Lagarde Tempers Dovish Stance, EUR Soars; DXY Tumbles

Michael Moran , Senior Currency Strategist at ACY

29.10.2021 02:30 pm

#stock

US Q3 GDP Slows to 2.0%; Global Bond Yields Climb

Summary: The Euro soared to just under 1.1700 (1.1600) after comments from ECB President Christine Lagarde were not as assertive in affirming a dovish stance as traders expected. Lagarde acknowledged that inflation may prove more enduring than originally anticipated. The shared currency closed at 1.1680, a gain of 0.70%. On the data front, the US economy in Q3 2021 grew at an annualised 2.0%, underwhelming estimates at 2.7%, and much lower than Q2’s 6.7%. The Bank of Japan kept its Policy Rate at -0.10% and maintained its ultra-expansive monetary policy. The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, tumbled 0.46% to 93.35 (93.88 yesterday). Sterling rose 0.43% against the overall weaker Greenback to 1.3788 (1.3738). The Dollar Yen pair (USD/JPY) eased 0.15% to 113.57 from 113.85 yesterday. The Aussie (AUD/USD) extended its rally, jumping to 0.7542 (0.7518) while the Kiwi (NZD/USD) settled at 0.7197 from 0.7172, up 0.4%. Against the Canadian Loonie, the US Dollar extended its move lower to 1.2342 (1.2360). The Greenback slipped against most of the Asian and Emerging Market currencies. USD/SGD was last at 1.3440 from 1.3487. The USD/CNH (Dollar-Offshore Chinese Yuan) slid to 6.3880 (6.3940).
Global treasury bond yields rose. The US 10-year treasury bond yield was last at 1.57% (1.54%). Germany’s 10-year Bund rate climbed to -0.14% from -0.18%. Australia’s 10-year treasury yield settled at 1.83%, up 3 basis points (1.80%). Wall Street stocks rallied. The DOW gained 0.63% to 35,767 (35,530) while the S&P 500 closed at 4,593 from 4,557 yesterday.
Data released yesterday saw Japanese Retail Sales (y/y) improve to -0.6% from a previous -3.2%, beating estimates at -2.3%. Germany’s Unemployment Rate in October improved to 5.4% from 5.5% matching expectations (5.5%). Spain’s Flash CPI climbed to 5.5% from 4.0%, higher than median estimates at 4.4%. Eurozone October Consumer Confidence matched expectations at -4.8. Eurozone October Business Climate rose to 1.76 from a previous 1.71. US September Pending Home Sales fell to -2.3%, underwhelming forecasts at 0%. US Weekly Unemployment Claims improved to 281,000 from 290,000 the previous week, beating estimates at 290,000.

EUR/USD – The shared currency opened at 1.1600 in Asia yesterday. It was still trading around that level when the ECB announced its policy. The comments from Lagarde, which were not as dovish as traders expected, saw the EUR/USD pair jump to 1.1692 overnight highs before easing to settle at 1.1682.
AUD/USD – the Battler soared to an overnight peak at 0.7556 on the broadly based weaker Greenback. The Aussie was buoyed by Wednesday’s higher than expected CPI rise. The Australian Dollar finished at 0.7542.
USD/CAD – The Greenback extended its slide against the Canadian Loonie after the BoC’s hawkish monetary policy meeting yesterday. USD/CAD settled at 1.2342 (1.2360 yesterday). Overnight low traded was at 1.2330.
USD/JPY – the Dollar eased modestly against the Japanese Yen to 113.57 from 113.85 yesterday. There was no change from the Bank of Japan on its ultra-expansive monetary policy. Overnight low traded was at 113.26.

On the Lookout: The week, and month finishes with a full economic calendar of releases. Japan kicks off with its Unemployment Rate for September (f/c 2.8% from 2.8%), Japanese October CPI (y/y f/c 0.5% from 0.3%) October Core CPI (f/c 0.3% from 0.1% - ACY Finlogix). Japan rounds of its data releases with September Industrial Production (m/m f/c -3.2% from -3.6% - ACY Finlogix), (y/y, no forecast, previous was 8.8%). Australia follows with its September Preliminary Retail Sales (f/c 0.2% from -1.7% - FX Street), Australia Q3 PPI (q/q f/c 0.3% from 0.7%; y/y f/c 3.2% from 3.3%), Australia September Private Sector Credit (m/m f/c 0.6% from 0.6% - ACY FInlogix). Japan releases its October Consumer Confidence (no f/c, previous was 37.8), Japanese September Housing Starts (y/y f/c 7.5% from 7.5%). France starts off European data with its Preliminary GDP Growth (f/c 2.1% from 1.1% - ACY FInlogix), French October CPI (m/m f/c 0.3% from -0.2%, y/y f/c 2.5% from 2.2%), Swiss KOF October Leading Indicators are next (f/c 108.2 from 110.6). Germany releases its Flash GDP (q/q f/c 2.2% from 1.6%, y/y f/c 2.5% from 9.4%). Italy rounds off Europe with its GDP (q/q f/c 2% from 2.7%, y/y f/c 3% from 17.3%), The UK releases its September Net Lending to Individuals (no f/c, previous was GBP 5.6 billion), UK September Consumer Credit (f/c GBP 0.45 billion from GBP 0.4 billion). The Eurozone releases its EZ October Flash GDP Estimate (q/q f/c 2% from 2.2%, y/y f/c 3.5% from 14.3%), and Eurozone October Flash CPI (f/c 3.7% from 3.4%) EZ Flash Core CPI (f/c 1.9% from 1.9%).
Canada starts off North America with its Canadian August GDP (m/m f/c 0.7% from -0.1%), Canadian September PPI (m/m no f/c previous was -0.3%, y/y no f/c, previous was -2.4%). The US releases its September Personal Income (m/m f/c -0.2% from 0.2%), US September Personal Spending (m/m f/c 0.5% from 0.8%), US September PCE Price Index (m/m no f/c, previous was 0.4%, y/y no f/c, previous was 4.3%), US September Core PCE Index (m/m f/c 0.2% from 0.3%. y/y f/c 3.7% from 3.6% - ACY Finlogix). Finally, the October Final US University of Michigan Consumer Sentiment Index (f/c 71.4 from 72.8) rounds up today’s primary economic data releases. Whew, thank God it’s Friday!

Trading Perspective: Thank God it’s Friday indeed. It is also the month-end so we can expect thinner volumes, which means more volatility. Much will depend on the data released today. Barring any surprises, the FX markets will be content with consolidation. Next week is huge because the US Federal Reserve has its monetary policy meeting and FOMC Statement (early morning Sydney, Thursday 4 Nov). The RBA also has its policy meeting next Tuesday (2 Nov.). Expect the Dollar to hold at current levels against its Rivals. The USD/DXY closed at 93.35 from 93.88 yesterday. Overnight US bond yields were higher, although the yield curve flattened. There was a lot of position adjustments overnight ahead of today. There may be a few more of that, but traders will want to keep their positions to a minimal into the release of economic data scheduled for today.

EUR/USD – The Euro had a good bounce off the 1.1600 level, closing just under the 1.17 threshold. Overnight high traded was at 1.1692. For today, immediate resistance can be found at 1.1700 followed by 1.1740. Immediate support lies at 1.1650, 1.1620 and 1.1580. The overnight low traded was at 1.1582. Expect another roller coaster ride on the shared currency in a likely trade today of 1.1585-1.1705. Prefer to sell rallies.

(Source: Finlogix.com)

USD/JPY – The Dollar slipped against the Yen to 113.57. Broad-based US Dollar weakness on the back of the softer US Q3 GDP report weighed on USD/JPY. Overnight, the Greenback slid to a low at 113.26. Immediate support for today lies at 113.25. The next support level is found at 113.00 and then 112.70. Immediate resistance can be found at 113.85 (overnight high traded was 113.87). The next resistance level lies at 114.10 and 114.40. Look for consolidation in a likely range today of 113.30-114.10. Prefer to buy USD dips.
AUD/USD – The Battler jumped to an overnight high at 0.7556 from yesterday’s 0.7518, settling at 0.7542. Immediate resistance lies at 0.7555 followed by 0.7575 and 0.7600. On the downside, immediate support can be found at 0.7525, 0.7500 and 0.7475. Looking to sell into AUD/USD rallies in a likely range today of 0.7485-0.7555.
GBP/USD – Sterling benefitted from the overall weaker Greenback, rallying 0.4% to 1.3788 (1.3738). Overnight the British Pound traded to a peak at 1.3815. Immediate resistance for Sterling lies at 1.3810 followed by 1.3840, and 1.3875. Overnight low traded for GBP/USD was at 1.3722. On the day, immediate resistance can be found at 1.3760, 1.3725 and 1.3690.
Look for consolidation today in a likely range between 1.3730-1.3830. Just trade the range on this puppy today.

Thank God it’s Friday indeed. A long week and a long month for the markets that are looking for a breather. Happy Friday all, a restful and enjoyable weekend ahead.

Analysis written by Michael Moran, Senior Currency Strategist.

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.