FX Stagnant, USD Sideways; Month/Quarter-End, US Payrolls

Michael Moran , Senior Currency Strategist at ACY Securities

29.06.2021 08:00 am

trading

AUD, CAD, NZD Dip; GBP, EUR Flat, JPY Up, Bond Yields Ease

Summary: The Dollar traded sideways with currencies stagnant in month and quarter end trade which was thin and featureless. Sterling was little changed at 1.3875 (1.3878) despite the appointment of Sajid Javid, the new health minister to replace Matt Hancock. The Euro fell to an overnight low at 1.1902 but managed to rebound to 1.1923, from 1.1927. A four-basis point fall in the benchmark US 10-year bond yield (1.48%) saw the USD/JPY pair ease to 110.60 from 110.77. US Two-year Treasury yields settled at 0.25% from 0.27%. A slide in Brent Crude Oil prices by 2.05% to USD 74.65 (USD 76.00) weighed on Canada’s Loonie which fell 0.55% against the Greenback. USD/CAD closed at 1.2345 from 1.2297 yesterday. Other commodity linked currencies eased, with the AUD/USD down 0.7565 (0.7592) while the Kiwi (NZD/USD) eased to 0.7042 from 0.7066. Against the Asian and Emerging Market currencies, the Dollar was modestly higher. USD/SGD was last at 1.3432 (1.3424) while USD/THB gained 0.36% to 31.91 (31.70). The Greenback was little changed against China’s Offshore Yuan (USD/CNH) at 6.4600 (6.4615 yesterday). Wall Street stocks closed mixed. The DOW slipped 0.56% to 34,310 (34,490) while the S&P 500 gained 0.20% to 4,294 (4,285).
Global bond yields eased. Germany’s 10-year Bund was last yielding -0.19% from -0.16% yesterday. UK 10-year Gilt yields dropped to 0.72% from 0.77%. Japan’s 10-year JGB yield gained one basis point to 0.05% (0.04%). Australia’s 10-year bond yield slipped 2 basis points to 1.58%.
Data released yesterday saw German Import Prices climb 1.7% in May, beating median forecasts for a 1.3% rise and April’s +1.4%. The Dallas Fed Manufacturing Index for June slipped to 31.1 from 34.9. There were no other primary economic data released yesterday.

GBP/USD – Sterling was last trading at 1.3875 in late New York, little changed from its 1.3878 open yesterday. The British Pound fell to an overnight low at 1.38645 before rallying at the close. Overnight high traded for GBP/USD was 1.39397.
USD/JPY – slip-sliding away like the US bond yields. The Dollar finished at 110.60 Yen from 110.77 opening yesterday. Once again USD/JPY failed to clear the 111.00 barrier with the overnight high recorded at 110.978.
EUR/USD – the shared currency traded mostly sideways, easing initially to its overnight low at 1.19023 before climbing to 1.19443 (overnight high). The Euro was little changed in later New York, at 1.1925 (1.1934 yesterday).
AUD/USD – slip-sliding away, the Aussie Battler drifted lower in slow trade to 0.75544 overnight lows before a mild recovery to 0.7565 at the New York close. AUD/USD hit an overnight peak at 0.76016 before it gradually slid lower.

On the Lookout: Economic data releases pick up today as we approach the end of June and Q2. Trading conditions will be thin with liquidity at a premium. The release of the US Payrolls report on Friday is huge in the light of recent US inflation data (CPI, PCE). All forecasts from ACY’s Finlogix, unless specified.
Today kicks off with Japan’s May Unemployment Rate (Finlogix forecast: 2.9% from 2.8 % m/m). Japan’s May Job Application Ratio (monthly job openings) follows next (f/c 1.08 from previous 1.09). Japan also reports on its May Retail Sales (y/y forecast 7.9% from previous 12%). Europe starts off with France’s Q1 Unemployment Rate (Q4 2020 was 8%, no forecasts given). French Consumer Confidence for June follows (f/c 100 from previous 97). UK reports on its June Nationwide House Prices (m/m f/c 0.7% from 1.8%, y/y f/c 13.7% from 10.9%). UK Net Lending to Individuals for May follows (m/m f/c GBP 4.6 billion from GBP 2.9 billion). UK May Mortgage Approvals follow (f/c 85.34k from 86.9k). Eurozone Consumer Confidence for June follows (f/c -3.3 from -5.1). Germany releases its June Preliminary Harmonised Index of Consumer Prices (y/y f/c 2.1% from 2.4%). The US rounds up today’s reports with its April House Price Index (m/m f/c 1.4% from 1.5% - Forex Factory). Finally, US April S&P Case Shiller Home Price Index (y/y f/c 14.5% from 13.3%) is released.
ECB President Christine Lagarde is due to speak at a Brussels Economic Forum. US FOMC member Thomas Barkin (President – Richmond Fed) speaks in a webinar hosted by Market News International.

Trading Perspective: As we approach the month and quarter end, and into Friday’s US Payrolls report, we can expect liquidity to dry up with conditions thin. Currency moves will be dictated by supply/demand factors heading in the June quarter finish. That said, tonight’s German and Eurozone Inflation data are important. Wages will be the focus on the US Jobs report released this Friday. While the US Dollar maintains an edge against its rivals (due to the recent inflation spike), the fall in US bond yields, not matched entirely by drops in other yields bears watching. Speculative market positioning will also play its part. The latest Commitment of Traders/CFTC report (week ended 22 June) which followed the hawkish Fed FOMC meeting outcome saw a large reduction of USD short bets against the Euro, Sterling, and Japanese Yen. Net long Euro bets were reduced to a 7-week low.
Aussie short bets though increased to -AUD 17,575 contracts, which is just about 100% of its yearly high.

AUD/USD – while the Aussie continues its grind lower, net short speculative market positioning will limit further downside. Downside pressure on the AUD/USD pair is still strong. The western city of Perth entered a 4-day lockdown after a third Covid-19 case was recorded. AUD/USD has immediate support at 0.7550 (overnight low 0.75544) followed by 0.7530 and 0.7500. Immediate resistance can be found at 0.7580 and 0.7600. Look for a likely trading range between 0.7540-0.7590 today. Prefer to buy on weakness today.
EUR/USD – the shared currency slid to its overnight low at 1.19023 before rallying at the New York close to settle at its familiar 1.1925 level. The Euro is also under pressure, however with a net reduction of long Euro bets, the downside is limited. EUR/USD has immediate support at 1.1900 followed by 1.1870. Immediate resistance can be found at 1.1940 (overnight high 1.19443). The next resistance level is found at 1.1980. Looking for a likely range today between 1.1910-1.1960. German and Eurozone inflation data are out later, watch for any surprises.
GBP/USD – Sterling closed little changed at 1.3875 after trading in an overnight range between 1.38645 and 1.39397. UK Covid cases hit their highest since January 20. The tops are coming lower while the downside is limited so far to 1.3860, where immediate support lies. The next support level is found at 1.3825 followed by 1.3785. Immediate resistance can be found at 1.3910, 1.3940 and 1.3970. While the Pound feels heavy, look for further sideways trade between 1.3850 and 1.3910.
USD/JPY – slip sliding away, against the overall USD trend. The lower US 10-year bond yield will keep a lid to USD/JPY with immediate resistance found at 110.70 and 111.00. Immediate support can be found at 110.45 (overnight low traded was 110.493) and 110.25. The latest COT report (week ended June 22) saw net speculative total JPY short bets (long USD) increase to -JPY 53,862 contracts. Which is massive. Look for a likely trading range today of 110.40-110.90. Prefer to sell USD rallies, the short JPY (long USD) bets are in danger of a squeeze.