• Michael Moran, Senior Currency Strategist at ACY


• 02.11.2021 12:30 pm
#stocks

USD/DXY Eases, Euro Rebounds, Asian/EMFX Close Mixed

Summary: The Australian Dollar held above the 0.7500 mark (0.7517) ahead of today’s RBA monetary policy meeting and rate announcement (Sydney, 2.30 pm). The Australian central bank is the first among two other major central banks (Federal Reserve and the Bank of England) that meet on interest rates this week. While the RBA said it won’t increase interest rates until 2024, many analysts and traders have challenged that contention. Elsewhere, the Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of 6 major currencies, eased 0.25% to 93.87 (94.14 yesterday). Over the weekend, the Dollar Index rose to its highest level since mid-October. US data released yesterday saw the US ISM Manufacturing PMI in October ease to 60.8 from 61.1 in September. Traders took profits on their net speculative USD longs as position were adjusted. The Euro rebounded to 1.1607 from 1.1562 despite a larger-than-expected drop in German Retail Sales. Sterling dipped to 1.3660 from 1.3692. The USD/JPY pair was flat at 114.00 after trading to an overnight and near 2-week high at 114.44. Against the Asian and Emerging Market Currencies, the Dollar was mixed. At the close of New York, USD/SGD was at 1.3480 from 1.3485 yesterday. The USD/CNH pair closed at 6.3945 (6.4055). USD/THB (US Dollar-Thai Baht) was flat at 33.28. Global bond yields steadied. The benchmark US 10-year note yield settled at 1.56% (1.55% yesterday). Germany’s 10-year Bund yield rose 3 basis points to 1.06%. After a strong rise yesterday of 25 basis points to 2.08%, Australia’s 10-year treasury bond rate tumbled to 1.89%. Wall Street stocks were mixed. The DOW edged up to 35,912 from 35,852. The S&P 500 was little changed at 4,612 (4,610).
Data released yesterday saw Australia’s AIG Manufacturing PMI fall to 50.4 in October from 51.2 in September (no forecasts were given). Australia’s Commonwealth Bank October PMI rose to 58.2 from a previous 57.3, and forecasts at 57.3. Japan’s October Jibun Bank Manufacturing PMI was up at 53.2 from a previous 53.0. Australian September Home Loans fell to -2.7%, missing estimates at -2.0%. Australian ANZ Job Advertisements climbed to 6.2% in October from -2.8% in September. China’s October Caixin Manufacturing PMI was up at 50.6, beating estimates at 50. Germany’s September Retail Sales fell (m/m) to -0.9% from 0.4% and (y/y) to -2.5% from 1.1%. UK October Manufacturing PMI rose to 57.8, beating estimates and a previous 57.7. US October Markit Manufacturing PMI fell to 58.4 from previous 59.2, lower than estimates at 59.2. US September Construction Spending eased to -0.5% from 0%, lower than median forecasts at 0.5%.

• AUD/USD – The Australian Dollar settled little changed at 0.7517 from 0.7520 yesterday. Overnight the AUD/USD pair traded to 0.7536 while the overnight low recorded was at 0.7486. On Friday, the Aussie Battler hit a high at 0.7555 after a strong rise in Australian bond yields, which all fell back overnight.
• EUR/USD – the shared currency rebounded 0.5% to 1.1607 from 1.1562 yesterday. Overnight, the Euro traded to a high at 1.1609. The EUR/USD pair slumped to an overnight low at 1.1546 following the release of weaker-than-expected German Retail Sales.
• USD/JPY – The Dollar finished flat against the Japanese Yen at 114.00.Overnight high traded for the USD/JPY pair was at 114.44, highs not seen in 2-weeks. The combination of the market’s risk-on stance and higher US bond yields supported this currency pair.
• GBP/USD – The British Pound dipped to 1.3660 against the Greenback from 1.3692 yesterday. Sterling traded to a low at 1.3642 before settling higher against the broadly-based weaker US Dollar. UK October Manufacturing PMI beat median forecasts, providing support for the Pound.

On the Lookout: The focus is on the RBA monetary policy meeting and rate announcement today. It is also the annual Melbourne Cup, Australia’s most famous thoroughbred horse race. Last year (3 November 2020), on Melbourne Cup Day, the RBA reduced the Cash Rate to a record low at 0.1%. Today, many analysts and traders are expecting the RBA to signal a retreat from its ultra-lose monetary policy. Australia’s growth and inflation have recovered. Last week the RBA’s preferred gauge of inflation (Trimmed-Mean CPI) rose to an annual (y/y) rate of 2.1%, beating median forecasts. Which is just above the RBA’s 2-3% CPI band.
Data released earlier today was New Zealand’s September Building Consents, which fell on a m/m basis to -1.9% from a previous 3.8%. The Bank of Japan releases its monetary policy meeting minutes (10.50 am, Sydney). The RBA is expected to keep its Cash Rate unchanged at 0.105 at the conclusion of its monetary policy meeting today. The RBA rate statement follows (2.30 pm, Sydney). RBA Deputy Governor Guy Debelle is scheduled to speak at a panel discussion on climate investment (4.50 pm, Sydney). Switzerland kicks off European data with its October CPI report (m/m f/c 0.1% from 0.0%; y/y f/c 1.1% from 0.9%). Swiss September Retail Sales follows (y/y f/c 1.4% from 0.5%. Italy releases its Markit Manufacturing PMI for October (f/c 59.7 from 59.7). France follows with its Markit Manufacturing PMI for October (f/c 53.5 from 55.0). Germany releases its October Markit Manufacturing PMI (f/c 58.2 from 58.2). Canada starts off North American with its September Building Permits (f/c 2.2% from previous -2.1%). The US rounds up the day’s economic calendar releases with its IBD/TIPP Economic Optimism Index (f/c 49.3 from 46.8).

Trading Perspective: This week’s crucial central bank meetings will set the tone for the FX markets. After the RBA today, the US Federal Reserve’s FOMC meets on interest rates which follows with the traditional press conference (Thursday, 5 am Sydney time). The Bank of England’s MPC meets on interest rates later that day (Thursday, 11 pm Sydney time). A big week in terms of risk events ahead of us. The US and Canadian Payrolls report are also scheduled for release on Friday as we end this week. Traders will closely monitor the forward guidance on policy regarding a taper of asset purchases and likely timing of any interest rate hikes. A huge week ahead for all, tin helmets on!

• EUR/USD – The shared currency rebounded as weak shorts scrambled to cover. Overnight high traded was 1.1609. Immediate resistance today lies at 1.1610. The next resistance level is found at 1.1640, and then 1.1680. 1.1700 is strong resistance, and huge. On the downside, immediate support can be found at 1.1550 (overnight low 1.1546). The next support level is found at 1.1520 and then 1.1500 (also huge). Meantime, look for consolidation between 1.1550-1.1620. Trade the range today.
• AUD/USD – The Aussie continues to trade above the 0.75 cent mark. Overnight, the AUD/USD pair hit a high at 0.7536. Immediate resistance today can be found at 0.7540. The next resistance level lies at 0.7570 and then 0.7600. Immediate support can be found at 0.7500, 0.7480 (overnight low traded was 0.7486). The next support level lies at 0.7450. Look for the Aussie to consolidate in a likely range today between 0.7480-0.7540. Prefer to sell rallies.

(Source: Finlogix.com)

• GBP/USD – Sterling eased against the Greenback to finish at 1.3660 from 1.3692 yesterday. For today, immediate support can be found at 1.3640 (overnight low traded was 1.3642). The next support level lies at 1.3610. On the topside, immediate resistance is found at 1.3700 (overnight high 1.3693). The next resistance level lies at 1.3730. Look for the British currency to consolidate in a likely range today of 1.3610-1.3710. Awaiting the BOE.
• USD/JPY – The Dollar settled at 114.00, unchanged from yesterday. Overnight, the USD/JPY traded to a peak at 114.44, near 2-week highs. Immediate resistance today can be found at 114.20 followed by 114.50. Immediate support lies at 113.80 and 113.50. Look for the Dollar to trade in a likely range today of 113.85-114.55 Japanese Yen.