• Michael Moran , Senior Currency Strategist at ACY Securities


• 02.07.2021 06:45 am
trading

Pound Slumps on Bailey Comments, AUD Extends Slide

Summary: The US Dollar grinded higher with markets looking ahead into today’s US Payrolls report with a vigilant Federal Reserve on the wings. Meantime the IMF upgraded its growth forecast for the US economy in 2022 concluding that policy rates would likely need to start rising in late 2022/early 2023. Against the Japanese Yen, the Greenback surged to an overnight and fresh 15-month high at 111.639, easing to a New York close at 111.56. The British Pound slumped 0.51% lower to 1.3757 (1.3832) after Bank of England Governor Andrew Bailey said that it was important not to over-react to temporarily strong inflation and growth. In Australia, more States announced lockdowns, subjecting their populations with stay-at-home measures as the country continued to grapple with a coronavirus emergency. The Aussie Dollar extended its slide to 0.7465 from 0.7495 yesterday, a loss of 0.41%. EUR/USD eased to 1.1846 (1.1858 yesterday) on the overall stronger Greenback. A favourite gauge of the US Dollar’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) rose to an overnight and early April high at 92.601 (92.35 yesterday). USD/DXY settled at 92.55. The Greenback settled higher against the Asian and Emerging Market currencies. USD/SGD edged up to 1.3490 (1.3447) while USD/CNH rallied to 6.4740 from 6.4685 yesterday.
Wall Street stocks rose modestly following an improvement in the latest US Weekly Unemployment Claims. The DOW ended 0.13% higher to 34,637 (34,580) while the S&P 500 settled at 4,320 (4,305), up 0.34%. US Treasury yields were little changed. The US 10-year bond yield was last at 1.46% (1.47% yesterday). Germany’s 10-year Bund yield settled at -0.20% (-0.21%).
Other data released yesterday saw New Zealand’s May Building Consents fall to -2.8% from a previous upwardly revised +5.1%. Australia’s Trade Surplus (May) rose to +AUD 9.68 billion from +AUD 8.02 billion but was lower than forecasts at +AUD 10 billion. Germany’s Retail Sales (May) underwhelmed at 4.2% against forecasts of 5.0%. Swiss May Retail Sales slumped to 2.8% against forecasts of 17.5% and a previous upwardly revised 37.7%. German, French and Italian and Eurozone May Manufacturing PMI’s all matched expectations. UK Final Manufacturing PMI (May) eased to 63.9 from 65.6, missing forecasts at 64.2. The Eurozone Jobless Rate (May) improved to 7.9% from 8.1%. US Weekly Unemployment Claims fell to 364,000 from 415,000 and bettered estimates of 388,000. US ISM Manufacturing PMI for May fell to 60.6 from a previous 61.2, and lower than median forecasts at 61.0. US Construction Spending fell to -0.3% from 0.2%, missing forecasts at 0.4%.

• USD/JPY – The Greenback surged to a 15-month high against the Japanese Yen at 111.639 from its 111.08 opening yesterday. USD/JPY settled at 111.56 in late New York. While the US 10-year bond yield was little changed, Japan’s 10-year JGB rate eased 2 basis points to 0.03% from 0.05%.
• AUD/USD – The Aussie extended its slide lower to trade under the 0.75 cent level to an overnight and December 2020 lows at 0.74602, settling to 0.7466 in late New York. Australia’s latest surge in coronavirus cases amidst a slow vaccine take-up has weighed on the Battler with the economy forecast to suffer further.
• GBP/USD – Sterling slumped to 1.37526 overnight and late April lows settling at 1.3760 in early Sydney trade. Following a warning from BOE Chief Economist Andy Haldane (last Thursday) that inflation could rise close to 4% in 2021, Andrew Bailey, Governor at the Bank of England said that it was important not to over-react to temporarily strong growth and inflation. This saw Cable pounded from its 1.3832 open yesterday.
• EUR/USD – The shared currency eased anew to a 1.1846 close in New York (1.1858 yesterday) on broad-based USD strength. Eurozone and European Manufacturing PMI’s mostly matched forecasts but Germany’s Retail Sales missed forecasts, slumping to 4.2% against 5.0%.

On the Lookout: We find ourselves into Friday Payrolls Day, where investors, traders and the US Federal Reserve will be closely monitoring. It’s all in the numbers tonight with median forecasts for the June Non-Farms Payrolls at +700,000 to +725,000 (Finlogix f/c +700,000) from May’s +559,000. The Unemployment Rate is forecast to dip to between 5.6% to 5.7% (Finlogix) from 5.8%. Average Weekly Earnings (Wages m/m) are expected to between 0.3% and 0.4& (Finlogix) from the previous 0.5%. Prior to that, other economic reports released today are Australia’s May Home Loans data (previous was 4.3%, no forecasts given), Eurozone PPI for May (f/c m/m 1.2% from 1%). Canada follows with its May Trade Balance (f/c +CAD 0.37 billion from +CAD 0.59 billion – Finlogix). The US releases its May Trade Balance (f/c -USD 71.4 billion from previous -USD 68.9 billion – Finlogix).

Trading Perspective: The Dollar will keep its bid into the US Payrolls report tonight. And as indicated above, its all about the numbers in the USD NFP. If the Employment gain is less than +700,000, say to +650,000 or lower, the Greenback will slide. A Payrolls number of higher than +800,000 would be needed to see further USD strength. Watch the Wages data as well, which are forecast to fall to 0.4% from 0.5%. A fall below 0.4%, 0.3% or lower will sap any strength from the US currency. Lastly keep an eye on the revisions of past data. The Payrolls report has disappointed expectations in the past two releases. This report will be watched closely by US Fed officials on whether they will start to reduce monthly monetary stimulus sooner rather than later. Could be fun and games later, and it comes on a Friday. Nothing better for an FX trader than Friday Payrolls Day!

• USD/JPY – a good number will see this currency pair break higher. Immediate resistance at 111.70 needs to be overcome to see 112.10. Immediate support can be found at 111.40 followed by 111.00 and 110.70. Look for consolidation in a likely trade today between 111.20-111.70. This currency pair looks like its getting ready to rumble. Happy days!
• AUD/USD – The Aussie Battler has been battered of late due to Australia’s woes with the Morrison government’s response to the latest Covid-19 drama. The country has been criticised for its complacency following the first reports of a rise in coronavirus infections. What followed was an overreaction as the government struggled to get its population vaccinated. This is still key. AUD/USD immediate support lies at 0.7460 followed by0.7430. Immediate resistance can be found at 0.7490 and 0.7510. Look for consolidation between 0.7450 to 0.7500. A good number could see the Aussie down to the 0.6350-80 mark. A US Payrolls disappointment will see the Battler soar above 0.75 cents. Fun and games here.

(Soure: FInlogix.com)

• GBP/USD – Sterling has been pounded after conflicting remarks from the two Bank of England Andrew’s. Chief Economist and noted hawk Andy Haldane, who is leaving the BOE in September, said last week that inflation could rise above 4%, suggesting a tightening of rates. This boosted GBP/USD to its high at just above 1.4000. Last night Governor Andrew Bailey warned against any over-reaction which sent the Pound tumbling to its 1.3757 close. GBP/USD has immediate resistance at 1.3800 followed by 1.3840. Immediate support can be found at 1.3750 and 1.3720. Look for the Pound to consolidate in a likely 1.3750-1.3850 range first up today. This is another currency pair that could light into tonight’s Payrolls report. Tin helmets on.

Happy Friday and trading all.