Dollar rebounds off five-month lows, Yen outperforms

Greenback still on track for worst finish since 2020

Summary:

The Dollar Index (DXY), which weighs the value of the Greenback against a basket of 6 major currencies, rebounded off July 5-month lows at 100.62 to 101.22 (101.42 previously).

US bond yields recovered slightly but remained near July 2023 lows. The US 10-year treasury rate settled at 3.84% from 3.89% a week ago. Other global bond rates eased, but to a lesser extent.

Against the Japanese Yen, the US Dollar fell to 141.45 (142.45 previously) as speculation rose that the Bank of Japan exit from negative rates sooner than later. The USD/JPY pair plummeted to an overnight low at 140.25 before rebounding.

BOJ Governor Kazuo Ueda indicated that the Japanese central bank may not have to wait for wage negotiations implying that they could act before April.

Sterling (GBP/USD) slumped to 1.2725 after soaring to an overnight and 20-week high at 1.2828. Year-end thin trading volumes exaggerated the Pound’s movement.

The Australian Dollar (AUD/USD) eased to 0.6832 after trading to 0.6871, overnight and 5-month highs. Higher commodity prices and broad-based US Dollar weakness lifted the Aussie Battler.

The Euro (EUR/USD) fell back to 1.1065 at the close of trade in New York after rallying to 1.1140, overnight and 3-month highs. Thin conditions saw choppy year-end trading dominate the Euro.

Against the Asian and Emerging Market Currencies, the Dollar was mostly lower. The USD/CNH (Dollar-Offshore Chinese Yuan) slid to 7.1165 (7.1415 previously). Against the Singapore Dollar the Greenback (USD/SGD) the Greenback eased to 1.3202 from 1.3235.

Wall Street stocks ended mixed. The DOW finished at 37,790 (37,630) while the S&P 500 was last at 4,793 from 4,798. Australia’s ASX 200 finished at 7,605 against 7,599 previously.

Economic data released yesterday saw Japan’s Annual Retail Sales climb to 5.3% from 4.1% previously and beating forecasts at 5.1%. Weekly Claims for Unemployment Benefits in the US rose to 218K from 205K previously, and expectations at 211K.

• USD/JPY – In choppy trade, the Greenback tumbled to 141.45 from 142.45 previously. The Greenback plummeted to an overnight low at 140.25. The overnight high recorded was 141.68. Comments from BOJ Governor Ueda boosted the Japanese currency.
• EUR/USD – The shared currency eased to 1.1065 down 0.4% after trading to a 5-month high at 1.1139 before retreating. The Euro traded to an overnight low at 1.1055 in volatile trade of its own. The Euro also advanced against the British Pound, up 0.2% to 0.8695 (0.8680).
• AUD/USD – The Aussie Battler rebounded against the Greenback to 0.6834 against 0.6822 previously. In volatile trade, the AUD/USD pair ratcheted to an overnight high at 0.6871 before easing to its New York close (0.6834).
• GBP/USD – The British currency was pounded lower to 1.2725 after soaring to an overnight and fresh 20-month high at 1.2828. In choppy trade, the British Pound saw an overnight low at 1.2713. Against the Japanese Yen, Sterling (GBP/JPY) slid to 180.03 (181.25 previously).

On the lookout:

Expect thin trading volumes to extend heading into the last weekend of 2023.

Today’s economic calendar is light and kicks off with the UK’s December Nationwide HPI (House Price Index – m/m f/c 0 % from 0.2%; y/y/ f/c -1.4% from -2% - ACY Finlogix).

Switzerland releases its KOF Swiss Economic Institute Leading Indicators (f/c 97 from 96.7 – ACY Finlogix).

The Eurozone follows with Spain’s Flash CPI (y/y f/c 3.6% from 3.3% - FX Street).

Finally, the US releases its Chicago PMI (f/c 50.1 from 55.8 – Forex Factory).

Trading perspective:

Heading into the last trading day of 2023, expect thin conditions to exaggerate moves.

The Dollar Index rebounded off fresh five-month lows but still languished at levels not seen since 2020.

Expect some bargain buyers of the US currency at these lower levels against various Rivals.

Apart from position adjustments, traders see little incentive in holding the Greenback.

Without any significant economic data out today, expect technical trading to dominate FX. You’re your levels in mind and those tin helmets handy.

• USD/JPY – Against the Japanese Yen the US Dollar tumbled to 141.45 from 142.45 previously. The remarks from BOJ Governor Ueda suggesting that the Japanese central bank could exit negative rates sooner rather than later sent the Yen soaring. The USD/JPY pair has seen some volatile year end finishes before. Immediate support lies at 141.10, 140.80 and 140.30. Immediate resistance is found at 141.70 (overnight high traded was 141.68). The next resistance levels lie at 142.10 and 142.50. Look for more choppy trade ahead, likely between 140-142.50. Tin helmets on, trade the range.

• EUR/USD – The Euro fell back against the Greenback in late New York trade to 1.1065. On the day look for immediate support at 1.1050 (overnight low traded was 1.1055). The next support level lies at 1.1020 followed by 1.0990. Immediate resistance is found at 1.1100, 1.1140 and 1.1180. Look for the Euro to trade in a likely range today between 1.1040-1.1140.
• AUD/USD – The Aussie Battler eased to finish at 0.6832 as the US Dollar rebounded. On the day, look for immediate resistance in the Aussie at 0.6870 (overnight high traded was 0.6871). The next resistance level lies at 0.6900 followed by 0.6930. On the downside, look for immediate support at 0.6800 followed by 0.6770, 0.6740 and 0.6700. Look for more choppy trade likely between 0.6800 and 0.6900. Prefer to sell Aussie rallies.
• GBP/USD – Sterling slid lower to finish at 1.2725 after soaring to an overnight high at 1.2828. On the day, look for immediate resistance at 1.2770 followed by 1.2810 and 1.2840. Immediate support can be found at 1.2700, 1.2670 and 1.2640. Expect more choppy trade in the British currency, likely between 1.2720-1.2820. Trade the range, tin helmets on.

Have a happy and top last trading day for 2023 all. Good weekend too. Back in 2024.