Dollar dips on soft data, Yen maintains weakness

US presidential debate, PCE data lift volatility

Summary:

The Dollar Index, a measure of the value of the Greenback against 6 major currencies, eased to 105.93 from 106.05 following the release of softer than expected US Core Durable Goods Orders.

Core manufactured goods in the US fell unexpectedly in May to -0.1% from 0.4% previously, lower than economist’s forecasts at 0.2%. US Pending Home Sales declined -2.1%, lower than expectations of 0.6%.

The Japanese Yen though stayed weak, with USD/JPY settling at 160.75, modestly up from 160.60 previously. Earlier, the Dollar soared to an overnight, and December 1986 high at 160.83.

Japanese officials were eerily quiet so far, with markets betting that their best option would be to slow the currency’s pace of depreciation, rather than reverse the trend.

The Japanese currency extended its slide against other currencies. Further deterioration of the Yen is likely to invite intervention, verbal or otherwise from authorities.

Other currency pairs gained versus the US Dollar. The Euro (EUR/USD) edged higher to 1.0703, up from 1.0680 yesterday. Sterling (GBP/USD) rallied to 1.2641 (1.2623).

Against the Yen, the Euro climbed to 172.10 from 171.65, highs not seen since 1992. The AUD/JPY cross rallied to 106.95 (106.85), fresh 11-year highs.

The Australian Dollar (AUD/USD) rose marginally to 0.6648 from 0.6640, while the Kiwi (NZD/USD) climbed to 0.6085 (0.6078). The US Dollar eased against the Asian and Emerging Market currencies. USD/SGD (Dollar-Singapore) dipped to 1.3580 from 1.3595.

Global bond yields were mixed. The US 10-year Treasury yield fell 4 basis points to 4.29%. Germany’s 10-year Bund rate dipped to 2.44% (2.45%). Japan’s 10-year JGB yield climbed 5 basis points to 1.06%, highs not seen since 2012.

Other economic data released saw Japanese Annual Retail Sales climb to 3.0%, up from 2.0% previously, and beating estimates at 2.0%. US May Headline Durable Goods Orders eased to 0.1% from 0.6% previously but beating estimates at -0.5%.

• USD/JPY – The Dollar climbed to an overnight and 37-year high at 160.83 before easing to close at 160.75. In another choppy trading day, the USD/JPY pair hit an overnight low of 160.28. The rise in Japanese Retail Sales helped slow the rise of the Greenback.
• EUR/USD – The shared currency edged up against the US Dollar to 1.0703. The Euro saw an overnight high at 1.0726 before easing. The overnight low recorded for the EUR/USD pair was at 1.0677. The Euro was confined to recent ranges ahead of French elections on Sunday.
• AUD/USD – The Aussie Battler grinded higher to 0.6648 from 0.6640 yesterday. In choppy trade of its own, the AUD/USD pair soared to an overnight high at 0.6672 before easing. The overnight low recorded for the Aussie was at 0.6640.
• GBP/USD – Sterling rose against the US Dollar to 1.2642 (1.2622). The British Pound traded to an overnight high at 1.2671 against the Greenback. The British currency was stronger against the Japanese Yen, trading to 203.20, multi-year highs.

On the lookout:

Today’s economic data calendar is a busy one. New Zealand markets are closed for a bank holiday (Matariki Day). Japan kicks off today’s economic data releases with its Tokyo June CPI (y/y Headline f/c 2.4% from 2.2%; y/y Core f/c 2% from 1.9% - ACY Finlogix), Japanese May Unemployment Rate (2.6% from 2.6% - ACY Finlogix), Japanese May Industrial Production (m/m f/c 2% from -0.1%; y/y f/c -2% from -1.8% - ACY Finlogix).

Australia follows with its Housing Credit (m/m f/c 0.4% from 0.4% - ACY Finlogix), Australian Private Sector Credit (m/m f/c 0.4% from 0.5%; y/y f/c 5.3% from 5.2% - ACY Finlogix). Japan releases its May Housing Starts (y/y f/c -6.1% from 13.9% - ACY Finlogix) and Japanese Construction Orders (y/y f/c 23.0% from 26.4% - ACY Finlogix).

The UK starts off Europe with its Current Account (f/c -GBP 17.6 billion from -GBP 21.177 billion – ACY Finlogix), UK Final GDP (q/q f/c 0.6% from -0.3%; y/y f/c 0.2% from -0.2% - ACY Finlogix). France releases its Preliminary June Inflation Rate (m/m f/c 0.1% from 0.1%; y/y f/c 2.5% from 2.6% - ACY Finlogix).

Germany follows with its June Unemployment Rate (5.9% from 5.9%). Switzerland releases its KOF June Leading Indicators (f/c 101 from 100.3 – ACY Finlogix).

Italy releases its June Inflation Rate (m/m f/c 0.2% from 0.2%; y/y f/c 1% from 0.8% - ACY Finlogix). Canada kicks off North American data with its May Preliminary GDP (f/c 0.3% from 0.0% - Forex Factory).

The US rounds up today’s data releases with its May Core PCE Price Index (m/m f/c 0.1% from 0.2%; y/y f/c 2.6% from 2.8% - ACY Finlogix), US May PCE Price Index (m/m f/c 0% from 0.3%; y/y f/c 2.6% from 2.7%).

Next up is the US May Personal Income (m/m f/c 0.3% from 0.2% - ACY Finlogix), and US May Personal Income (m/m f/c 0.4% from 0.3% - ACY Finlogix). The US Chicago June PMI (f/c 40.0 from 35.4 – ACY Finlogix) rounds up today’s economic data calendar.

Trading perspective:

All eyes on Tokyo today with the Japanese currency near or at 38-year lows. Japanese Finance Minister Shunichi Suzuki has issued more warnings against sharp moves in the Yen. Suzuki reiterated that sudden, one-sided moves in the Japanese currency are undesirable. And that the authorities will take appropriate action when necessary.

The rise in Japan’s Annual Retail Sales to 3% from 2% had little effect on the Yen, so far. The chances for intervention from Japan Inc (BOJ/MOF) are high today, and being a Friday, liquidity is at a premium. Of note is also the Yen’s weakness against other Rivals, which is just as much concern to officials.

While the Japanese Trade Weighted Index (against other currencies) is not made public, one assumes that it is just as concerning to officials (ie KRW/JPY, CNY/JPY and other Asian/JPY crosses). Get those tin helmets on, today is shaping up to be a choppy Friday.

Let’s not forget the US Presidential debate between Donald Trump and Joe Biden. Which should elevate volatility regardless of the result.

• USD/JPY – Look for immediate resistance today at 160.85 followed by 161.15. On the downside, immediate support can be found at 160.55 and 160.25. A clean break through 160.00 could see us back to the mid 158’s. Expect Japanese officials to step up their rhetoric today, with intervention a real possibility. Likely trading range today 158.50-161.50. A softer Greenback overall will slow any USD/JPY rallies. Get ready to rumble on this currency pair today. Watch the Japanese 10-year yields, further rises will cap any significant gains for the Greenback.

• EUR/USD – The shared currency rallied to close at 1.0703. Immediate resistance today lies at 1.0730 (overnight high traded was 1.0726). The next resistance level lies at 1.0760 followed by 1.0790. On the downside, look for immediate support at 1.0670 (overnight low traded was 1.0677). The next support level can be found at 1.0640 and 1.0610. Look for the Euro to trade in a likely range today of 1.0630-1.0730. Prefer to sell Euro rallies.
• AUD/USD – The Aussie Battler climbed against the Greenback to 0.6648. Look for immediate resistance today at 0.6675 (overnight high traded was 0.6672). The next resistance level lies at 0.6705 followed by 0.6735 and 0.6770. Look for the Aussie to consolidate in a likely range today of 0.6620-0.6720. Trade the range, nice and wide.
• GBP/USD - Sterling grinded higher against the US Dollar to 1.2640 at the New York close, up from yesterday’s 1.2622. Immediate resistance can be found at 1.2670 followed by 1.2700. Immediate support today lies at 1.2610 followed by 1.2580. Look for the British Pound to trade a likely range today of 1.2600-1.2700. Trade the range, the preference is to sell Sterling on strength.

Get ready for a hectic Friday today, nevertheless, have a good one all. Top weekend too.