Dollar up; Biden bails US election, boosting Trump’s chances

Michael Moran ACY Securities

US yields rise, GBP slides on soft UK retail sales, AUD, NZD fall

Summary:

The Dollar Index, which gauges the value of the Greenback against a basket of 6 major currencies, extended its gains to close at 104.35, up from Friday’s 104.20.

The Greenback got a boost after US President Joe Biden decided to end his reelection campaign and endorse Vice President Kamala Harris. The decision is seen as increasing chances of Republican candidate Donald Trump regaining power.

Analysts saw a Trump victory as generally supportive of the US Dollar due to his preferred mix of low taxes and high tariffs. Which are seen as spurring inflation and interest rates.

US Treasury yields drifted higher. The 10-Year US Bond rate climbed 4 basis points to 4.24%. The Two-Year US Treasury yield closed at 4.51% from its 4.47% opening.

The USD/JPY pair was little changed, keeping its bid at 157.40 (157.37). The Euro (EUR/USD) dipped to 1.0884 from 1.0898. Sterling (GBP/USD) slid to 1.2915 (1.2945).

The Australian Dollar (AUD/USD) eased to 0.6690 from 0.6707 Friday while New Zealand’s Kiwi (NZD/USD) plummeted to 0.6010 from 0.6045. Growing speculation of imminent rate cuts from the Reserve Bank of New Zealand weighed on the Kiwi.

The Euro (EUR/USD) dipped to 1.0882 from 1.0897 while Sterling (GBP/USD) slid to 1.2915 (1.2945). Broad-based US Dollar strength weighed on both the Euro and British Pound.

The Dollar finished higher against the Asian and Emerging Market Currencies (USD/EMFX). The USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 7.2855 from 7.2775. Against the Singapore Dollar, the Greenback (USD/SGD) rose to 1.3455 (1.3437).

Global stocks slumped. The DOW tumbled to finish at 40,295 from 40,720. The S&P 500 fell 0.9% to 5,510 (5,560). Japan’s Nikkei lost 1.02% to 39,695 (40,095). Australia’s ASX 200 slid to 7,905 from 7,965 Friday.

Data released Friday saw June UK Retail Sales plummet to -1.2% month-on-month in June, down from 2.9% previously and missing expectations of -0.6%. There were no major economic data releases from the US on Friday.

USD/JPY – The Dollar maintained its bid against the Japanese Yen, settling to close at 157.40 from 157.37 Friday. Overnight trade was subdued with the recorded high at 157.51. The overnight low traded was 157.10. The Yen was muted Japan’s headline inflation rate was unchanged in June, at 2.8%.
AUD/USD – The Aussie Dollar extended its fall, finishing at 0.6690 from 0.6707 Friday. Overnight, the AUD/USD pair traded to a low of 0.6681. The Aussie Battler saw an overnight high of 0.6710.
EUR/USD – The shared currency dipped against the overall stronger Greenback to 1.0882 from Friday’s opening at 1.0897. The Euro traded to an overnight low at 1.0878 before edging higher at the close. The overnight high recorded was 1.0915.
GBP/USD – Sterling slid to 1.2915 from Friday’s open at 1.2945. The British Pound traded to an overnight high of 1.2942. Broad-based US Dollar strength pushed the Sterling to an overnight low of 1.2900.

On the lookout:

The week kicks off today with a light economic calendar. New Zealand releases its June Trade Balance (f/c +NZD 0.294 billion from +NZD 0.204 billion – ACY Finlogix), China follows with the release of its 1-Year Loan Prime Rate (f/c 3.45% from 3.45% - ACY Finlogix), and Chinese 5-Year Loan Prime Rate (f/c 3.95% from 3.95% - ACY Finlogix).

Germany starts off Europe with its German May Retail Sales (m/m f/c 0% from -1.2%; y/y no forecast, previous was -0.6% - FX Street). The US rounds up today’s economic data releases with its Chicago Fed National Activity Index for June (no f/c, previous was 0.18 – FX Street).

Trading perspective:

The Dollar should consolidate in Asia, maintaining its overall bid given the higher close in US treasury yields. On the political front, the standing down of President Joe Biden and his endorsement of Kamala Harris should increase the chances of Donald Trump returning to the White House. Which is positive for the Greenback. On the economic data front, today’s calendar is light. The week ahead though sees the release of global manufacturing and services PMIs as well as the US Core PCE Price Index for June at the end of the week.

USD/JPY – The stronger finish in US bond yields will keep the USD/JPY pair supported. On the day, look for immediate resistance at 157.50 followed by 158.00 and 158.50. Immediate support can be found at 157.20 followed by 156.90 and 156.40. Look for consolidation today in a likely trading range of 156.50-158.50.

AUD/USD – The Aussie Battler eased modestly to 0.6690 from Friday’s open at 0.6707. Immediate support for the AUD/USD pair lies at 0.6670 followed by 0.6540. On the topside, look for immediate resistance at 0.6720 followed by 0.6750 and 0.6780. Look for the Aussie to consolidate in a likely range today of 0.6650-0.6750. Prefer to sell Aussie rallies.
GBP/USD – Sterling slid on the back of softer than expected UK Retail Sales to 1.2915 from 1.2945 Friday. Look for immediate support today at 1.2900 followed by 1.2870 and 1.2840. Immediate resistance can be found at 1.2930 followed by 1.2960. Look for the British Pound to trade in a likely range today of 1.2850-1.2950. Prefer to sell Sterling on strength.
EUR/USD – The Euro eased to 1.0882 from 1.0897 Friday. On the day, look for immediate support at 1.0870 (overnight low traded was 1.0877). The next support level lies at 1.0840. On the topside, look for immediate resistance at 1.0910 followed by 1.0940. Look for the Euro to consolidate in a likely trading range today of 1.0850-1.0920. Prefer to sell Euro rallies.

Happy Monday. Have a good trading week ahead all.

Author

Michael Moran

ACY Securities

Michael has over 40 years’ FX experience, including running FX trading desks for some of the largest banks in the world.

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