Dollar Advances – Only Just; Countdown to Payrolls Begins

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 03.06.2021 07:30 am
  • trading

US 10-Year Bond Yield Eases After Fed’s Beige Book Report

Summary: It was a repeat performance for the US Dollar overnight, advancing in Europe only to give up its gains in New York. The Dollar Index (USD/DXY) a measure of the US currency’s value against 6 major rivals, closed flat at 89.89 after advancing to 90.246 highs in European trading. The benchmark US 10-Year Treasury Yield eased 2 basis points to 1.59% following the release of the Fed’s Beige Book. The report which is an account of business conditions in several Fed districts, indicated that the overall economy expanded at a moderate pace. Elsewhere, Australia’s economy expanded by 1.8% in Q1, bettering median expectations of a 1.5% rise. However, the current lockdown in Victoria (Australia’s 2nd most populous State) warned of slower growth ahead. AUD/USD slid initially to 0.77151 (overnight low) as the Greenback rallied in Europe. By the close of trade in New York, the Aussie climbed back to close little changed at 0.7750 (0.7753 yesterday). The Euro fell to 1.2164 from its opening at 1.2218, bouncing back above 1.22 to close at 1.2208 in New York. Sterling rallied to settle at 1.4168 after hitting an overnight low at 1.41113. British Prime Minister Boris Johnson affirmed that the UK is on track to fully reopen on June 21. Against the Canadian Loonie, the US Dollar slid to 1.2035 (1.2070 yesterday). Crude Oil prices rose for the second day running following OPEC’s decision to stick to a plan to restore supply to the market gradually. Brent Crude Oil rose to close at USD 71.30 (USD 70.58). USD/CNH steadied to close at 6.3835, little changed from 6.3850 yesterday. Global bond yields were mixed. Germany’s 10-Year Bund rate settled at -0.20% (-0.18% yesterday). Wall Street stocks settled with modest gains. The DOW was last at 34,600 (34,595) while the S&P 500 was up at 4,207 (4,203 yesterday).
Other data released yesterday saw Germany’s April Retail Sales dip to -5.5%, underwhelming forecasts at -2.2%. UK Mortgage Approvals climbed to 87,000 from a previous 82,700. Eurozone PPI in April rose by 1.0%, beating estimates of 0.9%, and a previous 1.1%. Canada’s April Building Approvals beat forecasts to print at -0.5% from -4.8%.

  • AUD/USD – The Aussie slid initially to 0.77151 on the back of a stronger Greenback despite the better-than expected Q1 GDP report. The current lockdown in Victoria, Australia’s 2nd most populous state, and the impact on the economy ahead unsettled the Aussie Battler. As the Greenback lost ground in North American markets, AUD/USD rallied to close at 0.7750.
  • EUR/USD – Trading in a similar range overnight to the previous session, the shared currency slid to 1.21641 lows before rallying above the 1.22 level to finish at 1.2209. The Euro continues to trade off the back of the US Dollar.
  • GBP/USD – Sterling also managed to recover on the back of an overall weaker US Dollar. The British currency rallied off lows seen in European trade at 1.41113 to finish at 1.4168, a gain of 0.10% from yesterday’s 1.4153. Boris Johnson affirmed that the UK is on track to fully reopen on June 21. Britain is also set to join a trans-Pacific Trade partnership.
  • USD/CAD – The Canadian Loonie finished as best performing major against the US Dollar as Oil prices rose for the second day running. USD/CAD slid to close at 1.2035 after hitting an overnight low at 1.20291. USD/CAD is approaching fresh 6-year lows at the 1.20 level.

On the Lookout: Today sees the release of US May Private (ADP) Payrolls report as well as Weekly Unemployment Claims. Other reports today see Australia’s Markit Composite and Services PMIs (May), April Trade Balance (Surplus f/c to climb to +AUD 7.9 billion from +AUD 5.574 billion). Markets will look at the breakdown and progress of exports and imports. Australian Final Retail Sales for April follows (f/c 1.1% from previous 1.3%). China releases its Caixin Services PMI report for May (f/c 56.3 from 56.3). Europe kicks off with European (Spanish, Italian, French and German) Services PMI’s (forecasts are for flat or better). Eurozone Final Services PMI follows (f/c 55.1 from previous 50.5). UK Services PMI follows (f/c 61.8 from previous 61.0). The US follows with its Weekly Unemployment Claims (f/c 3,615k from previous 3,642k)/ US ADP Private Payrolls (May) is next (f/c 650,000 from 742,000). US Markit Services PMI follows (f/c 70.1 from 64.7). Finally, the US ISM Services/Non-Manufacturing PMI report follows (f/c 63.0 from 62.7).

Trading Perspective: The countdown to tomorrow’s US May Payrolls report begins. The results will help market participants and investors get more signs of an economic rebound and rising inflation. Traders will look into the various revisions prior to the release of the data. ACY’s FInlogix Economic Calendar has the NFP Payrolls gain at 664,000 from April’s weak 266,000. The range of estimates in this number are from 645,000 to 664,000. Average Hourly Earnings (Wages) will also be scrutinised. Estimates are from 0.2% (April’s Wages were up 0.7%).
Today sees the release of US ISM Services PMI’s which is a survey of purchasing managers and a leading indicator of economic health.
The US Dollar’s rally was halted and reversed as the US 10-year yield eased following the Fed’s Beige Book report which highlighted the economic recovery’s pace as moderate. Tomorrow’s Payrolls report is one of the most important economic releases for the month. Which could set the stage for big moves in FX (certainly and hopefully bigger than what we have seen this week).

  • EUR/USD – While the Euro managed to close above 1.22, the shared currency failed to climb above the 1.2230/50 resistance area. Overnight high was 1.22265. Today, immediate resistance is found at 1.223 followed by 1.2250. Immediate support can be found at 1.2180 and 1.2160 (overnight low traded 1.2164). European and Eurozone Services PMI’s are released later today all expecting better than or flat results. Anything less will weigh on the Euro. Look for a likely trade today of 1.2170-1.2230.
  • AUD/USD – The Aussie Battler rebounded off its overnight lows at 0.77151 to hit an overnight peak at 0.77729 aided by an overall weaker US Dollar. AUD/USD closed at 0.7750, little changed from 0.7753. Australia’s Trade Surplus in April is expected to climb to +AUD 7.9 billion and +AUD 8.35 billion from March’s +AUD 5.574 billion. Australia’s Retail Sales report sees expectations of a 1.1% result, unchanged from 1.1%. AUD/USD has immediate resistance at 0.7780 followed by 0.7810. Immediate support can be found at 0.7715 and 0.7675. Look for a likely range between 0.7670-0.770. Just trade the range shag on this one, there is 100 points in that range.
  • USD/CAD – Canada’s Loonie outperformed its peers, climbing the most against its southern neighbour’s currency, the Greenback. Buoyed by higher oil prices and a hawkish BOC, the USD/CAD looks poised to test lower, heading to the 1.2000 support level. The Bank of Canada has already been trimming the pace of its bond buying. However, the latest COT report saw speculators sharply increase their long bets on the Loonie. “Danger, danger”.. USD/CAD has immediate support at 1.2030 (overnight low 1.2029) and 1.2000. Immediate resistance lies at 1.2060 and 1.2090. While the USD/CAD continues to trade heavy, caution is warranted near May 2015 lows amidst a long CAD speculative positioning. Look to trade a likely range today of 1.2020 to 1.2120. Prefer to buy dips in the USD today.

(Source: Finlogix.com)

  • GBP/USD – closed at 1.4168 after trading to an overnight low at 1.4113. Overnight high for the British currency was 1.41830. Sterling benefitted from the overall weaker US Dollar. A good set of US ISM and Jobs data could see a Greenback rebound which would push Sterling lower. Meantime immediate resistance can be found at 1.4190 and 1.4220. Immediate support lies at 1.4140 and 1.4110. Look to trade a likely 1.4110-1.4210 range today. Prefer to sell into any Sterling strength. While the UK economy is looking like the first to rebound from the Covid crisis, speculators have also increased their long GBP bets. Hmmmm…

Happy Thursday and trading all.

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