US Yields Soar, Dollar Ends Mixed into FOMC Meet

Yen, Swiss Franc Slump; Aussie, Kiwi Up, Asians Dip  
 

Summary: The benchmark US 10-year Treasury yield soared 5 basis points to 1.50% ahead of this week’s (early Thursday Sydney) Federal Reserve monetary policy announcement. The Dollar, however, closed mixed against its rivals even as US bond yields rose. Markets yesterday saw a delayed reaction to Thursday’s large US CPI increase (the Core number was the biggest in more than 10 years), the Dollar soared over the weekend. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of 5 major currencies, rallied 0.50% to 90.50 over the weekend. Overnight, USD/DXY ended flat at 90.50. Trading conditions were thin in Asia on Monday due to bank holidays in Australia (Queen’s Birthday) and China (Dragon Boat Festival). Against the Japanese Yen, the Dollar broke through 110.00 finishing up 0.47% at 110.07 (109.60 Friday). The USD/CHF soared to an overnight high at 0.90014 before easing to settle at 0.8995, (0.8975 yesterday) up 0.4%. The Euro finished little changed at 1.2118 (1.2113). Sterling settled at 1.4106 (1.4112 Monday). Traditional high yielder, the Australian Dollar was up 0.19% to 0.7712 (0.7702) while the Kiwi (NZD/USD) edged up to 0.7142 from 0.7127. USD/CAD nudged lower to 1.2145 from 1.2157. Against China’s Offshore Yuan, the Greenback (USD/CNH) broke through the 6.4 barrier to end higher at 6.4065 (6.3965 yesterday). Wall Street stocks were mixed. The DOW lost 0.25% to 34,375 (34,460). The S&P 500 edged up to 4,255 (4,245). Global bond yields were mostly higher.  Germany’s 10-year Bund yield rose 2 basis points to -0.25%. Japan’s 10-year JGB yield finished at 0.03% from 0.02%.

• USD/JPY – This currency pair, traditionally the most sensitive major to moves in the US 10-year bond yield did not disappoint, soaring 0.47% to 110.07 (109.60). Speculative JPY longs headed for the exit following the rally in US yields.
• EUR/USD – The shared currency held its support against the Greenback buoyed by the rise in Eurozone Industrial Production data released yesterday. Eurozone May Industrial Production rose 0.8%, beating forecasts for a 0.4% rise.
• AUD/USD – A bank holiday in Australia saw thin and lacklustre trade in the Australian Dollar. The RBA releases the minutes of its most recent monetary policy meeting this morning (11.30 am Sydney).
• USD/CNH – Higher US bond yields lifted the Greenback against China’s Offshore Yuan as well as other Asian currencies. The USD/CNH pair soared through the 6.40 barrier to an overnight peak at 6.4207 before slipping to settle at 6.4065. Just two weeks ago USD/CNH hit a 3-year low at 6.3517.

On the Lookout: Today kicks off a busy week which see a data dump and central bank policy meetings from the US Federal Reserve, Swiss National Bank and Bank of Japan. Today the RBA releases the minutes of its latest meeting (18 May). Europe kicks off with German and French Final Inflation reports (May). The Eurozone Trade Balance for April is also released. The UK follows with its May Employment report. UK Claimant Count Change (the number of people claiming unemployment benefits during the previous month) is forecast to rise to +25,000 from a previous -15,100 (Forex Factory). UK Wages (Average Earnings Index) which include bonuses are expected to climb in April to 4.9% from 4% previously (Finlogix). Britain’s Unemployment Rate is forecast to have dipped to 4.7% in April from March’s 4.8%. US Headline (f/c at -0.8% from 0.0& m/m and 4.8% from 4.1% y/y) and Core (excluding automobiles) Retail Sales (f/c 0.4% from -0.8% m/m) for May follow. US May Headline (f/c 0.6% from 0.6% m/m) and Core PPI (f/c 0.7% from 0.6% m/m) follow. The US also releases its May Industrial Production (f/c 0.6% from 0.7%), Capacity Utilisation (f/c 75% from 74.9%). US NAHB Housing Market Index (June – f/c 83.0 from 83.0) and Business Inventories (April m/m) (f/c -0.1% from +0.3%) round up today’s data dump. (All forecasts c/o ACY’s Finlogix). The week ahead also sees the release of UK and Canadian CPI, Australian Employment, and US Philly Fed Manufacturing Index. A huge data dump week indeed.

Trading Perspective: Overnight the Dollar finished mixed despite higher US bond yields ahead of the Fed’s monetary policy decision later this week. The Greenback however held most of its gains made over the weekend on the delayed reaction to last week’s red-hot US inflation data. The rebound in the benchmark US 10-year bond yield to 1.50% from 1.45%. Global rival treasury yields were also up but to a lesser extent. The yield gap is widening in favour of the US Dollar and should this continue, we could see further Greenback strength. Much would depend on the outcome of today’s key US Retail Sales, PPI, and Industrial Production reports. Which all play into Thursday’s Federal Reserve Monetary Policy Meeting, FOMC Statement and Press Conference. Watch those US bond yields this week.

• USD/JPY – This currency pair broke out its recent range and may very well be the guide for the Greenback ahead. The climb in the US 10-year yield by 5 basis points to 1.50% was the catalyst for the US currency. In contrast, Japan’s 10-year JGB rate was up one basis point to 0.03%. USD/JPY has immediate resistance at 110.10 (overnight high 110.097). The next resistance level is at 110.30 and 110.60. Immediate support lies at 109.80 followed by 109.50 (overnight low 109.512). Look for consolidation today in a likely 109.70-110.20 range today.
• EUR/USD – The Euro traded in an overnight range of 1.2094 and 1.2130 to end little changed at 1.2120. Yesterday’s rise in the Eurozone’s Industrial Production to 0.8%, which beat median forecasts for a 0.4% rise supported the shared currency. EUR/USD has immediate resistance at 1.2130 followed by 1.2160. Immediate support can be found at 1.2090 (overnight low 1.20942) and 1.2070. The Euro has not closed under 1.2100 since mid-May. Look for consolidation first up in a likely range today of 1.2090-1.2130. The Euro looks a tad shaky, and we could be in for a shake-out of those speculative long Euro bets.
• AUD/USD – The Australian Dollar closed with modest gains to 0.7712 (0.7704 Monday). Trade in the Aussie was thin and slow due as the country celebrated the Queen’s birthday with a bank holiday. AUD/USD traded within a subdued 0.7694 – 0.7726 range overnight. Trading should pick up today with the US data dump and into Thursday’s US Fed meeting and Australian Employment report. AUD/USD has immediate support at 0.7690 and 0.7650. Immediate resistance lies at 0.7730 and 0.7760. Likely range today 0.7680-0.7720. Prefer to sell into any Aussie strength up to 0.7730.
• USD/CNH – The Dollar rallied against the Chinese Offshore Yuan to 6.4207 overnight peak from its Monday opening at 6.3870 before easing to settle at 6.4065. This is the highest finish since late May. Higher US bond yields also have a marked impact on the USD/Asian and Emerging Currencies. The Greenback also saw gains versus the Thai Baht, Philippine Peso, Turkish Lira, Russian Rouble and South African Rand. USD/CNH has immediate resistance at 6.4130 and 6.4180. Immediate support can be found at 6.4000 and 6.3960. Look for consolidation in a likely 6.3900-6.4150 range today. We may well be headed further north in this currency pair as well as USD/Asians and EMS.

Have a good trading week ahead all, happy Tuesday.