• Michael Moran, Senior Currency Strategist at ACY Securities


• 09.08.2021 09:15 am
trading

US Bond Yields, Dollar Soar, Euro Tumbles, Aussie, Kiwi Drop

Summary: The yield on the benchmark US 10-year Treasury soared 8 basis points to 1.30% following an unexpectedly strong payrolls report for July. A total of 943,000 jobs were created last month according to the US Labour Department. Analysts had forecast an addition of 870,000 jobs. The Unemployment rate slid to 5.4% against estimates of 5.7%. Average Hourly Earnings (Wages) increased more than expected, rising 0.4% for the month against 0.3%. The report came amid a rise of fresh coronavirus cases of the Delta variant in the US and around the globe. Fears continued to grow that this would slow economic activity in a recovery that began a year ago.  A measure of the US Dollar’s value against a basket of currencies, the Dollar Index (USD/DXY) soared 0.58% to 92.78 from 92.28. Against the Canadian Loonie, the Greenback rose to 1.2555 from 1.2498. Canada’s Employment report, unlike that of its southern neighbour, underwhelmed. The number of people employed in Canada dropped to 94,000 in July from 230,700 in June, missing estimates at 148,500. Canada’s Unemployment rate eased to 7.5% from 7.8% but missed forecasts at 7.4%. The Euro, unmoved last week, tumbled to 1.1763 at the close of trade in New York on Friday, down 0.64% (1.1835). Sterling slumped to finish 0.47% lower to 1.3875 (1.3925), against the broadly-based stronger US Dollar. The Australian Dollar dropped to 0.7355 from 0.7402 while its cousin, the Kiwi (New Zealand Dollar) lost 0.63% to 0.7010 (0.7057). Against the Japanese Yen, the Greenback soared to 110.25 from 109.75, boosted by higher US bond yields. The overall stronger Dollar advanced against all the Asian and Emerging Market currencies. USD/SGD climbed to 1.3550 (1.3510) while the USD/CNH pair (US Dollar- Offshore Chinese Yuan) settled at 6.4785 from 6.4615.

Wall Street stocks ended mixed. The Dow eased 0.03% to 35,200 (35,214) while the S&P 500 settled at 4,437, from 4,427. Global bond yields rose in tandem with those in the US, but not to the same extent. Germany’s 10-year Bund yield climbed 4 basis points to 0.46%.

Other data released on Friday saw Japanese Household Spending drop to -5.1% from 11.6%. Germany’s June Industrial Production slid to -1.3% from a previous -0.3%, missing forecasts at 0.1%.

French Q2 Private Payrolls climbed to 1.2% from a previously upward revised 0.5%. Italy’s June Industrial Production rose to 1.0% from -1.5% but missed estimates of 1.1%. Canada’s IVEY PMI slid to 56.4 from 71.9, missing expectations at 57.3. US July Consumer Credit rose to USD 32.7 billion from USD 35.3 billion, higher than forecasts at USD 23.2 billion.

- EUR/USD – the Euro broke through the 1.1800 support level weighed by broad-based US Dollar strength to finish at 1.1762 in New York. On Friday, the EUR/USD pair was at 1.1835. Overnight the shared currency hit a two-week low at 1.1754, with a break of 1.1750 likely.

- AUD/USD – the overall stronger Greenback weighed on the Aussie Battler, pushing it to 0.7355 New York close from its 0.7402 opening on Friday. AUD/USD hit an overnight low at 0.7346 and threatens 0.7330 support level next. Overnight high for AUD/USD was 0.7404.

- GBP/USD – Sterling was pounded lower on the back of the overall stronger US Dollar. The British Pound slid to finish at 1.3875 from 1.3925 opening on Friday morning. GBP/USD hit an overnight low at 1.3861.

- USD/JPY – The Greenback rallied against the Japanese currency to finish at 110.25 from Friday’s opening at 109.75. Higher US bond yields supported this currency pair. The overnight high traded for USD/JPY was 110.36 which could be breached. A bank holiday in Tokyo today will slow trading in this currency pair.

On the Lookout: The week ahead starts on a subdued note following Friday’s action. A Tokyo bank holiday and light economic calendar will slow trading activity in Asia. China releases its July CPI (m/m) and PPI (y/y) reports which is today’s main event. Forecasts for China’s CPI range from 0.2% to 0.8% m/m from a previous 1.1% while for the PPI (y/y) forecasts at from 8.6% to 8.8& from a previous 8.8%. Big range of forecasts there, so fireworks are possible. European reports follow with Switzerland’s July Unemployment Rate (m/m f/c 3.0% from 3.1%). Germany follows with the release of its July Trade Balance (f/c surplus of +EUR13.91 billion from previous surplus of +EUR12.6 billion). The Eurozone Sentix August Investor Confidence Index follows (f/c 29.2 from 29.8). North American reports kick off with Canada’s July Housing Starts (y/y no forecasts given, previous is 282,100.) The US June JOLTS Job Openings (y/y f/c 9.391 million from previous 9.209 million) round up today’s reports. The week ahead sees US Headline and Core CPI released (Wednesday, 11 August).

Trading Perspective: Expect Asia to kick off to a typical subdued Monday start amidst today’s Japanese bank holiday. The US Dollar will consolidate its advance against all Rivals. We look for the current market positioning when the reports are released tomorrow.

Today Chinese CPI and PPI data releases will be the highlight. Any surprises will see immediate reactions from the Australian Dollar. Meantime the number of Covid-19 cases of the Delta variant continue to climb globally. Traders and investors will keep a weary eye out on these developments.

Markets will also monitor the movement in US bond yields. On Friday, the benchmark US 10-year yield settled at 1.30% from 1.225 earlier in the day.

Volatility picked up last week, and we can expect more in the week ahead after what is expected to be a slow start today.

- EUR/USD – After trading in a tight range for most of last week, the shared currency broke lower on the back of broad-based US Dollar strength. The Euro closed at 1.1762 from its 1.1835 opening yesterday. The overnight low traded was 1.1754, with 1.17504 hit early this morning. The 1.1750 level is initial support which could give way today. The next support level lies at 1.1730 and 1.1710 (strong). Immediate resistance can be found at 1.1785 and 1.1805. Look for the Euro to remain heavy in a likely 1.1735-1.1805 range today.

- AUD/USD – Slip-sliding away, the Aussie Battler ended 0.7% lower to 0.7355 from Friday’s open at 0.7402. The Australian Dollar rallied toward the close of last week, ahead of the US Jobs report to an overnight high at 0.7404. Overnight low traded was at 0.7346. In early Asia, the AUD/USD pair slid further to 0.7333 where strong support lies (0.7330). The next support level is found at 0.7300. Immediate resistance lies at 0.7385 followed by 0.7405. Look for the Aussie to remain heavy in the current environment. Likely range today 0.7315-0.7385. Just trade the range shag on this one today.

- USD/JPY – The Greenback grinded higher against the Japanese Yen supported by higher US bond yields. USD/JPY rallied to an overnight high at 110.36. Immediate resistance lies at 110.40. The next resistance level is at 110.80. Immediate support can be found at 110.00 followed by 109.70. Look for a likely grind higher in this currency pair. Likely range 109.90-110.50.

- USD/CAD – Against the Canadian Loonie the US Dollar finished up 0.31% at 1.2552 (1.2498 Friday). Overnight high for the USD/CAD pair was 1.2581. This morning in Asia, the USD/CAD has already climbed higher to its current 1.2577 level. Which is not surprising considering Canada’s tepid Employment report, which contrasts with that of the US. This morning’s peak at 1.2580 is immediate resistance. The next resistance level can be found at 1.2605 and 1.2625 (strong). Immediate support lies at 1.2535 followed by 1.2505 and 1.2485. Look for a likely trading range today between 1.2535-1.2585. Prefer to buy dips.

The week begins with the Greenback flexing its muscles following a strong US Payrolls report. Can the US Dollar maintain its advance? Watch this week’s data (US CPI, PPI) and the US bond yields. Have a good week ahead all, happy Monday.