Euro extends fall on weak economic outlook, US Dollar Index edges higher

Yen flat on intervention risk; Aussie slides, Copper, Iron-Ore Lower.

Summary

The Euro (EUR/USD) extended its fall, settling at 1.0712 (1.0735) with French elections due to begin this weekend. Broad-based US Dollar strength also weighed on the Euro.

Sterling finished flat at 1.2685 against the US Dollar. Trading was subdued with the British Pound dipping to an overnight low of 1.2670. Markets are expecting the BOE to cut rates in August.

The Dollar Index, (DXY), which weighs the value of the Greenback against a basket of 6 major currencies, edged higher to 105.60 from 105.45 previously.

Federal Reserve Governor Michell Bowman said that holding the policy rate steady for some time was likely to bring inflation under control. Bowman also reiterated her willingness to raise borrowing costs if needed.

Against the Japanese Yen, the US Dollar closed flat at 159.67. The USD/JPY pair traded to 159.76 overnight highs amidst a step up in verbal intervention from Japanese officials.

Overnight, top spokesperson Hayashi reiterated that Japan is closely watching the foreign exchange market and will respond appropriately to excessive moves.

The Australian Dollar slid to 0.6647 from 0.6657 weighed by a stronger Greenback and softer copper and iron ore prices. Copper slumped 1.42% with stalled demand growth from China and rising inventories.

The Greenback rallied against the Asian-EMFX pairs. USD/CNH (Dollar-Offshore Chinese Yuan) rose to 7.2900 from 7.2820. USD/SGD (Dollar-Singapore) climbed to 1.3548 (1.3527).

Wall Street stocks finished mixed. The DOW slid to 39,155 (39,520). The S&P 500 settled at 5,483, up from yesterday’s open at 5,465. The NASDAQ rose to 19,750 from 19,547.

Bond yields were mixed. The US 10-year bond yield climbed to 4.25% from 4.23%. Germany’s 10-year Bund Yield dipped to 2.41% (2.42%). The UK’s 10-year Gilt rate was flat at 4.08%.

EUR/USD –The shared currency eased anew to 1.0712 from 1.0735 yesterday. The Euro slumped to 1.0691 overnight lows before steadying. The overnight high traded for the Euro was at 1.0744. The Euro also finished lower against the other major currencies.

USD/JPY – Against the Japanese currency, the Greenback was flat, finishing at 159.67. The US Dollar rallied to an overnight high of 159.76 before easing. The overnight low traded for the USD/JPY pair was at 159.18.

AUD/USD – The Aussie Battler slid against the broadly based stronger US Dollar, settling at 0.6647 from 0.6657 yesterday. Softer copper and iron ore prices weighed on the Aussie. The overnight low recorded for the AUD/USD pair was 0.6635.

GBP/USD – Sterling was also flat, settling at 1.2687. The British Pound traded to an overnight high at 1.2702.  The overnight low recorded for the GBP/USD pair was 1.2670. Market expectations of a BOE rate cut in August weighed on the British currency.

On the lookout

Today’s economic calendar is a light one and kicks off with the release of Australia’s Annual May CPI (y/y f/c 3.8% from 3.6% - ACY Finlogix). Germany starts off Europe with its German GFK Consumer Confidence July (f/c -19.8 from -20.9 – ACY Finlogix).

France releases its June Consumer Confidence (f/c 92 from 90 – ACY Finlogix), and French May Unemployment Benefit Claims (-17.0 K from -36.8 K – ACY Finlogix).

The UK follows with its UK CBI Distributive Trades June (f/c 5 from 8 – ACY Finlogix). The US releases its Building Permits Final May (f/c 1.386M from 1.440M – ACY Finlogix).

Finally, Canada releases its Preliminary May Wholesale Sales report (m/m f/c 0.8% from 2.4% - ACY Finlogix).

Trading perspective

Currency traders will keep their focus on Tokyo today with the USD/JPY pair just settling just under the 160 level. The risk of another bout of currency intervention by Japan Inc (BOJ and MOF) is real. Japan’s policymakers have stepped up their rhetoric in the past few days.

Finance Vice-Minister Masato Kanda told reporters that they “won’t comment on day-to-day currency moves as such comments could give the market unforeseen effects, but we are always ready to take appropriate action when there are excessive moves”.

The Euro’s weak finish near its recent lows has also lent support to the Greenback which looks poised to strengthen further against its Rivals.

US bond yields edged higher which is also Dollar supportive. Expect Asian markets to consolidate with a bid under the US Dollar.

EUR/USD – The shared currency closed at 1.0712, just above the 1.07 support level. Look for immediate support at 1.0700 to be tested today. The next support level lies at 1.0670 followed by 1.0640. On the topside, immediate resistance can be found at 1.0750. The next resistance level lies at 1.0780. Look for the Euro to trade in a likely range today of 1.0670-1.0750. Sell Euro on strength today.

USD/JPY – The Dollar Yen pair finished flat at 159.67. Look for more verbal intervention today if the USD/JPY pair climbs above its overnight highs at 159.76. The 160.00 resistance level still appears as the line-in-the-sand for Japanese officials. Look for a nervous start today. If 160 holds, today’s likely range is 159.00-160.00.

AUD/USD – The Aussie slid against the overall stronger Greenback to close at 0.6647. On the day, look for immediate support at 0.6620 followed by 0.6590 and 0.6570. Immediate resistance can be found at 0.6680 (overnight high traded was 0.6673). The next resistance level is found at 0.6710, followed by 0.6740. Look for the Aussie to consolidate in a likely range today of 0.6620-0.6690. Trade the range, look to sell rallies.

GBP/USD – The British Pound finished flat against the US Dollar to 1.2685. On the day, look for immediate support at 1.2655 followed by 1.5625. Immediate resistance can be found at 1.2705 (overnight high traded was 1.2702). The next resistance level lies at 1.2730 and 1.2760. Look for Sterling to consolidate in a likely trading range of 1.2650-1.2720. Selling rallies are still the way to go for this currency pair.