• Michael Moran, Senior Currency Strategist at ACY


• 13.10.2021 10:45 am
#stocks

Dollar Mostly Higher, US 2-Year Bond Yields Hit 18-month Peak

Summary: Germany’s ZEW Indicator for Economic Sentiment dropped a further 4.2 points to 22.3 in October 2021, below market expectations of 23.8, and a previous 26.5. The reading was the lowest since March 2020 which sent Europe’s shared currency sliding to fresh 2021 lows. EUR/USD slid to 1.1524 before settling at 1.1531 in late New York. Across the Atlantic, the US 2-year treasury bond yield climbed to a March 2020 high at 0.36% before easing to settle at 0.34% (0.32% yesterday). A popular gauge of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) rallied to 94.50 (94.37 yesterday), a 13-month high. Sterling ended flat at 1.3590 unmoved by mixed UK Employment data, into today’s Manufacturing and Industrial Production reports. Against the Japanese Yen the Greenback extended its rally to 113.60 in late New York, up 0.19% (113.35 yesterday). The Australian Dollar was little changed at 0.7350 from 0.7345 yesterday. The USD/CAD pair dipped to 1.2467 (1.2483). Against the Asian and Emerging Market currencies, the Dollar was mixed. USD/THB slid further to 33.35 (33.67) after the Greenback peaked at 33.99 at the end of last month. The USD/SGD pair finished with modest gains to 1.3567 (1.3557).
Wall Street stocks slipped after the International Monetary Fund lowered its global growth forecast amid supply disruptions and inflationary pressures. The DOW dipped 0.48% to 34,325 (34,472) while the S&P 500 was last at 4,337 (4,355 yesterday). The benchmark US 10-year bond yield eased 3 basis points to 1.58% (1.61%) due to healthy demand at a Treasury auction.
Data released yesterday saw Australia’s NAB September Business Confidence Index climb to 13 in September from a previous -6. Japan’s September Produce Price Index (y/y) rose to 6.3%, beating estimates at 5.9%. The Eurozone October ZEW Economic Indicator slid to 21.0, from 31.1, and lower than expectations at 27.9. US JOLTS Job Openings fell to 10.44 million in September after an upward revised August gain of 11.10 million, missing median expectations at 10.95 million.

• EUR/USD – slip-sliding away. The shared currency fell to 2021 lows at 1.1524 from its opening at 1.1552 and an overnight high at 1.1570. Broad-based US Dollar strength and a fall in Eurozone and German business sentiment weighed on the Euro.
• USD/JPY – US treasury bond yields remained elevated, lifting this currency pair to 113.79 before easing to 113.60 in late New York. Yesterday, the USD/JPY pair was at 113.35. Healthy demand at the US Treasury auction for 10-year notes saw the benchmark yield ease. However, two-year US bond yields jumped to 0.36% (0.34%), March 2020 highs.
• AUD/USD – The Australian Dollar was little changed against the Greenback, settling at 0.7350 (0.7345 yesterday). On the crosses, the Aussie stayed firm. AUD/JPY rose 0.27% to 83.53 (83.25). The AUD/SGD (Australian Dollar-Singapore Dollar) pair was last at 0.9970 from 0.9880 a week ago. Overnight high for AUD/USD was at 0.7385.
• GBP/USD – Sterling settled flat at 1.3590 against the Greenback, flat from yesterday’s opening. Overnight the GBP/USD pair traded to a high at 1.3637 before dipping in New York. The Bank of England officials have continued to express hawkish views on interest rates.

On the Lookout: Today’s economic data releases pick up further. Australia kicks off with its Westpac Bank Consumer Sentiment (no f/c, previous was 2.0%). Japan follows with its August Core Machinery Orders (m/m f/c 1.6% from 0.9%), Japanese Reuters Tankan Indicator for October (no f/c, previous was 18). New Zealand follows with its October Preliminary ANZ Business Confidence Index (no f/c, previous was -7.2). China releases its September Trade Balance – (Surplus f/c +USD 46.8 billion from previous +USD 58.34 billion – ACY Finlogix). Chinese September Exports (y/y f/c 21% from previous 25.6%), Chinese September Imports (y/y f/c 20% from 33.1%). The UK releases its August GDP (y/y f/c 6.7% from previous 7.5% - ACY Finlogix), UK August Goods Trade Balance – Deficit (f/c -GBP 12 billion from previous -GBP 12.706 billion), UK August Construction Output (y/y f/c 5.7% from 8.6%), UK August Industrial Production (m/m f/c 0.2% from 1.2%; y/y f/c 3.1% from 3.8%), UK August Manufacturing Production (m/m f/c 0%from 0%; y/y f/c 4.1% from 6%). UK August Balance of Trade (no f/c previous was -GBP 3.1 billion). Germany is next with its Harmonised Final September CPI (y/y f/c 4.1% from 3.9%). Eurozone August Industrial Production follows (m/m f/c -1.6% from 1.5%, y/y f/c 4.7% from 7.7% - ACY Finlogix). The US rounds up today’s economic data releases with its September Headline CPI (m/m f/c 0.3% from 0.3%, y/y f/c 5.3% from 5.3%), September Core CPI (m/m f/c 0.2% from 0.1%, y/y f/c 4% from 4%).

Trading Perspective: Positive market sentiment in favour of the US Dollar will continue to support the Greenback. Traders and investors await tonight’s US CPI report and the release of the FOMC meeting minutes (5 am Sydney, 14 October). Expectations for both Headline and Core inflation numbers are to match the previous elevated reports. A disappointment, ie lower than forecast CPI could see the beginning of a Greenback correction. The FOMC’s latest meeting minutes will follow with its release scheduled for early tomorrow morning (5 am Sydney).
Meantime Japan’s Core Machinery Orders report which was just released saw August monthly orders fall to -2.4%, from 0.9% and below forecasts at 1.7%. The USD/JPY pair was little changed (113.60) following the release.
As I write this, the US Debt Limit increase was approved by the Democrat-controlled House of Representatives. Which puts off the risk of default until early December at least. Expect the US Dollar to consolidate its gains in Asia today.

• EUR/USD – the shared currency remains weak in the current trading environment. Yesterday the EUR/USD pair hit an overnight and 2021 low at 1.1524 before closing at 1.1532. Immediate support for the Euro lies at 1.1510. The next support level is found at 1.1490. Immediate resistance can be found at 1.1550 and 1.1570. The Euro remains heavy, but I remain cautious at current levels due to the high number of speculative Euro shorts. Likely range today 1.1500-1.1560.

• AUD/USD – The Australian Dollar was little changed at 0.7350 (0.7345 yesterday). Overnight the Aussie Battler traded to 0.7332. Immediate support for the AUD/USD pair lies at 0.7330, 0.7300 and 0.7270. Immediate resistance can be found at 0.7380 (overnight high traded was 0.7385) followed by 0.7410. Likely range today, 0.7310-80. Prefer to sell rallies. The Aussie will eventually head south if US Dollar strength remains broad-based.
• USD/JPY – the Greenback continues to grind its way higher with the 114.00 threshold level in sight. Overnight, the USD/JPY hit a peak at 113.79. Immediate resistance for today lies at 113.80 and then 114.00. Immediate support can be found at 113.30, 113.00 and 112.70. Watch the US bond yields, further rises will see parallel moves higher in this currency pair.
• GBP/USD – Sterling settled at 1.3590, exactly where it finished yesterday. Overnight the GBP/USD pair traded in a range between 1.3568 and 1.3637. UK economic data was mixed. BOE officials continue to stress the need to prevent inflation. GBP/USD has immediate resistance at 1.3610 followed by 1.3640. Immediate support can be found at 1.3565 and 1.3535. UK Industrial and Manufacturing Production data are due later today. Look for consolidation in a likely range today of 1.3550-1.3650. With the US Dollar supported, the preference is to sell GBP/USD rallies.