• Michael Moran , Senior Currency Strategist at ACY Securities


• 02.06.2021 04:00 pm
trading

Robust US Factory Activity Fails to Boost Dollar

Summary: Sterling slid in choppy trade to 1.4145 after climbing to a fresh 2-year high (1.4248) earlier in the day. The British Pound provided fireworks in an otherwise dull session where the US Dollar eased against most of its Rivals. GBP/USD had been edging higher as the UK accelerated its vaccine program as well as a hawkish bent from BOE officials. Weaker than expected UK Final Manufacturing PMI (to 65.6 from 66.1) triggered the dramatic drop in the Pound. A rise in US ISM Manufacturing PMI in May (to 61.2 from 60.7 April) failed to boost the Greenback. The Dollar Index (USD/DXY) which measures the value of the US currency against 6 majors eased to 89.87 from 90.0 yesterday. Earlier in the day, the Reserve Bank of Australia announced that it kept its monetary policy settings unchanged at the conclusion of its meeting. The RBA said that it would gauge possible changes to bond purchases in the July meeting which was expected. After initially falling to 0.77307 (overnight low), the Aussie Battler rallied against the overall weaker US Dollar to finish at 0.7753 in New York. Elsewhere in Asia, the USD/CNH extended its rebound to 6.3850 (6.3735 yesterday) following a warning from a Chinese ex central bank official on any rapid appreciation of the Yuan. The Euro was little changed at 1.2218 (1.2225), European and Eurozone PMI data failed to move the shared currency. USD/JPY ended at 109.47 from 109.53 yesterday. Despite a rise in Oil prices, which saw US Crude hit 2-year highs on OPEC intentions to increase production, the USD/CAD was flat at 1.2067. The US 10-year bond yield climbed 2 basis points to 1.61%. UK 10-year Gilt rates were up 3 basis points to 0.82%. Wall Street stocks closed with marginal gains. The DOW edged 0.39% higher to 34,595 while the S&P 500 added 0.21% to 4,203.
Data released yesterday saw Australia’s Building Approvals in May beat forecasts to -8.6% vs -9.9%. The RBA kept its Official Cash Rate unchanged at a record low of 0.1% (as expected). Germany’s Final Manufacturing PMI rose to 64.4 from a previous 64.0. The UK’s Final Manufacturing PMI (May) fell to 65.6 from 66.1 (April), missing estimates at 66.1. US May ISM Manufacturing PMI rose to 61.2 from 60.7 in April and beating expectations of 60.8.

• GBP/USD – The British Pound took the limelight in true volatile form, slumping to 1.4152 from an overnight and two-year high at 1.4248 in minutes. The catalyst was the weaker-than-expected UK Final Manufacturing PMI which contrasted with rises in European and US Factory PMI’s. Speculators in the Pound have been sitting long since late May and headed for the exits on the weak PMI number.
• AUD/USD – After initially dropping to an overnight low at 0.77307 following the RBA’s decision to keep policy settings unchanged, the Aussie rallied on the back of the overall weaker US Dollar. AUD/USD closed at 0.7753 after trading to 0.77694 highs.
• EUR/USD – The Euro traded in a slightly firmer 1.2213-1.2254 range overnight, finishing in New York at 1.2218, little changed from yesterday’s 1.2226. There was little to drive the shared currency, which took its cue from the US Dollar moves.
• USD/CNH – After a warning from a Chinese former central bank official on any rapid appreciation of the Yuan, the CNH extended its correction. USD/CNH, which hit a near 3-year low at 6.3517 on Monday evening extended its rally to 6.3850 (6.3735 yesterday).

On the Lookout: The countdown to Fridays US Payrolls report gains momentum today. US NFP Employment gains are forecast from 645,000 to 650,000 (from April’s 266,000). Watch the revisions for this number as we head into Friday. Tomorrow sees the US ADP Private Payrolls report. Today kicks off with Australia’s Q1 GDP report (forecast between 1.0% to 1.5% from the previous 3.1%). Watch this number because of the range of expectations from 1.0% (ACY Finlogix) to 1.5% (FX Street and FX Factory). European reports start off with Germany’s April Retail Sales (f/c to fall to -2% from Aprils +7.7%). The UK reports on its April Mortgage Approvals (f/c to GBP 84.988k from GBP 82.7k). RBA Deputy Governor Guy Debelle speaks tonight (7 pm Sydney) to the Senate Economics Legislation Committee via satellite). ECB President Lagarde and Germany’s Bundesbank President Weidman are due to make speeches as well as Fed Governors Bostic and Evans. Lastly the US releases its Federal Reserve Beige Book (4 am Sydney Thursday 3 June).

Trading Perspective: Yet again, better-than-expected US ISM Manufacturing PMI failed to lift the Dollar which continues to trade heavy on bearish sentiment. We would need a decent US Payrolls number (to offset last month’s weak data) and to change the market’s psyche on the Greenback. Until then, given the levels we are currently at, it makes no sense to push the US Dollar much lower. Which boils down to familiar trading ranges remaining intact for now. A caveat though might be the weakness in the Pound. In the old days, GBP/USD or Cable as it was fondly referred to then, would dictate the tone of the US Dollar. The speculative market is still hanging on to long Currency/short USD bets. A better-than-expected US Payrolls report will see a marked shake-out of those overstretched positions. Meantime be content to trade ranges, there’s money to be made in the good old-fashioned buy the lows, sell the highs. Just trade the range shag as we used to say.

• GBP/USD – The dramatic drop in the British currency may have shaken the confidence of the weaker speculative longs. However, a hawkish bent from BOE officials have also put a bid on the Pound. Add to this mix the volatile Covid situation in the UK where its vaccines versus the spread of new variants. Expect more choppy trading ahead. Happy days! Immediate resistance lies at 1.4180, 1.4210 and 1.4250. Immediate support can be found at 1.4140 and 1.4120 and 1.4080. We may be in for another volatile ride in a likely trading range today of 1.4120-1.4220. Just trade the range shag on this puppy today.

(Source: Finlogix.com)

• AUD/USD – The Aussie continues to trade within a wider 0.7700-0.7800 range with no clear indications of any breakouts. That said, any surprises in today’s GDP numbers could stir the Aussie. The range of forecasts are rather wide for the Q1 GDP report, from 1-1.5% (q/q) from the previous quarters 3.1%. Anything close to the lower end of the forecast will see the Aussie sold off initially. While the opposite will occur if the number is on the high side of forecasts. Otherwise, will be the Greenback dictating the fortunes of the Aussie Battler into Friday’s number. Immediate resistance lies at 0.7770 (overnight high 0.7769) and 0.7800. Immediate support can be found at 0.7730 and 0.7700. Look to trade a likely range today of 0.7710-0.7780. There’s money to be made in a 70-pip range.
• EUR/USD – The shared currency had another lacklustre performance trading in a relatively tight overnight range. EUR/USD closed little changed at 1.2218 (1.2224 yesterday). Overnight high traded was 1.2254. Immediate resistance on the day lies at 1.2240 and then 1.2270. Immediate support can be found at 1.2200 and 1.2170. Look to trade a likely range of 1.2170-1.2270. The preference is to sell rallies between 1.2250 and 1.2270 as the speculators are still holding long Euro bets.
• USD/CNH – The Dollar extended its gains versus the Offshore Chinese Yuan boosted by verbal intervention from an ex-Chinese central bank official. Which pretty much echoes what Chinese authorities think on the currency. Any moves on the US Dollar below the 6.35 CNH level will elicit some kind of “official” response. USD/CNH closed at 6.3850. Immediate resistance on the day lies at 6.3900, 6.3950 and 6.4000. Immediate support can be found at 6.3800, 6.3750 and 6.3700. Look for this currency pair to grind higher in a likely 6.3750-6.3900 range.

Happy trading and Wednesday all.