CHF Soars, JPY, EUR Up, AUD, Asian, EMFX Slump, Stocks, Yields Slide

Michael Moran , Senior Currency Strategist at ACY Securities

09.07.2021 08:30 am

trading

CHF Soars, JPY, EUR Up, AUD, Asian, EMFX Slump, Stocks, Yields Slide
Slowing Global Recovery, Rising Inflation, Covid Cases Weigh on Risk

Summary: The Swiss Franc soared 1.17% against the US Dollar (USD/CHF to 0.9150 from 0.9252) as FX traders switched into risk-off mode driven by uncertainty surrounding the pace of the global economic recovery. The rising spread of the Delta variant of Covid-19 cases in many parts of the world saw investors and traders move out of stocks and risk currencies into bonds and haven FX. An unexpected rise in initial US Jobless Claims in the latest week to 373,000 (against estimates of 350,000) from an upwardly revised 371,000 (from 364,000) further weighed on market sentiment. The benchmark US 10-year bond yield slid to 1.29% (from 1.32% yesterday), the lowest level since mid-February. The Australian Dollar slumped 0.74% to 0.7428 (0.7485) as Sydney’s delta strain coronavirus outbreak reached a record daily high since it started in mid-June. Australia’s lockdown during school holidays is seen as another blow to domestic tourism. Against the Japanese Yen, the other traditional haven currency, the Greenback slid 0.78% to 109.77 (110.57). Japanese Prime Minister Yoshihide Suga placed Tokyo under a state of emergency that would continue through the Olympic Games (23 July to 8 August). This was due to rising coronavirus cases amidst a slow vaccination rollout. The Euro gained 0.44% to 1.1845 (1.1807 yesterday) after hitting an overnight high of 1.1868. Yesterday the ECB set a new symmetrical inflation target at 2%, in a bid to give Euro zone economies a longer recovery window. Sterling consolidated, easing to 1.3783 (1.3803) ahead of today’s release of UK Industrial and Manufacturing Production as well as May’s GDP reports. Risk-off saw the Greenback rally against most Asian and Emerging Market currencies. The USD/CNH pair (US Dollar – Offshore Chinese Yuan) jumped to an overnight high at 6.5011 from 6.4745 before settling at 6.4935. China’s latest crackdown on foreign-listed Chinese firms added to the sour risk environment. Today China releases its June CPI and PPI data.
Global bond yields eased. Germany’s 10-year Bund yield settled at -0.31% (-0.30%). The UK’s 10-year Gilt rate as unchanged at 0.61%. Japanese 10-year JGB yield dipped to 0.01% from 0.02%. Australia’s 10-year bond yield dropped to 1.31% from 1.38%.
Data released yesterday saw Japan’s Economic Watcher’s Sentiment climb to 47.6 from 38.1, beating estimates of 41.9. Japan’s Current Account Surplus rose to +JPY 1.87 trillion, beating forecasts at +JPY 1.59 trillion. Switzerland’s Unemployment Rate rose to 3.1% in June from 2.9%. Germany’s Trade Surplus eased to +EUR 12.6 billion from a previous +EUR 15.9 billion. US May Consumer Credit rose to USD35.28 billion from a previous USD18.61 billion.

AUD/USD – The Australian Dollar was battered by the market’s risk-off stance after consolidating earlier in the day. AUD/USD opened at 0.7485, initially dipped to 0.7470 where it held until the opening of US markets. The Aussie was smacked to an overnight low at 0.7416 before rallying mildly to settle at 0.7430.
USD/CHF – The US Dollar Swiss Franc pair opened at 0.9252 yesterday, initially trading to its overnight high at 0.9260. From there it was one-way down for the Greenback as the haven darling Swissy attracted flows out of the risk FX. USD/CHF nosedived to an overnight low at 0.9133 before settling to a 0.9150 finish.
USD/JPY – opened in Asia at 110.57 yesterday and settled in a relatively tight range between 110.40 and 110.65. The Greenback then slumped to an overnight and near one month low at 109.53 before rebounding mildly to 109.77 at the close of New York trade.
USD/SGD – The Greenback broke through the 1.3500 barrier for the first time since November 2020, soaring to a peak at 1.3539 before easing to settle at 1.3525 New York close. USD/SGD began yesterday at 1.3485. Overnight low traded for USD/SGD was 1.3476. The overall weaker Asian and EM FX weighed on the Singapore Dollar.

On the Lookout: After a volatile trading week, FX markets will attempt to settle and consolidate. Fridays are either slow and quiet, as traders and investors take a breather, or they could be volatile and shaky. The risk-off mode could accelerate today with the release of Chinese inflation and producer prices data as well as a plethora of macro-UK economic reports.
Economic data and related forecasts are all from ACY Securities Finlogix platform. China kicks off today’s economic data releases with its June CPI report (m/m f/c 0% from -0.2%, y/y f/c 1.3% from 1.3%). Chinese June PPI follows (y/y f/c 8.8% from 9.0%). Britain reports on its May Trade Deficit (f/c -GBP 11.1 billion from -GBP 10.96 billion); May GDP (f/c m/m 1.5% from 2.3%, y/y f/c 25.9% from 27.6%); May Industrial Production (f/c m/m 1.5% from 1.3%, y/y 29.5% from 39.7%); May Manufacturing Production (f/c m/m 1.0% from -0.3%); May Construction Output (f/c y/y 58.3%from 71.9%). Finally, UK Balance of Trade (no f/c, previous was -GBP 0.9 billion). Italy reports on its May Industrial Production (f/c m/m 0.3% from 1.8%, y/y f/c 24.7% from 79.5%).
ECB President Christine Lagarde is due to hold a press conference about the ECB strategy review in Brussels (10.30 pm Sydney).

Trading Perspective: Fresh fears from the rise in the Delta variant of global coronavirus cases will keep risk appetite tentative as we come into the last trading day of the week. Once again traders are forced to keep an eye on the coronavirus infection numbers as well as economic reports. Data releases today focus on China’s inflation numbers and UK production details.
FX traders will also watch their bond counterparts to see where treasuries and yields end up at.

AUD/USD – The Australian Battler ended on a soft note on souring risk sentiment. AUD/USD has immediate support at 0.7415 followed by 0.7385 (strong). Immediate resistance can be found at 0.7455 and 0.7485. Look for the Aussie to consolidate first up in a likely range today of 0.7410-0.7490. Neutral at current levels but do not believe that we can head much lower on the Aussie.
USD/JPY – Slid to an overnight and 2-week low at 109.53 before rallying to settle at 109.77. The Greenback has immediate support at 109.50 followed by 109.20 (strong). Immediate resistance can be found at 110.10, 110.40 and 110.80. Look for the USD/JPY to trade a likely range today of 109.50-110.10. Watch the US 10-year bond yield, if it bottoms out at current levels, so will USD/JPY.
EUR/USD – The Euro had an impressive rally against the US Dollar after breaking below the 1.1800 support level. EUR/USD finished the New York trade session at 1.1845. Overnight low traded was 1.1784, while the peak was at 1.1868. Immediate resistance lies at 1.1870 and 1.1900. Immediate support can be found at 1.1810 and 1.1780. Look for a likely trade today between 1.1785-1.1865. Which is a good range to trade, not the time to hold any strong views just yet.
GBP/USD – Sterling settled at 1.3783 (1.3805 open yesterday). GBP/USD slumped initially to its overnight low at 1.3742 before climbing to 1.3783. The British Pound traded to an overnight peak at 1.3802 earlier in the day. UK GDP, Manufacturing, and Industrial Production data are released today. If the data are better than expected, Sterling could soar.
I read an article earlier on the effects of a major sporting event on a currency (such as England’s advance to the Finals in the current 2020 European Football Championship. Any benefits are historically short-lived. Still, that’s got to be a currency plus, at least for now. Looking at a likely 1.3760-1.3860 range today. Prefer to buy dips.