USD/JPY soars to 25-year peak, euro rebounds off 0.9952 low

Summary: In another choppy session for FX markets, the Dollar Index (DXY), which measures the value of the Greenback against a basket of 6 major currencies lifted to an overnight and fresh September 2002 high at 109.29 (107.65 yesterday). At the close of trading in New York, the USD/DXY pair eased to close at 108.65, up 0.65%. On Tuesday, the US June Headline CPI rose to an annual 9.1%, its highest level since 1981, beating median estimates at 8.8%. Yesterday US Producer Prices in June soared to 1.1% (m/m), higher than the 0.8% forecast by most economists. Janet Yellen, US Treasury Secretary warned that inflation is “unacceptably high” and bringing down prices will be Washington’s top priority. St Louis Fed President James Bullard said that he would prefer to lift interest rates by 75 basis points according to a Reuters report. The US Dollar continues its relentless rise against the Japanese Yen (USD/JPY), soaring to 139.39 overnight and 25-year peak before easing to settle at 138.95 (137.35 open yesterday). The Euro (EUR/USD) tumbled to 0.9952 overnight and November 2002 low before rallying to finish at 1.0015 (1.0055 yesterday). The shared currency was weighed by political pressure after Italian Prime Minister Mario Draghi announced his resignation. Which was rejected by Sergio Mattarella, Italy’s President. The Australian Dollar (AUD/USD) was little changed, easing to 0.6748 from 0.6755. New Zealand’s Kiwi edged up to 0.6130 (0.6125) following Wednesday’s RBNZ decision to raise its Overnight Cash Rate by 50 basis points to 2.5%. Against the Canadian Loonie, the Greenback soared to 1.3115 from 1.2985. The Bank of Canada lifted its Overnight Rate by 1% to 2.50% (1.50%), which was higher than the 0.75% that most economist’s forecast. The Greenback finished with strong gains versus most Asian and Emerging Market currencies. Against the Thai Baht, the US Dollar (USD/THB) rose to finish at 36.58 (36.20 yesterday), highs not seen since October 2006.

Global bond yields edged up. The benchmark US 10-year Treasury Bond Yield was last at 2.96% (2.93%). Germany’s 10-year Bund rate closed at 1.17% (1.14% yesterday). Japan’s10-year JGB yield was unchanged at 0.22%. Australian 10-year bond rate settled at 3.40% (3.39% yesterday).
Data released yesterday saw Australia’s Employment Change climb by 88,400, beating forecasts for a 30,000 rise and a previous +60,600. The Australian Unemployment Rate improved to 3.5% from 3.9%, bettering estimates at 3.8%. Japan’s Revised Industrial Production fell to -7.5% from a previous -7.2%. Germany’s Wholesale Price Index eased to 0.3% in June from May’s 1.0%, lower than forecasts at 0.9%. Swiss June PPI fell to 0.3% from 0.9%. Canada’s Manufacturing Sales bettered forecasts at -2.0% against -2.5%. US June Core PPI (m/m) eased to 0.4% from 0.5%. US Weekly Unemployment Claims rose to 244,000 from the previous week’s 235,000.

EUR/USD – The shared currency had another roller-coaster trading session, initially climbing to its overnight high at 1.0050 before plunging to 0.9952, November 2002 lows. Position squaring lifted the EUR/USD pair to its 1.0015 finish in New York. Yesterday, the Euro opened in Asia at 1.0056. Political uncertainty will weigh on the EUR/USD pair.

USD/JPY – Up-up and away, the US Dollar soared against the Japanese Yen to 139.39 overnight and 25-year highs (August 1998) before easing to settle at 138.95 in late New York. Overnight low traded for USD/JPY was at 137.59 in volatile trade. Strong demand for the US currency outweighed concerns from some Japanese officials on the Yen’s weakness.

AUD/USD – The Aussie Batter eased modestly against its US counterpart, closing at 0.6748 from 0.6755 yesterday. Positive Australian employment data supported the Australian Dollar, which saw gains versus the other major currencies. The AUD/JPY pair was up 1.05% to 93.73 (92.80). Aussie traders will be watching the trifecta of Chinese Retail Sales, Industrial Production and Fixed Investment, due out later this morning (12 noon Sydney).

GBP/USD – Sterling was also under pressure against the broadly based stronger Greenback, closing at 1.1823 (1.1890) down 0.40%. Overnight low traded for the GBP/USD pair was at 1.1760 in volatile trade. Overnight high recorded was at 1.1884. British Conservative Party leader Rishi Sunak, one of the leading contenders to be the next UK PM said that their no. 1 economic priority is to tackle inflation.

On the Lookout: Welcome to Friday following an extremely choppy week in FX, today’s economic calendar picks up. Data releases today kicked off earlier with New Zealand’s June BusinessNZ Manufacturing Index which slid to 49.7 from May’s 52.6. China follows with its June Retail Sales (y/y f/c 0% from previous -6.7% - FX Street), Chinese June Industrial Production (y/y f/c 4.1% from 0.7% - FX Street), Chinese Q2 GDP (q/q f/c -1.5% from 1.3%; y/y f/c 1% from 4.8%), Chinese June Fixed Asset Investment (YTD y/y f/c 6% from 6.2% - FX Street). China’s NBS Press Conference follows the release of the data. Europe starts off with Eurozone May Trade Balance (Deficit forecast at -EUR 34.8 billion from previous -EUR 31.7 billion – Forex Factory). Canada kicks off North America data with its May Wholesale Sales (f/c 2% from -0.5% - ACY Finlogix), Canadian June Housing Starts (no f/c, previous was 287.3K – ACY Finlogix). The US rounds up today’s data releases with its June Headline Retail Sales (m/m f/c 0.8% from -0.3%), US June Core (ex-automobiles) Retail Sales (m/m f/c 0.6 from 0.5% - FX Street), US June Capacity Utilisation (f/c 80.6% from 79% - FX Street), US June Industrial Production (m/m f/c 0.1% from 0.2% - FX Street), and finally, Preliminary US June University of Michigan Consumer Sentiment Index (f/c 49.9 from 50.0 – FX Street).

Trading Perspective: While the Dollar maintains it bid due to hot inflation which has led to speculation of bigger rate increases from the Fed, the Greenback’s rise may be too rapid for global central bank officials. Further weakening of the currencies against the US Dollar would prompt other global central bank officials to adjust policy. Overstretched market positioning will also put a cap to further swift Dollar rises. So, a bit of caution warranted as we conclude a week which has seen the Greenback extend its advance against all its Rivals.

EUR/USD – The Euro managed to rebound off its overnight and late 2002 lows at 0.9952 to 1.0015 in late New York. The shared currency remains heavy, and we can expect more attempts to push it below parity. Immediate support today lies at 0.9995 followed by 0.9965. On the topside, immediate resistance can be found at 1.0030, 1.0060 and 1.0100. Look for another choppy trading session, likely range 0.9970-1.0070. There’s cash to be made trading the range.

USD/JPY – The Greenback continued its meteoric rise against the Japanese currency trading to an overnight and 25-year peak at 139.39 before easing to settle at 138.95 in late New York. Immediate resistance today lies at 139.30, 139.60 and 140.00. On the downside, look for immediate support at 138.60, 138.30 and 138.00. Look for a choppy one today, likely range 138.00-139.70. Prefer to sell rallies, the BOJ won’t be happy with a 140.00 handle.

(Source: Finlogix.com)

AUD/USD – The Aussie Battler held its own against the Greenback, easing to 0.6748 at the New York close from yesterday’s 0.6755. Overnight low traded was at 0.6681. Immediate support today lies at 0.6710 followed by 0.6680. On the topside, immediate resistance is found at 0.6780 (overnight high traded was at 0.6788). The next resistance level lies at 0.6810 and 0.6840. Look for a volatile session in this currency pair as well, likely range 0.6680-0.6780. Prefer to sell rallies.

GBP/USD – Sterling slid to 1.1823 from 1.1890 yesterday. The overall stronger US Dollar combined with the political uncertainty of a new Tory leadership will weigh further on the British currency. On the day, immediate resistance can be found at 1.1790 followed by 1.1760. Immediate resistance lies at 1.1850, 1.1880 and 1.1910. Look for the British Pound to trade a likely, albeit choppy range of 1.1770-1.1870. Just trade the range shag on this one.

Tine helmets on for another roller coaster session in FX land. Have a good Friday all, happy trading. Top weekend ahead.