• Michael Moran, Senior Currency Strategist. at ACY


• 24.09.2021 09:45 am
#banking

AUD, Risk FX Jump; EUR, GBP Up, JPY Dips, VIX Slumps, Stocks Up

Summary: “What goes down must come up, spinning wheel.” Just another day for you and me in the FX markets as risk-off did a U-turn to risk-on. China’s government injected a total of CNY 120 billion (USD 18.6 billion) of short-term cash into the banking system to settle any concerns over a debt crisis at the Evergrande Group according to Bloomberg. The VIX Index, otherwise known as the “Fear” gauge, fell 10.75% overnight to 18.63 from 20.21 (and a high at 28 earlier this week).

(Source: Tradingview.com)

The Australian Dollar, leading risk currency, jumped to 0.7295 from 0.7240 on a typical short squeeze, initiated by the improved sentiment.  Sterling, which had been under pressure for the past few days, rebounded 0.76% to finish at 1.3720 from 1.3615 yesterday. The Bank of England kept its Official Bank Rate unchanged (0.10%) as was widely expected but there was one additional vote, totalling 2 that wanted to decrease the stock of asset purchases. The Euro rallied 0.44% against the Greenback to 1.1738 (1.1688) in late New York trade. The Dollar Index, which measures the value of the Greenback against a basket of 6 major currencies, retreated to 93.10 from 93.45 yesterday. The USD/CAD pair tumbled to 1.2658 from 1.2775, a loss of 0.90%. Canada’s Retail Sales beat median estimates in August after falling in July. Against the haven sought Japanese Yen though, the Dollar settled higher, up 0.51% to 110.34 (109.80). A clear signal of improved risk sentiment in FX. The Greenback was mixed against the Asian and Emerging Market currencies. USD/CNH (Dollar- Offshore Chinese Yuan) dipped to 6.4615 from 6.4650. The Greenback retreated against the Singapore Dollar (USD/SGD) to 1.3490 from 1.33532. Equities extended their rebound as investors looked beyond the risk events earlier this week. The DOW soared to 34,807 from 34,310, a gain of 1.45%. The S&P 500 was last at 4,452 (4,400). Treasuries were sold and bond yields climbed. The benchmark US 10-year treasury note yield jumped 14 basis points to 1.43% (1.30%). Two-year US treasuries yielded 0.26% from 0.24% yesterday. Germany’s 10-year Bund yield rallied 7 basis points to -0.26% from -0.33%. The UK 10-year Gilt yielded 0.91%, from 0.80%.
Data released yesterday saw Australia’s Flash Manufacturing September PMI climb to 57.3 from 52.0. Services PMI rose to 44.9 from 42.9. French September Flash Manufacturing PMI dipped to 55.2 from 57.5 whilst Services PMI matched expectations at 56.0. Germany’s Manufacturing PMI eased to 56.0, missing estimates at 60.2 and a previous 60.8. German Services PMI slid to 56.0 from 60.8, missing forecasts at 60.2. The Eurozone Flash Manufacturing PMI fell to 58.5, lower than estimates at 60.3. Eurozone Services PMI slid to 56.3 from 59.0, missing forecasts at 58.5. The UK September Flash Manufacturing PMI fell to 56.3 from 60.3, lower than forecasts at 59.0. UK Services PMI was also lower, down to 54.6 from a previous 55.0. Canada’s Headline Retail Sales dipped to -0.6%, bettering forecasts at -1.2%. Canadian Core Retail Sales were at -1.0%, beating estimates at -1.5%. US Weekly Unemployment Claims rose to 351,000 from the previous week’s 332,000 and higher than forecasts at 320,000. US September Markit Manufacturing PMI dipped to 60.5 from a previous 61.1 and estimates at 60.7. US September Services PMI eased to 54.4 from a previous 55.1.
Earlier today, New Zealand released its August Trade Balance. New Zealand’s Trade deficit increased to -NZD 2.144 billion from -NZD 0.397 billion in July. NZ August Exports dipped to NZD 4.35 billion from NZD 5.77 billion while Imports climbed to NZD 6.49 billion from NZD 6.17 billion. The Kiwi (NZD/USD) was little changed from its New York close at 0.7071 following the result.

• AUD/USD – The Aussie, under pressure earlier this week, soared as risk sentiment improved as speculative short positions ran for cover. AUD/USD closed at 0.7295 from a 0.7240 opening yesterday. Overnight high for the Aussie Battler was at 0.7316.
• GBP/USD – Sterling rebounded to close at 1.3720 in New York from 1.3615 yesterday. While the Bank of England kept interest rates unchanged as was widely expected, there was one more voted added to total 2 members of the Monetary Policy Committee that wanted to decrease the stock of asset purchases. GBP/USD traded to an overnight high at 1.3751.
• EUR/USD – The Euro rallied to finish at 1.1738 from 1.1688 yesterday. Risk-on and an overall weaker US Dollar against the European currencies lifted the Euro. Earlier in the session, the Euro slid an overnight low at 1.1683 before a bounce ensued.
• USD/JPY – The Greenback settled higher against the haven sought Japanese Yen to 110.35 from 109.80 as risk appetite increased. The thirteen-basis point rally in the US 10-year bond yield to 1.43% lifted the Dollar above 110.00 against the Yen. Japan’s 10-year JGB yield was unchanged at 0.03%.  Overnight the USD/JPY pair traded to a low at 109.71.

On the Lookout: Today’s economic calendar is light and will enable markets to take a breather for now. Japan just released its August National CPI report. Japanese Annual Headline CPI in August slid to -0.4% from July’s -0.3%. Japan’s August Annual Core CPI was at 0.0% from July’s -0.2%. matching forecasts at 0.0%. USD/JPY was little changed after the data. Next up on the calendar is Japan’s Jibun Bank September Flash Manufacturing PMI (f/c 52.5 from previous 52.7 – Forex Factory). Japanese Jibun September Services PMI follows (no f/c given, previous was 42.9). European data start off with Germany’s Ifo September Business Climate Index (f/c 98.9 from 99.4 – ACY Finlogix). Italy follows next with its September Consumer Confidence Index (f/c 115.8 from 116.2 – ACY Finlogix). Next up is the US August New Home Sales (f/c 0.714 million from 0.708 million – ACY Finlogix).
Bank of England MPC Member Silvana Tenreyro speaks at a virtual conference hosted by the National University of Cordoba (Spain). Federal Reserve Chair Jerome Powell is due to deliver the opening remarks at an online event hosted by the Fed). US FOMC Member and New York Fed President John Williams is due to speak at a virtual conference hosted by the Swiss National Bank on the international coordination of monetary policy strategies.

Trading Perspective: The 0.42% fall in the Dollar Index (USD/DXY) was a result of a squeeze on risk-off USD longs as market sentiment improved to risk-on. This followed the news of the intervention in Evergrande from China Inc. Which was not totally unexpected. According to Bloomberg, Evergrande’s onshore property unit said it planned to repay the interest due yesterday on its local bonds. The PBOC’s injection was aimed at soothing market worries.
The 13-basis point climb in the benchmark US 10-year bond yield to 1.43% from 1.30% as treasury prices fell on improved risk sentiment is huge (see chart attached) and will support the Greenback at current levels.

Markets will look for further clues on the timing of the Fed’s taper when Fed Chief Jerome Powell and FOMC Member John Williams speak at various events.

• AUD/USD – the Aussie held that strong support level at 0.7220 despite strong selling pressure. In true Battler fashion, the AUD/USD pair jumped to an overnight high at 0.7316 from its opening at 0.7240 before easing to 0.7295 in late New York. On the day, immediate resistance is found at 0.7320 followed by 0.7350 and 0.7380. Immediate support can be found at 0.7270 and 0.7245 and 0.7220. Look for the Aussie to consolidate in a likely 0.7270 to 0.7320 range today. Prefer to sell rallies at current levels.
• EUR/USD – the shared currency rallied against the US Dollar to finish at 1.1738 from 1.1688. Risk-on and an overall weaker US Dollar buoyed the Euro. Overnight the Euro traded to a low at 1.1683 which is strong support. Immediate support on the day lies at 1.1710. The next support level can be found at 1.1685. Immediate resistance is at 1.1755 followed by 1.1775. Look for the Euro to trade a likely 1.1710-1.1770 range today. Prefer to sell rallies.
• USD/JPY – Against the Japanese Yen, the Dollar extended its rally to 110.34 from 109.80 yesterday. Earlier this week, the USD/JPY pair traded to a low at 109.12. For today, immediate resistance lies at 110.40 followed by 110.70. Already this morning, USD/JPY has drifted higher to 110.40. Immediate support can be found at 110.10 followed by 109.80. Look for USD/JPY to consolidate in a likely range today of 109.90-110.50. Just trade the range shag on this one today.
• USD/CAD – Against the Canadian Loonie, the US Dollar tumbled to 1.2658 from 1.2775 in choppy trade (love it!). Broad-based US Dollar weakness and better than expected Canadian Retail Sales lifted the Loonie. USD/CAD traded to an overnight low at 1.2633. Overnight the USD/CAD pair hit a high at 1.2797 before dropping to its New York close. Immediate support for today lies at 1.2630.   The next support level is found at 1.2600 and 1.2560. Immediate resistance can be found at 1.2680 followed by 1.2710 and 1.2750. Look for the USD/CAD pair to consolidate in a likely range today of 1.2640-1.2740. Prefer to buy USD dips toward 1.2630/40.

It’s been a huge week for FX and the financial markets. And there’s more to come, September is not over with yet. But for today, Thank God it’s Friday!

Analysis written by Michael Moran, Senior Currency Strategist.

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