USD/JPY soars, BOJ tweaks yield curve control, Dollar mixed

AUD slumps on weak data; US bond yields ease, stocks up

Summary

The Dollar soared 1.6% against the Japanese Yen to 141.15 (139.50) in volatile week and month-end trading. Against the other major and EM Currencies, the Greenback was mixed.

At the conclusion of its meeting, the Bank of Japan unexpectedly adjusted its Yield Curve Control. The BOJ offered to buy 10-year Japanese Government Bonds (JGB’s) at 1.0% every day which led to market volatility. Japan’s Policy Rate remained unchanged at -0.10%.

In his press conference, BOJ Governor Ueda said the tweak was not a move toward normalization and that the BOJ, nowhere near raising rates, is weakening the Yen.

Elsewhere, US Treasury Bond yields eased with the 10-year rate at 3.95% (4.0% Friday). The Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies, finished little-changed at 101.70 (101.75).

Other global treasury bond yields rose. Germany’s 10-year Bund yield rose to 2.49% (2.47%). Japan’s 10-year JGB yield jumped to 0.54% from Friday’s 0.43%. UK 10-year Gilt yield was up at 4.32% (4.3%).

An unexpected decline in Australia’s June Retail Sales and Producer Prices pulled the Aussie from Friday’s open at 0.6710 to close at 0.6650. June Retail Sales dropped -0.8% against 0% expected. Australia’s PPI (y/y) fell to 2.0% from a previous 5.2%, missing estimates at 2.9%.

A softer read for the US PCE inflation down to 3% from 3.8% saw the Euro (EUR/USD) climb to 1.1015 from 1.0975 Friday. Sterling (GBP/USD) gained 0.3% to 1.2850 (1.2790).

Against the Asian and Emerging Market Currencies, the Dollar finished mostly lower. The USD/CNH pair settled at 7.1525 (7.1500) while USD/SGD (Dollar-Singapore) rose to 1.3320 from 1.3308.

Other data released Friday saw Japan’s July Tokyo Core CPI (y/y) edge up to 3.2% from 3.1%, beating forecasts at 2.9%. French Preliminary GDP (q/q) rose to 0.5% from 0.1%.

French Preliminary July Inflation Rate (y/y) matched forecasts at 4.3% from 4.5% previously. Switzerland’s July KOF Leading Indicator rose to 92.2 from 90.7. Germany’s GDP Growth Rate (y/y) was at -0.2% against expectations at -0.3%. Eurozone July Economic Sentiment dipped to 94.5 (95.3).

US June Personal Income eased to 0.3% from 0.5%. The Final University of Michigan Consumer Sentiment Index rose to 71.6 from 64.4, but lower than estimates at 72.6.

• USD/JPY – Heightened volatility influenced trade in the USD/JPY pair, plummeting to an overnight low at 138.06 just ahead of the release of the BOJ statement on interest rates. Soon after, the Greenback lifted off to an overnight high at 141.18 before closing at 141.15.
• AUD/USD – The Aussie Battler broke through the 0.6700 support level following the release of weaker domestic data. From Friday’s open at 0.6710, the Australian Dollar slumped to 0.6622 overnight lows before settling at 0.6650. The overnight high traded was 0.6712.
• EUR/USD – The shared currency edged higher against the US Dollar to finish at 1.1015 from Friday’s opening at 1.0975. Overnight the shared currency tumbled to 1.0944 before climbing above the 1.10 level. The Euro saw an overnight high at 1.1047 in choppy trade.
• GBP/USD – Sterling edged higher against the US Dollar to 1.2850 (1.2790). The British Pound had a choppy trading day of its own, tumbling to an overnight low at 1.2763 before rebounding to a high at 1.2887.

On the lookout

This week’s economic data starts off with a heavy calendar release as we end the month of July.

Japan kicks off with its June Preliminary Industrial Production (m/m f/c 2.4% from -2.2%; y/y f/c 5.3% from 4.2% - ACY Finlogix) and June Retail Sales (m/m f/c 0.8% from 1.3%, y/y f/c 5.3% from 4.2%).

New Zealand releases its July ANZ Bank Business Confidence (f/c -22 from -18 – ACY Finlogix).

Australia follows with its June Housing Credit (f/c 0.3% from 0.3% - ACY Finlogix).

China releases its NBS July Manufacturing PMI (f/c 49.2 from 49 – ACY Finlogix), China NBS July Non-Manufacturing PMI (f/c 52.9 from 53.2 – ACY Finlogix).

Japan follows next with its July Consumer Confidence (f/c 36.8 from 36.2 – ACY Finlogix) and Japanese June Housing Starts (f/c -0.2% from 3.5%).

Germany releases its June Retail Sales (m/m f/c 0.2% from 0.4%; y/y f/c -2.7% from -3.6% - ACY Finlogix).

Italy follows with its GDP Growth Rate (q/q f/c 0% from 0.6%; y/y f/c 0.9% from 1.9% - ACY Finlogix).

The Eurozone releases its Eurozone GDP Growth Rate (q/q f/c 0.2% from 0%; y/y f/c 0.5% from 1.1%), Eurozone Flash July Inflation Rate (m/m f/c -0.2% from 0.3%; y/y f/c 5.3% from 5.5% - ACY Finlogix).

The US rounds up today’s economic calendar with its Chicago July PMI (f/c 43 from 41.5 – ACY Finlogix).

Trading perspective

While the Dollar Index (DXY) finished little changed, the US currency had mixed results against its various Rivals.

As we come to the close of July to begin this week, expect heightened volatility in the FX markets.

Asia will start off in cautious mode with volatility picking up in our afternoon and early Europe.

Softer US bond yields contrasted with a stronger finish in rival treasury rates.

Which should keep the Dollar’s topside limited.

• USD/JPY – Expect more choppy trade after a slow start in Asia today. The Greenback opened at 141.15 Yen. As this is being written, USD/JPY eased to 140.90. Look for immediate support at 140.70, followed by 140.40 and 140.00. A break below 140.00 could send the Dollar tumbling to the low 139, high 138 levels. Immediate resistance is found at 141.50 followed by 141.80 and 142.10. Look for more choppy trade, likely between 139.50-141.50.

Source: Finlogix.com

• AUD/USD – The Aussie Battler settled lower against the Greenback to 0.6665 from Friday’s open at 0.6710. On the day, look for immediate support at 0.6620 followed by 0.6590. On the topside, look for immediate resistance at 0.6680 followed by 0.6710 (overnight high traded was 0.6712). The next resistance level lies at 0.6740. Look for more choppy trade in this currency pair, likely between 0.6620-0.6720. Trade the range.
• EUR/USD - The Euro gained versus the US Dollar to 1.1015 from 1.0975 on the softer US PCE inflation data. On the day, look for immediate resistance at 1.1050 (overnight high traded was 1.1047). The next resistance level lies at 1.1080. Look for immediate support at 1.0990, 1.0960 and 1.0930. Expect more choppy trade in the Euro, likely range today 1.0930-1.1030.
• GBP/USD – Sterling gained versus the US Dollar, finishing at 1.2850 from 1.2790 on the softer read in US PCE. On the day, look for immediate resistance in the British Currency against the Greenback at 1.2890 (overnight high traded was 1.2887). The next resistance level lies at 1.2920. Immediate support can be found at 1.2830, 1.2800 and 1.2770. The overnight low traded was at 1.2763. Look for more choppy trade today, likely between 1.2780-1.2880.

Have a good week ahead all, happy Monday.