Prime Minister yet to be named. The British Pound tumbled to an overnight and March 2020 low at 1.1498. In choppy trade the overnight high recorded was at 1.1617.
• AUD/USD – The Aussie Battler slumped to finish at 0.6785 at the close of New York trade, down from yesterday’s 0.6835. A fall on commodity prices combined with broad-based US Dollar strength weighed on the Aussie Battler. Overnight high traded was at 0.6846.
• EUR/USD – The shared currency was battered lower against the overall stronger Greenback to 0.9947, down over 1% from yesterday’s 1.0047. Overwhelming bearish sentiment pushed the EUR/USD pair below 1.00. In choppy trade, overnight low recorded was at 0.9911.

On the Lookout:

Today’s light economic calendar kicked off earlier today with New Zealand’s Q2 Overseas Trade Index, which slumped to -2.4% from a previous 0.6%, missing median estimates at 0.2%. The Kiwi (NZD/USD) was little changed following the report at 0.6081 (0.6075 open).

The highlight is the US August Payrolls report, which could see more volatility in the currency markets.

Japan follows next with its August Annual Monetary Base (no f/c, previous was 2.8%).

Germany starts off European data with its July Trade Balance, Seasonally Adjust (Surplus f/c at +EUR 4.8 billion from a previous +EUR 6.4 billion – ACY Finlogix). Switzerland follows with its Non-Farms Payrolls (no f/c previous was 5.227 million).

The Eurozone releases its July PPI (m/m f/c 2.5% from 1.1%; y/y f/c 35.8% from 35.8% - ACY Finlogix). Spain releases its Unemployment Change for August (f/c 4.6K from previous 3.2K – Forex Factory).

The US rounds up today’s data releases with its Average Hourly Earnings (Wages) (m/m f/c 0.4% from previous 0.5%; y/y f/c 5.3% from 5.2% - ACY Finlogix), US August Non-Farms Payrolls (f/c 300,000 from a previous 528,000 – ACY Finlogix), US August Unemployment Rate (f/c 3.5% from previous 3.5%) and US July Factory Orders (m/m f/c 0.2% from a previous 2% - ACY Finlogix).

Trading Perspective:

With the Dollar trading to multi-year highs against the Yen, the British Pound and other FX rivals, the risk heading into tonight’s US Payrolls report is for pullback. If the Payrolls number is less than 300,000, say to 275,000 or lower a corrective move lower is likely. Watch for revisions to previous Employment reports as well.

The one common denominator for today, as has been the past few weeks, is elevated volatility. Given the strength of this Greenback’s uptrend though, any pullbacks will be short-lived. Federal Reserve officials will be watching the markets and traders will be monitoring what they say. We could be in for a roller-coaster ride today. Happy days!

• GBP/USD – The British currency is in for another volatile session. On the day, look for immediate resistance at 1.1570, 1.1600 and 1.1630. Immediate support is found at 1.1510, 1.1490 and 1.1460. Look for Sterling to remain under pressure until the release of the US Payrolls number. Likely range today 1.1480-1.1620. Trade the range.
• USD/JPY – With the Greenback trading near 24-year highs against the Yen, it’s a surprise to this writer that there were no comments from BOJ officials, yet. Today is another day, though and there is that possibility. Immediate resistance lies at 140.30 followed by 140.60. On the downside, look for initial support at 139.80 followed by 139.50 and 139.20. Look for a choppy one today, likely range 139.50-140.50.

(Source: Finlogix.com)

• GBP/USD – Sterling has that sinking feeling with many economists saying that the UK is already in a recession. Some economists forecast inflation to hit 14% later this year. Immediate support for the British currency is found at 1.1510 followed by 1.1480. Immediate resistance lies at 1.1570, 1.1600 and 1.1630. Expect more choppy moves for Sterling, likely range today 1.1485-1.1625. Tin helmets on in this puppy.
• AUD/USD – The Aussie Battler consolidated near its overnight lows, closing at 0.6785. Immediate support is found at 0.6770 (overnight low traded was 0.6771). The next support level lies at 0.6740 followed by 0.6710. On the topside, look for immediate resistance at 0.6810, 0.6840 and 0.6870. The AUD/USD pair will continue to be driven by the Greenback. Likely range today, 0.6750-0.6850. A weaker than expected US Payrolls report could see the Aussie spike higher.

Welcome to Payrolls Friday all. “Let’s Get Ready to Rumble”, echo the words of boxing ring announcer Michael Buffer. Happy trading all, have a good Friday and top weekend ahead all.

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