AUD, CAD outperform, EUR weakens in choppy trade

EMFX Climb, Bond Yields Ease, Stocks Erase Gains

Summary: The Australian and Canadian Dollars outperformed, finishing as best performing FX in volatile trade. Other currencies were mixed against the Dollar after Weekly Claims for Unemployment Benefits in the US jumped unexpectedly to 286,000 in the latest week to January 7. Most economists had forecast claims to climb 227,000. The Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, rose 0.32% to 95.77 from 95.45 yesterday. Most of the gains in the DXY came at the expense of the Euro (EUR/USD, which weakened further to 1.1310 from 1.1350, ending as worst performing FX. The Aussie Dollar jumped to an overnight high at 0.7276 before dipping to 0.7225 in late New York (0.7195 yesterday). Against the Canadian Loonie, the Greenback (USD/CAD) eased to 1.2505 from 1.2515. The British Pound (GBP/USD) was last at 1.3595, little changed from 1.3593 yesterday. The USD/JPY pair slumped to 114.20 from 114.60, weighed by lower US bond rates. The Bank of Japan warned that inflation may rise faster than anticipated which put kept the Japanese currency bid.  Against the Asian and Emerging Market currencies, the US currency eased. The USD/CNH pair (Dollar-Offshore Chinese Yuan) closed at 6.3455 (6.3600) while USD/THB (Dollar-Thai Baht) slid to 32.85 from 33.10. Against the Singapore Dollar, the Greenback (USD/SGD) lost 0.2% to 1.3460 (1.3510).

Global bond rates were mostly lower. The benchmark US 10-year treasury yield was last at 1.83% (1.88%). Germany’s 10-year Bund yield closed at -0.03% (-0.02%). Canada’s 10-year bond rate slipped to 1.85% from 1.88%. Australia’s 10-year treasury yield was up at 1.99% (1.94%). Equity markets erased their gains as risk appetite faded. The DOW closed at 34,705 from 35,450. The S&P 500 lost 1.1% to 4,485 from 4,595. Other global equity markets finished lower.

Data released yesterday saw Australia’s Employment in December climb to 64,800, beating estimates at 60,000. The Unemployment Rate improved to 4.2% from 4.6%, beating median expectations at 4.5%. Germany’s PPI rose to5.0% from 0.8%, and higher than forecasts at 0.8%. The Eurozone December Final CPI matched forecasts at 5.0%. Eurozone Final Core CPI also matched median expectations at 2.6%. The US Philly Fed Manufacturing Index in December climbed to 23.2 from a previous 15.4, beating estimates at 18.9. US December Existing Home Sales fell to 6.18 million, from 6.48 million, lower than estimates at 6.42 million.

• AUD/USD – the Aussie Battler soared to an overnight high at 0.7276 from 0.7220 as weak shorts scrambled for cover. The rebound in the US Dollar weighed on the Aussie which slid to finish at 0.7225 in choppy trade. Overnight low traded was at 0.7206.
• EUR/USD – The shared currency tumbled to finish at 1.1305 from 1.1345, weakest performing major against the Greenback. Overall bearish sentiment continues to plague the Euro which also fell against the Aussie Dollar, Japanese Yen, British Pound, and other FX.
• USD/JPY – Lower US bond rates and a vigilant Bank of Japan weighed on this currency pair. The Greenback slumped to finish at 114.20 from 114.50. Overnight low traded for USD/JPY was at 113.96 in choppy fashion.
• GBP/USD – Sterling finished little changed at 1.3595 (1.3593). The British currency soared to an overnight high at 1.3662 after a stronger than forecast UK inflation report which saw December Annual CPI rise to 5.4% from a previous 5.1%, higher than most economist’s forecasts at 5.2%.

On the Lookout: Today’s economic calendar is light, but FX will continue to trade in choppy fashion. Earlier New Zealand released its Business NZ Manufacturing Index which rose to 53.7 in December from a previous 50.6. New Zealand’s Visitor Arrivals though fell 44.0% from a previous 59.6% in December. Japan follows with its Annual National Core CPI report (f/c 0.6% from a previous 0.5%). Japanese Annual CPI for December follows next (no f/c, previous at 0.6%). The Bank of Japan releases its Monetary Policy Meeting minutes. The UK kick off European reports with its GFK Consumer Confidence Index for January (f/c -15 from -15 – ACY Finlogix). UK December Retail Sales follows (m/m f/c -0.6% from 1.4%; y/y f/c 3.4% from 4.7%), UK Core Retail Sales (m/m f/c -0.5% from 1.1%; y/y f/c 1.1% from 2.7% - ACY FInlogix). Canada is next with its November Retail Sales report (m/m f/c 1.2% from 1.6%; y/y no f/c, previous was 5.3% - ACY Finlogix). Finally, the US releases its Conference Board Leading Index for December (m/m f/c 0.8% from 1.1% - ACY Finlogix).

Trading Perspective: Expect more choppy trading conditions today. Asia will kick off slowly with no major data coming out from the region apart from Japan’s CPI release. The drop in US treasury bond yields will keep the Dollar pressurised despite its safe-haven status. The Dollar Index (USD/DXY) traded to an overnight and near 2-week high at 95.84 before dipping to 95.75. Expect the DXY ease further in Asia today. There are no major US data releases scheduled for tonight with traders setting their sights on next week’s Fed meeting. Markets expect the US central bank to adopt a more hawkish stance on policy moving forward. FX traders will continue to monitor the US bond yields.

• AUD/USD – the Aussie Battler rallied after the Australian economy added more jobs than forecast in December. The Unemployment Rate dropped to 4.2% which was a 14-year low. Speculative short bets on the AUD/USD pair were forced to cover. The AUD/USD pair closed at 0.7225 after trading to an overnight high at 0.7276. On the day, immediate resistance for the Aussie lies at 0.7245 and 0.7275. The next resistance level is found at 0.7305. Immediate support is found at 0.7200 and 0.7170. Look for consolidation in a likely range today of 0.7200/70. It’s going to be another choppy day, trading the range will pay off. Preference is to sell rallies.

(Source: Finlogix.com)

• EUR/USD – The shared currency underperformed against the US Dollar and its other Rivals, finishing down 0.33% to 1.1305. Overnight low traded for the Euro was at 1.1303. Immediate support for the Euro today lies at 1.1300 and 1.1270. On the topside, immediate resistance can be found at 1.1340 and 1.1370. While the Euro remains soft, it would be prudent to sell rallies and not chase it lower. Looking to trade a likely range today of 1.1285-1.1385. Am neutral at current levels, just trade the range.
• GBP/USD – Sterling was little changed, finishing at 1.3595 (1.3593 yesterday). Overnight the British currency hit a high at 1.3662. The overnight low traded was at 1.3586. For today, immediate resistance can be found at 1.3635 followed by 1.3665 and 1.3695. On the downside, immediate support lies at 1.3585 and 1.3555. Expect further volatile trade in this currency pair as well. Likely range 1.3575-1.3675. Preference is to sell rallies.
• USD/CAD – against the Canadian Loonie, the Greenback settled marginally lower to 1.2502 from 1.2515 yesterday. Overnight low traded was at 1.2453. Earlier in the week, Canadian CPI data beat forecasts. Later today, Canada’s Retail Sales report is expected to see Core Sales slow to 1.1% from 1.3%. Oil prices which have risen this week have buoyed the CAD. On the day, immediate support lies at 1.2485, 1.2455 and 1.2425. Immediate resistance is found at 1.2525, 1.2555 and 1.2585. Look for a choppy trading range today of 1.2455-1.2535. Preference is to buy USD dips.

Happy Friday and trading all. Have a top weekend.