“Just another manic Monday” the tune sang by the Bangles in 1985 swirled around my head as I searched my desk top PC screens on FX and financial markets this morning.
Hawkish comments from Federal Reserve Chair Jerome Powell at the Jackson Hole central banking conference sunk Wall Street stocks to fresh lows by their close on Friday.
The US S&P 500 tanked 3% lower to 4,050 (4,195 Friday) while the DOW was last at 32,230 against its 33,257 Friday open.
US Treasury bond rates took off with the 2-Year Yield climbing to 3.40%, its highest level since 2007. The 10-year bond yield climbed to 3.04% from 3.03%.
The Dollar Index, (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, rallied 0.35% to 108.85 from its 108.42 open.
Sterling (GBP/USD) plunged 0.82% to 1.1730 (1.1835), its lowest finish since March 2020. The Euro (EUR/USD) slid to 0.9955 from 0.9975, which saw several ECB officials express concern on the sidelines of Jackson Hole.
Traders pushed the Aussie (AUD/USD) down to 0.6880 from 0.6980. Against the yield sensitive Japanese Yen, the Greenback rallied 0.68% to 137.55 (136.52).
The US Dollar recorded strong gains versus the Asian and Emerging Market currencies. Against the Offshore Chinese Yuan (USD/CNH), the Greenback rocketed to 6.8935 from 6.8550 Friday.
The USD/THB (Dollar-Thai Baht) pair spiked to 36.20 from 35.85 while USD/SGD (Dollar-Singapore Dollar) rallied to 1.3938 from 1.3890.
Earlier in the day, the Greenback was easier against its Rivals after US July Core PCE (Personal Consumption Expenditure) Price Index dipped to 0.1%, lower than estimates at 0.3%.
Other data releases saw Japan’s Tokyo Core CPI climb to 2.6% against forecasts at 2.5%. Germany’s GFK Consumer Climate fell to -36.5 from a previous -30.6, lower than expectations of -31.8.
US July Personal Income fell to 0.2% from 0.7% while July Personal Spending eased to 0.1%, against forecasts at 0.4%.
The US University of Michigan Consumer Sentiment Index rose to 58.2 from a previous 55.1, and higher than estimates at 55.3.
· EUR/USD – Slip-sliding away, the shared currency dipped against the broadly based stronger Greenback, closing at 0.9965 (0.9975 open). Overnight, the Euro slid to a low at 0.9946 before steadying to its NY close. Overnight high recorded was at 1.0090 in choppy trade.
· GBP/USD – The British Pound sunk to its lowest finish since March 2020, settling at 1.1740 from 1.1835 open on Friday. Overnight, Sterling traded to a peak at 1.1901 before tumbling lower. Overnight low traded was at 1.1715. The UK faced an energy crisis after British energy regulator, Ofgem announced that household bills would rise by 80% in October.
· USD/JPY – Higher US bond yields boosted the Dollar against the yield sensitive Yen to finish at 137.55 (136.52 Friday open), up 0.68%. In early New York trade, the USD/JPY pair was trading near its lows at 136.20 before soaring following the hawkish remarks by Fed Chair Jerome Powell. Overnight high traded was at 137.75.
· AUD/USD – The Aussie Battler sunk under the weight of a broadly based stronger Greenback, settling at 0.6880 against Friday’s open at 0.6980. Overnight the AUD/USD pair slumped to a low at 0.6873 before settling. The overnight high traded was at 0.7009.
On the Lookout:
In early Asia comments from various global central bank heads are hitting the news wires which is enabling a choppy start.
The Bank of Korea was one of the first central banks to protest the stronger Dollar which was the result of a hawkish Powell. BOK Governor Rhee Chang-yong said that Dollar appreciation driven by Fed rate increases has added inflation in many open economies around the world, including South Korea.
Expect more of this kind of rhetoric from the other global central bank leaders. Which will ensure more FX volatility as we begin this week. Like the Bangles 1985 tune goes, it’s “just another manic Monday.”
Today’s economic calendar is light and kicks off with Australia’s July Preliminary Retail Sales report (f/c rise of 0.3% against a previous 0.2% - ACY Finlogix). Japan follows with its Final June Leading Economic Index (f/c 100.6 from a previous 100.6 -FX Street).
The US rounds up today’s calendar events with its Dallas Fed Manufacturing Index for August (f/c -20.2 against a previous -22.6 – FX Street). UK Financial markets are off today in observance of the Summer Bank Monday holiday.
While today is slow, the week ahead will pick up in terms of economic data releases. Friday culminates with the US Non-Farm Payrolls and Employment report.
Trading Perspective
The Greenback reasserted its dominance in the FX space, climbing back versus all its Rivals. Over the weekend, several central bank officials have responded to the Fed’s inflation fight with rhetoric of their own.
Expect more of this today. Early this morning, ECB Governing Council member Olli Rehn said that the Euro’s FX rate will be a major consideration in the ECB’s decision when they next meet (9 September).
Bank of Japan Governor Haruhiko Kuroda said that the BOJ will likely continue with its accommodative policy, despite having 2.4% inflation. According to Kuroda, this is almost wholly caused by international commodity, energy, and food price hikes.
US Democrats said that Fed policies could tip the US economy into recession.
At the end of the day, it was the rise in US bond yields that drove the Greenback higher. FX traders will do well to monitor the bond yields.
Ahead of Friday’s US Payrolls report, expect the Dollar to stay bid around current levels.
In early Asia, the Greenback is edging higher against its rivals. The USD/JPY jumped another leg higher to 138.05 from its 137.55 close. The Euro dipped further to 0.9940 from 0.9965 NY close. The British Pound slumped to 1.1692 (1.1730). The Aussie (AUD/USD slipped to 0.6863 (0.6880).
· EUR/USD – The Euro continues to trade under pressure against the overall stronger Greenback. Hawkish rhetoric from ECB officials over the weekend has had no effect, so far. The overnight low traded for the shared currency was at 0.9946, which has just broken down. The EUR/USD currently trades at 0.9940. Immediate support lies at 0.9910 followed by 0.9880. On the topside, look for immediate resistance at 0.9980 followed by 1.0010. While the Euro trades heavy in volatile fashion, be wary of upward pullbacks. Likely range 0.9910-1.0080. Nice and wide, trade the range.
· AUD/USD – The Aussie Battler slid lower against the strengthening Greenback to its current 0.6865 from its New York close of 0.6890. For today, immediate support lies at 0.6830 followed by 0.6800. Immediate resistance is found at 0.6910 and 0.6940. Given the slide in the Euro, expect more selling pressure in the Aussie. Likely range 0.6840-0.6940.
AUDUSD
(Source: Finlogix.com)
· GBP/USD – The Pound is sinking, sang Paul McCartney in 1982 (Tug of War album). It certainly feels that way today. The GBP/USD pair slumped in early Asia to its current 1.1697 level against 1.1740 New York close. Sterling hit a low at 1.1683 in early Asia so far before a modest rebound to 1.1692. Immediate support lies at 1.1680 followed by 1.1650. On the topside, immediate resistance lies at 1.1760, 1.1790 and 1.1810. Look for further choppy trade. Likely between 1.1650-1.1800 today.
· USD/JPY – Against the Japanese Yen, the Dollar soared in early Asia to its current 138.35 level against its opening at 137.55. Immediate resistance lies at 138.40 followed by 138.70. On the downside, look for immediate support at 138.00, 137.70 and 137.40. Further rises in US bond yields will drive the USD/JPY pair higher. Preference is to buy USD dips.
Happy Monday. Have a good trading week ahead all
This content may have been written by a third party. ACY makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied by any third-party. This content is information only, and does not constitute financial, investment or other advice on which you can rely.
