Bond yields, Dollar slide on weak US services sector data

AUD soars, GBP steadies, JPY flat; US Payrolls up next

Summary

The Dollar Index (DXY), a measure of the Greenback’s value against a basket of 6 major currencies, slid to 105.15 from 105.70 after the US services activity surprisingly contracted in June.

Additionally, the US ADP report, which tracks the level of nonfarm private employment, saw a modest gain of 150,000, weaker than expectations of +163,000.

The Australian Dollar (AUD/USD) outperformed, soaring above 0.67 cents to 0.6728 in late New York (0.6668 previously). Against the Japanese Yen, the Aussie Battler rocketed to 108.50 JPY, from 107.65 JPY on Monday, its highest level since mid-2007.

Sterling (GBP/USD) rallied to 1.2760 (1.2685) as voters in the UK cast their ballots for the parliamentary election. The center left Labor party was leading in the polls at the latest count.

Against the Japanese Yen, the Dollar eased modestly to 161.25 from 161.45, weighed by lower US bond yields. The benchmark 10YR US treasury yield slid to 4.36% from 4.43%. In contrast, Japan’s 10-year JGB rate was unchanged, at 1.07%.

The Euro (EUR/USD) climbed to 1.0810 from 1.0750 after the ECB policymakers expressed concerns about recent inflation trends despite cutting interest rates.

The US Dollar eased modestly against the Asian and Emerging Market Currencies (EMFX).  USD/CNH (Dollar-Offshore Chinese Yuan) slumped to 7.2920 from 7.3060. The USD/SGD pair (Dollar-Singapore Dollar) dipped to 1.3510 from 1.3555 previously.

Other economic data released yesterday saw US Factory Orders fall to -0.5% in June, from 0.4% previously, which was revised down from 0.7%.

AUD/USD – The Aussie Dollar settled at 0.6728 from 0.6668 previously. Broad-based US Dollar weakness and a rise in risk appetite boosted the Australian currency. Overnight, the AUD/USD pair traded to a high at 0.6732 before easing.

GBP/USD – The British Pound climbed against the Greenback to finish at 1.2760, up from 1.2685 previously. Voting in the UK (England, Scotland, Wales and Northern Ireland). Latest exit polls predicted that the ruling Conservative Party was set for defeat after 14 years. Sterling was little changed, at 1.2757 in early Asia.

USD/JPY – The Dollar dipped to 161.25 in late New York, down modestly from 161.45 previously. Overnight, the USD/JPY pair soared to 161.60 before tumbling as US treasury yields fell. The overnight low recorded for the USD/JPY pair was 160.95.

EUR/USD – The shared currency rallied against the overall softer US Dollar to close at 1.0815, its overnight high, from 1.0745 previously. In choppy trade, the Euro saw an overnight low of 1.0784. ECB President Christine Lagarde that policymakers still needed to keep a close eye on hotspots in Eurozone inflation data.

On the lookout

Today’s economic data calendar kicks off with Japan’s Annual Household Spending (y/y f/c 0.2% from 0.5% - ACY Finlogix). Japan also releases its Preliminary Leading Economic Index for May (f/c 111.1 from 110.9 – ACY Finlogix).

Germany starts off Europe with its German May Industrial Production (m/m f/c 0.2% from -0.1% - ACY Finlogix). France releases its May Industrial Production report (m/m f/c -0.5% from 0.5% - ACY Finlogix). The UK follows with its June Halifax House Price Index (m/m f/c 0.2% from -0.1%; y/y f/c 2.5% from 1.5% - ACY Finlogix).

Italy follows with its May Retail Sales (m/m f/c 0.2% from -0.1%; y/y f/c -2.0% from -1.9% - ACY Finlogix). The Eurozone releases its May Retail Sales report (m/m f/c 0.2% from -0.5%; y/y f/c 0.1% from 0.0% - ACY Finlogix).

Canada kicks off North America with its Canadian June Employment Change (f/c 22.5K from 26.7K – ACY Finlogix), Canadian June Unemployment Rate (f/c 6.3% from 6.2% - ACY Finlogix).

The US rounds up today’s economic data releases with its US June Non-Farms Payrolls report (f/c 190K from 272K – ACY Finlogix), US June Unemployment Rate (4.0% from 4.0% - ACY Finlogix), and US Average Hourly Earnings (m/m f/c 0.3% from 0.4%; y/y f/c 3.9% from 4.1% - ACY Finlogix).

Trading perspective

Welcome to another Payrolls Friday. The June NFP is forecast to ease to a median 190K from 272K previously. The step down in the Non-Farms Payrolls report is more of an adjustment to May’s big increase of 272K. This month’s Payrolls report takes on added significance.

Analysts will be looking for signs that conditions could be softer which would point to broader economic weakness in the US economy. The June Unemployment Rate is forecast at 4.0%, unchanged from 4.0% in May. A rate higher than 4% would set alarm bells ringing, resulting in a sell-off for the US currency.

A Payrolls gain of less than 190K, around 170K, would also trigger a Dollar sell-off. Markets would need to see a NFP gain of over 200K say 210K or more for a US Dollar rally. Whatever the outcome, welcome to another Payrolls Friday. Get those tin helmets ready.

AUD/USD – The Australian Dollar soared to 0.6728 in late New York, up from 0.6668 previously, and outperforming other rivals. On the day, look for immediate resistance at 0.6740 and 0.6770. On the downside, immediate support lies at 0.6700 followed by 0.6670 and 0.6640. A strong US Payrolls report will push the Aussie lower. A weak NFP report could see the Aussie spike through to 0.6850/0.6900. Tin helmets on for this currency pair.

USD/JPY – The US Dollar eased modestly against the Japanese Yen, settling at 161.25 from 161.45 previously. Immediate support today lies at 160.95 followed by 160.65 and 160.35. On the topside, look for immediate resistance at 161.60 (overnight high). The next resistance level is found at 162.00. Look for another roller coaster ride in this currency pair, likely between 160.50-162.00. Trade the range, nice and wide.

GBP/USD – Sterling rallied against the Greenback to 1.2760 from 1.2685 previously. The British Pound gained versus the overall weaker US Dollar, trading to an overnight high at 1.2767. Immediate resistance today lies at 1.2770 followed by 1.2800. Immediate support can be found at 1.2720, followed by 1.2690 and 1.2660. Look for Sterling to consolidate in a likely range, pre-US NFP, of 1.2700-1.2800. Trade the range.

EUR/USD – The Euro advanced for the 3rd day running to finish at 1.0810 (1.0750). Look for immediate resistance today at 1.0820 followed by 1.0850 and 1.0880. Immediate support can be found at 1.0790 followed by 1.0760 and 1.0730. Look for the shared currency to consolidate in a likely trading range, pre-NFP, of 1.0770-1.0830.