Stocks Extend Rally, Dollar Mostly Lower, Risk Cautious

  • Michael Moran , Senior Currency Strategist at ACY Securities

  • 28.06.2021 09:45 am
  • trading

Pound Underperforms, AUD Dips on Sydney Lockdown

Summary: The US Core PCE Index, rumoured to be the favourite inflation measure of the Federal Reserve, eased on a month-to-month basis to 0.5% May from a previous 0.7%, and lower than expectations of 0.6%. Annually, the Core PCE inflation gauge rose 3.4% to May from 3.1%, matching forecasts. Equity prices lifted, and the US Dollar was mostly lower against its rivals. The PCE reading supported the Fed’s position that inflation is transitory. A popular gauge of the Dollar’s value against a basket of 6 major currencies, the USD/DXY (Dollar Index) closed little changed at 91.80 from 91.78. Sterling slipped further to 1.3880 (1.3933 Friday), finishing as worst performing major. UK Health Minister Matt Hancock resigned after breaking coronavirus restrictions that he himself imposed. Last week, the Bank of England concluded its monetary policy meeting with a less hawkish tone than traders had expected. The Australian Dollar dipped to 0.7585 from 0.7592 as greater Sydney imposed a two-week lockdown due to a growing Covid-19 outbreak. Against the Yen, the Greenback eased to 110.82 from 111.00 on Friday and an overnight high at 111.14. The Euro finished with modest gains at 1.1935 (1.1925 Friday). USD/CAD (US Dollar vs Canadian Dollar) finished at 1.2320 from 1.2310. Against the Singapore Dollar the Greenback eased to 1.3425 from 1.3455 while USD/THB (US Dollar vs Thai Baht) climbed to 31.90 (31.80). Wall Street stocks extended their rally. The DOW rose 0.53% to 34,495 while the S&P 500 was up a modest 0.21% to 4,285 (4,272).
Global bond yields rose. The US 10-year treasury yield settled at 1.52% (1.49%). Germany’s 10-year Bund yield closed at -0.16% from -0.19% Friday. The UK 10-year Gilt yielded 0.78% (0.74% Friday).
Other data released on Friday saw New Zealand’s Trade Surplus increase to +NZD 469 million in May from an upwardly revised +NZD 414 million previously. UK June GFK Consumer Confidence missed expectations, at –9 (against -7). Japan’s Tokyo Core CPI was at 0%, higher than expectations at - 0.1%. US May Personal Income dipped to 0% from 0.5% in April, missing forecasts at 0.4%. The University of Michigan Revised Consumer Sentiment Index (June) rose to 85.5 from 82.9 (May) but lower than median forecasts at 86.5.

  • GBP/USD – Sterling eased further to 1.3880 from 1.3930 on Friday after the Bank of England left policy settings unchanged but delivered a dovish message. The resignation of UK Health Minister Matt Hancock due to breaking a Covid-19 restriction which he himself imposed weighed on the British currency. GBP/USD hit an overnight low at 1.38625. Overnight high traded was 1.39354.
  • AUD/USD – the Aussie slipped to 0.7573 overnight lows over the weekend, before opening at 0.7585 in early Asian trade. A rise in Covid-19 infections in greater Sydney forced NSW Premier Gladys Berejiklian impose a 2-week lockdown (up to 9 July). Overnight high for the AUD/USD pair was 0.7617.
  • EUR/USD – The shared currency finished little-changed at 1.1934 (1.1932 Friday). EUR/USD hit an overnight high at 1.19752 before easing to its finish in New York. The Euro traded to a 1.19222 low.
  • USD/JPY – The Dollar eased to 110.77 from 111.00 on Friday. Overnight, the Greenback slid to a low at 110.481 before recovering to its New York close as the US 10-year treasury yield rebounded.

On the Lookout: An easing in the US Core PCE Index in May weighed on the Greenback which finished mostly lower against its Rivals. Today’s economic calendar is sparce while the highlight of this week will be the US Jobs report for June. Japan kicks off with its Bank of Japan Summary of Opinions (includes the BOJ’s projection for inflation and economic growth). European reports begin with Germany’s Import prices (May) (m/m f/c 1.5% from 1.4%; y/y f/c 11.3% from 10.3% - ACY Finlogix). The US releases its Dallas Fed Manufacturing Index for June (May reading was 34.9). Central bank speak will highlight FX trading today. German Bundesbank President Weidman, ECB Vice President Luis de Guindos, Bank of England MPC member and Chief Economist Haldane (who was the only MPC member to vote in the last BOE meeting to reduce QE), and FOMC member and NY Fed President John Williams all have speaking engagements.

Trading Perspective: The Dollar Index (USD/DXY) which measures the US currency’s value against a basket of foreign currencies hit an early April peak at 92.405 (18 June) which followed the FOMC meeting. The Greenback began a corrective move lower following 4 weeks of gains with USD/DXY settling at 91.77 on Friday. We can expect the week to kick off with consolidation for the USD currency as we head into Friday’s US Payrolls report. While equity prices rose, risk appetite appears tenuous. Which is Dollar supportive.

(Source: Finlogix.com)

  • EUR/USD – The Euro closed once again around the 1.1925/35 band where it has settled for most of last week. EUR/USD initially rallied to its overnight high at 1.19562 before easing at the close. The overnight low traded was 1.19175. Immediate support lies at 1.1910 followed by 1.1880. Immediate resistance can be found at 1.1950 and 1.1980. Look to trade between 1.1880-1.1950.
  • AUD/USD – Slip sliding away, the Aussie finished at 0.7590 from 0.7585 on Friday. The latest lockdown in greater Sydney will keep AUD/USD topside limited today to 0.7615 (overnight high traded was 0.7617). The next resistance level can be found at 0.7645. Immediate support can be found at 0.7580 followed by 0.7550. Look for a likely trade today between 0.7575-0.7625. Prefer to sell rallies.
  • GBP/USD – Sterling closed at 1.3880 from 1.3930 on Friday weighed by a less hawkish Bank of England and the resignation by UK Health Minister Matt Hancock. GBP/USD has immediate support at 1.3860 (overnight low traded was 1.38625) followed by 1.3830. There is immediate resistance at 1.3920 and 1.3960. Looking for a likely trade in the Pound between 1.3850-1.3930. Prefer to sell into strength.
  • USD/SGD – The US Dollar eased against the Singapore Dollar to 1.3425 from 1.3455 on Friday. Against the other Asian and Emerging Market currencies, the Greenback was mostly firmer. USD/SGD has immediate support at 1.3410 followed by 1.3380. Immediate resistance can be found at 1.3435 (overnight high traded was 1.3433). The next resistance level lies at 1.3460. Looking to buy dips in a likely trade today between 1.3425-1.3475.

Happy trading all, have a good week ahead.

 

 

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