• Michael Moran , Senior Currency Strategist at ACY Securities


• 06.08.2021 05:15 am
trading

GBP Advances; BOE Maintains Policy, Upgrades Inflation Forecasts

Summary: In subdued trade, the Dollar Index, a measure of the US currency’s value relative to a basket of foreign currencies finished little-changed at 92.26 (92.27 yesterday). Today’s Non-Farms Payrolls report will be closely watched with median estimates of Job Growth anywhere from 835,000 to 880,000 in July, from 850,000 in June. Data released last night showed that new claims for unemployment benefits declined to 385,000 from 399,000 in the week ended 31 July. The claims data has no bearing on tonight’s NFP report as it falls outside the survey period. The British Pound advanced 0.3% against the Greenback to 1.3927 (1.3887) to finish as best performing major. The Bank of England kept its monetary policy unchanged as expected and upgraded its inflation forecasts. Against the Canadian Loonie, the US Dollar eased 0.35% to 1.2498 from 1.2542 after Canada posted its largest trade surplus in almost 13 years. Higher oil shipments from the boosted exports. The Australian Dollar extended its rally to 0.7404 (0.7380), its highest close in a week. Against the Japanese Yen, the Greenback settled at 109.74 from 109.47 yesterday, up 0.20%. A bounce in the US 10-year bond yield boosted the Greenback against the Japanese currency. The Euro closed flat at 1.1835 in another featureless and dull trading session. Against the Asian and Emerging Market currencies, the Greenback was mixed. The USD/SGD pair settled at 1.3510 (1.3512) while USD/THB was up 0.35% to 33.25 from 33.12 yesterday. China’s Offshore Yuan ended flat against the Greenback (USD/CNH 6.4615).

(Source: Reuters.com)

Treasury Bond yields were mostly higher. The benchmark 10-year US bond rate rose 4 basis points to 1.22%. Germany’s 10-year Bund yield was unchanged at -0.50%. Canada’s 10-year treasury yield was last at 1.17%, unchanged from yesterday.
Wall Street stocks rallied on solid earnings which outweighed Delta virus concerns. The DOW gained 0.6% to 35,053 (34,820 yesterday) while the S&P 500 settled at 4,427 (4,404).
Data released yesterday saw Australia’s Trade Surplus in June at +AUD 10.50 billion from May’s downward adjusted Surplus at +AUD 9.27 billion (from +AUD 9.681 billion). Germany’s June Factory Orders climbed 4.1% in June, beating forecasts at 2.1% and a previous -3.2%. UK July Construction PMI eased to 58.7 from 66.3, missing estimates at 64.0. The US Trade Deficit rose to -USD 75.7 billion in June from May’s deficit of -USD 71.2 billion, higher than expectations of -USD 74.2 billion. Canada’s Trade Surplus in June climbed to +CAD 3.2 billion from May’s Deficit of -CAD 1.39 billion.

• GBP/USD – Sterling advanced to 1.3927 from 1.3887 yesterday after the Bank of England kept its policy unchanged but upgraded inflation forecasts. The British currency hit an overnight peak at 1.3949.
• AUD/USD – The Aussie extended its advance versus the Greenback as more shorts were forced to unwind. AUD/USD finished at 0.7404 at the New York close, up 0.25% from its 0.7380 open yesterday. Overnight high traded for the Battler was 0.7416.
• USD/JPY – The Dollar rallied against the Japanese Yen on the market’s improved risk appetite. USD/JPY closed at 109.75 from 109.45 yesterday. The benchmark US 10-Year bond yield was up 4 basis points to 1.22%, which boosted this currency pair.
• USD/CAD – against the Canadian Loonie, the US Dollar slid 0.35% to 1.2498 from 1.2545 yesterday. Canada’s Trade Balance moved into Surplus in June from May’s deficit due to a surge in exports which boosted the Loonie. Overnight low traded was 1.2474.

On the Lookout: Today the focus is on the US NFP report where markets will be monitoring the Employment Change. Tonight’s number has an extremely wide range of forecasts. According to a CNBC report, the range for jobs created in July is from 350,000 to 1.2 million. Most economists are looking at a gain of between 835,000 to 880,000. The Unemployment Rate, which should not be ignored is expected to drop to 5.7% from 5.9%. Forecasts for Wages in July are at 0.3%, unchanged from June.
Other data released today kick off with Australia’s AIG Services Index (no forecasts, previous was 59.8). The RBA releases its Monetary Policy Statement (11.30 am Sydney). Japan follows with its Annual Household Spending for June (f/c 0.1% from 11.6%), Japanese June Average Cash Earnings (f/c 1.0% from previous 1.9%), and Japan’s June Leading Indicators (f/c 104.2% from 102.6%). Germany starts off Europe with its June Industrial Production (f/c 0.6% from -0.3%). France is next with French Q2 Private Payrolls (f/c 0.6% from an upwardly revised previous 0.5% from 0.3%). The UK releases its Halifax House Price Index for July (m/m f/c 0.4% from -0.5%). North American data kick off with Canada’s July Employment Change (f/c 148,500 from 230,700) and Canadian Unemployment Rate (f/c 7.4% from 7.8%). The US rounds up the day’s report with its July Non-Farms Payrolls Change (f/c 835,000 to 880,000 from previous 850,000), US Unemployment Rate (f/c 5.7% from 5.9%), Average Hourly Earnings (Wages) – (f/c 0.3% from 0.3%). Canada releases its July IVEY PMI (f/c 67.3 from 71.9). US June Consumer Credit (f/c USD23.2 billion from USD35.3 billion).

Trading Perspective: Welcome to Payrolls Friday! That big monthly event where markets can turn into a lottery, particularly when economists’ expectations are all over the shop. Today is one of those days. The best preparation is to be flexible and nimble, keep your levels firm in your head, and do not be shy to pull the trigger. For a trader, preparation is what its all about. Form your scenarios and your levels from the market expectations and price action.
Ahead of tonight’s report, expect consolidation within recent ranges which were established in the past 24 hours. The Dollar finished little-changed and is poised to make a move.
If the US Payrolls report disappoints, say with a gain of less than 800,000 jobs, the USD could tank. It would take a number close to 900,000 to get the Greenback’s topside excited.

• GBP/USD – the week’s mover and shaker, we could see choppy trade in the British currency. The Pound closed at 1.3927, up 0.3% from 1.37887 yesterday. Immediate resistance can be found at 1.3950 (overnight high traded was 1.3949). The next resistance level lies at 1.3980 and then 1.4010. Immediate support can be found at 1.3900 followed by 1.3870 (overnight low 1.3872) and 1.3840. Expect consolidation today between 1.3870-1.3970 ahead of the Payrolls report. A strong US Employment report (+900,000) will see GBP/USD pounded through to the 1.3800 and below. A weak report (+785,000 or less) will see 1.40 broken easily. Sterling’s moves will be dictated by the US Dollar today.

(Source: Finlogix.com)

• AUD/USD – The Aussie extended its gains to finish above the 0.7400 resistance level at 0.7405. Overnight high traded was 0.7416. Immediate resistance lies at 0.7420 followed by 0.7450 and 0.7480. Immediate support can be found at 0.7380 (overnight low 0.7377) and 0.7350. Look for the Aussie to consolidate between 0.7380-0.7430 first up. A weaker-than-expected US Jobs report will see the AUD/USD test 0.7450. A weak number could see the Aussie Battler back down to 0.7330 support.
• USD/JPY – Against the trend, the Greenback advanced against the Japanese Yen to 109.75, up 0.20% from yesterday’s 109.45. The main catalyst for this currency pair was the US 10-year bond yield, up 4 basis points to 1.22% (1.18% yesterday). USD/JPY has immediate resistance at 110.00 followed by 110.30. Immediate support can be found at 109.45 and 109.25. A good Payrolls number (+900,000 jobs) will see USD/JPY above 110.00 again. A soft report will see this currency pair down to the low 109/s.
• EUR/USD – so far trade in the shared currency has been uninspired. EUR/USD has traded and closed in similar levels all week. The Euro was last at 1.1833. Immediate resistance in the EUR/USD can be found at 1.1860 (overnight high traded 1.1857) followed by 1.1900. Immediate support lies at 1.1800 followed by 1.1770. Tonight’s US NFP report could be the catalyst for a move in the shared currency. Either way, traders are not bothered, they just want to see the EUR/USD move. Likely range ahead of the number is 1.1825-1.1865. A strong US NFP report will see the Euro slide under 1.1800. Only a weak report of less than 800,000 jobs gains, say to 785,000 will see the shared currency soar above 1.1900.

There we go, keep your powder dry until later tonight. Tin helmets on, let’s get ready to rumble! Happy days!