• Michael Moran , Senior Currency Strategist at ACY Securities


• 02.09.2021 12:45 pm
trading

Euro Hits One-Month High; US Bond Yields Extend Fall

Summary: A surprise drop in August US ADP Private Payrolls to 374,000 against forecasts of 640,000 pulled the Dollar lower against all its Rivals. While the US labour report was higher July’s 326,000, it was well short of median expectations. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of 6 foreign currencies slid to a near one-month low at 92.50 (92.65). Risk leader the Australian Dollar took flight, soaring 0.6% to 0.7368 (0.7315), finishing as best performing major. The Euro extended its rally to close at 1.1840 after hitting an overnight and near one-month high at 1.1857. Sterling advanced against the overall weaker Greenback to 1.3770 (1.3753). The USD/JPY pair was little changed at 110.02 (110.00) after rising to an overnight high at 110.42. Against the Canadian Loonie however, the Greenback edged higher to settle at 1.2620 (1.2613 yesterday). Brent Crude Oil slid anew to USD 71.30 (USD 72.95 yesterday). Comments from the Russian Oil minister suggesting increased production weighed on the black gold. The Dollar was mostly lower against the Asian and Emerging Market Currencies. USD/CNH dipped to 6.4520 from 6.4550 while the USD/SGD pair ended flat at 1.3445.

The benchmark US 10-Year Treasury Bond yield eased 2 basis points to 1.29% (1.31%). Germany’s 10-year Bund rate edged up to -0.38% from -0.39%. Australia’s 10-year treasury bond rate soared to 1.24% from 1.15% yesterday. Wall Street stocks dipped. The DOW closed 0.31% lower to 35,310 (35,422) while the S&P 500 slipped to 4,525 (4,530).

Data released yesterday saw Australia’s CBA August Manufacturing PMI climb to 52.0 from 51.7 in July. Australia’s Q2 GDP rose (q/q) to 0.7%, beating forecasts at 0.5%, and y/y to 9.6% against estimates at 9.2%. Japan’s Jibun Manufacturing PMI rose to 52.7 from 52.4, beating forecasts at 52.4. China’s Caixin Manufacturing PMI in August slipped to 49.2 from 50.3 in July and forecasts at 50.2. Germany’s July Retail Sales slumped to -5.1% from June’s +4.2%, missing estimates at -0.9%. Switzerland’s SVME Manufacturing Index rose to 67.7 in August, beating forecasts at 67.3. UK August Nationwide House Price Index climbed 2.1% from July’s -0.5%. Eurozone Markit Final PMI in August slipped to 62.6 from 65.9 and expectations of 62.7. UK Markit Manufacturing PMI was up at 60.3, beating estimates and a previous read at 60.1. Canada’s August Markit PMI was up at 57.2 from 56.2 previously. US ISM August PMI eased to 61.1 from 61.2 and median forecasts at 61.2. US Construction Spending rose to 0.3% from 0.1%. Early this morning New Zealand’s Terms of Trade improved to 3.3% beating forecasts at 2.5% and a previous 0.1%.

- AUD/USD – The Aussie extended its rally which began two days ago to 0.7368 New York close. Yesterday the Australian Dollar was trading at 0.7315, and on Tuesday it was at 0.7295. The AUD/USD pair hi an overnight peak at 0.7384.

- EUR/USD – advanced further to 1.1840 finish in late New York from 1.1808 yesterday. The shared currency soared to an overnight high at 1.1857 on broad-based US Dollar weakness. Overnight low traded was 1.1794.

- GBP/USD – Sterling edged higher against the Greenback to 1.3770 New York close. Yesterday the British Pound opened at 1.3753. GBP/USD rose to 1.3798 overnight which was the recorded high. Overnight low traded for the Pound was at 1.3731.

- USD/CAD – The Greenback closed modestly higher against the Canadian Loonie to 1.2620 from 1.2613 yesterday. Oil prices were weaker for the 2nd day running and weighed on the Loonie. USD/CAD hit an overnight high at 1.2637 before easing to its New York finish.

On the Lookout: Today’s economic releases also present a full calendar heading into tomorrow’s US Payrolls report. Japan kicks off with its Foreign Bond Investment for August (no f/c previous was -JPY 183 billion). Australia follows with its July Trade Balance (m/m f/c +AUD 10.2 billion from previous +AUD 10.496 billion). Australia also releases its July Home Loans report (f/c -2.0% from -2.5% - ACY Finlogix). European reports begin with Switzerland’s July Retail Sales report (m/m no f/c previous was -3.5%, y/y no f/c previous was 0.1%). Swiss August CPI follows (f/c m/m 0.1% from -0.1%, y/y f/c 0.8% from 0.7%). Swiss Q2 GDP is next (q/q f/c 2% from -0.5%, y/y f/c 9% from -0.5%). Eurozone July PPI follows (m/m f/c1.1% from 1.4%, y/y f/c 11% from 10.2%). Canada kicks off North American reports with July Building Permits (m/m f/c 0.3% from 6.9%). Canadian July Trade Balance is next (f/c +CAD 1.4 billion from previous +CAD 3.23 billion). Finally, US Weekly Unemployment Claims (f/c 345,000 from 353,000 – ACY Finlogix), and US July Trade Balance (f/c -USD 71 billion from previous -USD 75.7 billion).

Trading Perspective: Ahead of tomorrow’s US Payrolls report we can expect the Dollar to keep within recent ranges despite its overall weak trend. From here it becomes a game of revisions ahead of the actual numbers. ACY Finlogix is expecting the Non-Farms Employment Change to ease to 750,000 for August from July’s 943,000. That number is already built into today’s FX levels. Revisions of the previous Payrolls report (943,000) will also be looked at. Watch for revisions for the other components of the Jobs Report like Wages (Average Hourly Earnings) and Unemployment Rate. ACY Finlogix forecasts the Unemployment Rate to ease to 5.2% from 5.4%. We will inspect other revisions in tomorrow’s report.

- AUD/USD – While the Aussie ended on a firm note, expect the resistance level to hold and with the AUD/USD pair most likely drifting lower. Immediate resistance lies at 0.7385 (overnight high 0.7384). The next resistance level can be found at 0.7400 and 0.7430. Immediate support can be found at 0.7340 followed by 0.7310. Look for the Aussie to drift lower in a likely 0.7335-0.7385 range today.

- EUR/USD – The Euro rallied to an overnight high at 1.1857 before easing to settle at 1.1840 in New York. Yesterday the Euro opened at 1.1809. Immediate resistance for today lies at 1.1860 followed by 1.1890. We can find immediate support at 1.1810 followed by 1.1780. Look for the Euro to trade a likely range today between 1.1800-1.1860. Prefer to sell rallies.

(Source: Finlogix.com)

- GBP/USD – Sterling also advanced against the overall weaker US Dollar to 1.3770, up from 1.3755 yesterday. The British Pound traded to an overnight peak at 1.3798 before easing in late New York. Yesterday Sterling opened at 1.3755. Immediate support for today lies at 1.3750. The next support level is found at 1.3730 (overnight low 1.3731) and then 1.3700. Immediate resistance can be found at 1.3800 followed by 1.3840. On the day, look for Sterling to trade in a range between 1.3730-80. Prefer to sell rallies in the GBP/USD.

- USD/CAD – The Dollar edged up against the Canadian Loonie to 1.2617 New York close. Overnight high traded was at 1.2637. The overnight low for the USD/CAD pair was at 1.2580. For today, immediate resistance lies at 1.2640 followed by 1.2680. Immediate support can be found at 1.2585 and 1.2550. Look for the USD/CAD pair to trade in a likely range today between 1.2590 to 1.2640. Prefer to buy USD/CAD dips.

Have a good Thursday all, happy trading.