“Hot” Dollar Cools, US Consumer Gauge Slides to 11-Year Low

Michael Moran, Senior Currency Strategist at ACY

16.05.2022 03:30 pm

#stocks

EUR Survives 2017 Low, AUD Hops Back as Risk Assets Rise

Summary: Markets finished off a volatile week on Friday after the US University of Michigan Consumer Sentiment Index slid to 59.1 in May, way below April’s 65.2. It was the lowest reading since August 2011. The Dollar Index reversed lower to 104.46 from 104.76. It was the first fall in over a week for the DXY, a favoured gauge of the Greenback’s value against a basket of 6 major currencies. This enabled the Euro (EUR/USD) to rebound and finish at 1.0412 after falling to 1.0349, overnight and 2017 low. The rise in risk sentiment saw the Australian Dollar (AUD/USD), pummelled last week, jump by 1.22% to 0.6937 from 0.6855. The British Pound (GBP/USD) rallied 0.51% to 1.2261 (1.2200 Friday) after trading to 1.2155 overnight and fresh 2-year lows. Against the Japanese Yen though, the US Dollar finished higher at 129.20 (128.40 Friday). The combination of risk-on and higher US bond yields pushed the USD/JPY pair higher. The Greenback eased against the Asian and Emerging Market currencies. USD/SGD (US Dollar-Singapore Dollar) dipped 0.25% to 1.3920 from 1.3965 while the USD/CNH (US Dollar-Offshore Chinese Yuan) tumbled to 6.7900 from 6.8220 Friday. The rise in risk sentiment boosted Wall Street stocks to a strong finish in New York on Friday. The DOW closed at 32,205 (31,615) while the S&P 500 soared 2.35% to 4,023 from 3,915.

Global bond yields rose. The US 10-year Treasury yield climbed to 2.92% from 2.85%. Germany’s 10-year Bund yield was last at 0.94% (0.83% Friday). The UK 10-year Gilt yielded 1.74% (1.66% Friday).

Data released Friday saw Australia’s HIA April New Home Sales slump to -1.2% from a previous 3.9%. French Final CPI in April matched a previous rise at 0.4%. The Eurozone Industrial Production fell less than expected to -1.8% against 2.1%. The US University of Michigan Consumer Sentiment Index dropped to 59.1 in May from April’s 65.2 and lower than economist’s forecasts at 64.1.

EUR/USD – The Euro endured another day of fresh selling, falling to an overnight and previous 2017 intraday low at 1.0349 (1.0380 open). The shared currency rebounded above 1.04 to finish at 1.0412. Short covering prevented the EUR/USD pair from sliding lower. With many analysts calling for the Euro to hit parity against the Greenback, speculative short Euro bets continued to grow.
AUD/USD – The Aussie Battler rebounded against its US counterpart after a battering last week which saw the Aussie fall to 0.6853 overnight lows. A week ago, the AUD/USD pair was changing hands at 0.7075. Risk-on sentiment which lifted stocks buoyed the Aussie Battler.
USD/JPY – Against the trend, the Greenback rallied 0.65% versus the Japanese Yen to 129.20 from Friday’s open at 128.40. The rebound in the US Ten Year bond yield to 2.92% from 2.85% lifted this currency pair. In another volatile session, the overnight high traded was at 129.45, while the low was at 128.28.
GBP/USD – Sterling rallied against the US Dollar to 1.2261 from its Friday open at 1.2200, a gain of 0.51%. The overall weaker US Dollar saw the GBP/USD pair trade to an overnight high at 1.2264 before easing at the close. Overnight, Sterling hit 1.2155, May 2020 lows.

On the Lookout: The economic calendar picks up today ahead with the release of China’s trifecta of April Retail Sales (f/c -6.1% from -3.5%), April Fixed Asset Investment (7.0% from 9.3%) and April Industrial Production (y/y f/c 0.4% from 5.0%) – all estimates from ACY Finlogix. China also releases its Unemployment Rate (f/c 6.0% from 5.8% - Forex Factory). Japan follows with its April Machine Tool Orders report (no f/c, previous was 30.2%). Europe kicks off with Germany’s April Wholesale Price Index (m/m no f/c, previous was 6.9%; y/y no f/c, previous was 22.6%). The Eurozone releases its March Balance of Trade (no f/c, previous was -EUR 7.6 billion). Canada starts off North America with its April Housing Starts (f/c 246.4 k from 246.2 k), Canadian Final March Manufacturing Sales (f/c 1.7% from 4.2%), and Canadian Final March Wholesale Sales (m/m f/c -0.3% from -0.4%).
The US rounds up today’s economic data releases with its US NY Empire State Manufacturing Index for May (f/c 17 from 24.6 – ACY Finlogix). US New York Federal Reserve President and FOMC member John Williams is due to speak at Capital Market’s Conference in New York).
The week ahead sees the release of Australia’s RBA Monetary Policy Meeting Minutes, US April Headline and Core Retail Sales (Tuesday, 17 May), UK Headline and Core CPI, PPI; Canadian Headline, Core and Trimmed CPI (Wednesday, 18 May); Australian Employment Report, US Philadelphia Fed Manufacturing Index, US Unemployment Claims and US Existing Home Sales (Thursday, 19 May). Japanese National Core CPI and UK Retail Sales round up this week’s primary economic data releases. Australia holds its Parliamentary Elections on Saturday, 21 May. A big week ahead.

Trading Perspective: The Dollar, which has been “hot” all last week eased amidst position adjustment and profit taking on Friday in another volatile session. A fall in the University of Michigan Consumer Sentiment Index to an August 2011 low weighed on the Greenback despite inflation expectations remaining elevated. While risk and position adjustments ruled trading on Friday, the Greenback’s overall strength versus its rivals is well in place. Today sees the release of China’s trifecta of economic reports which are all expected to see lower readings. Strick lockdowns in Shanghai and Beijing due to a resurgence in Covid infections could weigh on risk sentiment. That said, expectations are for a shrinking in Retail Sales, Industrial Production and Fixed Asset Investment. Any improvements on the forecasts, could see the Greenback, and risk sentiment bounce back. What this does ensure is another choppy start to a busy week ahead.

EUR/USD – The shared currency once again bore the brunt of US Dollar buying, trading to an overnight and 2017 low at 1.0349 before rebounding strongly to close at 1.0412. On Friday, the Euro opened at 1.0380. Overnight high traded was at 1.0419. For today, immediate resistance can be found at 1.0420 followed by 1.0450 and 1.0480. Immediate support lies at 1.0385 followed by 1.0350. Look for consolidation first up today, likely range 1.0360-1.0430. The fall in the Greenback may just have postponed the Euro’s demise. Trade the range.

(Source: Finlogix.com)

AUD/USD – the Aussie Dollar was battered lower as risk-off dominated trading in early Friday. Overnight low traded for the AUD/USD pair was at 0.6853 before rallying back to finish at 0.6935 in late New York (0.6855 Friday opening). For today, immediate support lies at 0.6900, 0.6870 and 0.6840. Immediate resistance lies at 0.6950, 0.6980 and 0.7010. Expect another volatile session in the AUD/USD pair, likely range 0.6860-0.6960.
USD/JPY – against the Yen, the Greenback rallied to finish at 129.20 from its opening at 128.40 on Friday. Overnight high traded was at 129.45, which is today’s immediate resistance level. This is followed by 129.75. On the downside, immediate support can be found at 128.90, 128.60 and 128.30 (overnight low traded was at 128.28). Look for another roller coaster ride in this currency pair, likely range 128.50-129.50. Prefer to sell rallies. A fall in risk sentiment could see the USD/JPY pair tumble.
GBP/USD – Sterling rallied against the broadly based weaker Greenback. On Friday, the GBP/USD pair closed at 1.2261 from 1.2200. Overnight high traded was at 1.2264. This puts immediate resistance at 1.2270 followed by 1.2300 and 1.2330. On the downside, immediate support lies at 1.2230, 1.2200 and 1.2170. Look for further choppy trade in this currency pair with a likely range of 1.2150-1.2270. Prefer to sell into GBP strength.

Have a top Monday and good trading week ahead all.

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