• Michael Moran , Senior Currency Strategist. at ACY


• 23.09.2021 12:15 pm
#stock

Stocks Rally; AUD, Risk FX Rally; EUR, GBP Dip Ahead of PMIs

Summary: The US Dollar ended a volatile session higher against most of its rivals. Federal Reserve President Jerome Powell said that the Fed would likely start reducing its bond purchases as soon as November. The hawkish rhetoric saw traders drive the Greenback sharply higher before gains were trimmed. Worries about Chinese property developer Evergrande missing a payment eased after they said that would be able to pay interest on an onshore bond. The Dollar Index (USD/DXY), which measures the value of the Greenback against a basket of major currencies, climbed 0.27% to 93.45 from 93.20, a fresh one-month high. Sterling slid 0.33% to 1.3615 (1.3660) ahead of today’s Bank of England meeting. The Euro fell through the 1.1700 support level, settling at 1.1688 at the close in New York, down 0.29%. Yesterday, the Bank of Japan left interest rates unchanged which was widely expected. The USD/JPY pair rebounded to 109.80 from 109.22 yesterday on the market’s improved risk tone. Risk leader, the Australian Dollar grinded modestly higher to finish at 0.7240 from 0.7227. The USD/CAD pair eased to 1.2775 (1.2825) while the Kiwi (NZD/USD) was last at 0.7005 from 0.7007. Against the Chinese Offshore Yuan, the US Dollar (USD/CNH) slumped to 6.4650 from 6.4825 yesterday on the Evergrande developments. Wall Street stocks rallied. The DOW settled 1.19% higher to 34,310 (33,907) while the S&P 500 added 1.15% to 4,400 (4,350 yesterday). Global bond yields were mixed. The US bond curve narrowed. The US 2-year Treasury rate was up at 0.24% (0.21%) while the benchmark 10-year note yield dipped to 1.30% from 1.32% yesterday. Other global bond yields were little changed.
Data released yesterday saw the PBOC (People’s Bank of China) and BOJ (Bank of Japan) leave interest rates unchanged. Australia’s Westpac Leading Economic Indicator in August slip -0.27% from -0.12% in July. Eurozone Preliminary Eurozone Consumer Confidence for September was at -4 from a previous -5. US August Existing Home Sales fell to 5.88 million from 5.99 million, and median expectations of 5.87 million. The US Federal Reserve kept its discount rate unchanged at 0.25%.

• GBP/USD – Ahead of today’s BOE meeting, the British currency finished lower against the Greenback to 1.3615 from 1.3660 yesterday. Sterling fell under the weight of a stronger US Dollar and weaker European currencies. Overnight low traded for GBP/USD was at 1.3609.
• EUR/USD – slip-sliding away. The shared currency settled 0.29% lower to 1.1688 from 1.1725 yesterday. EUR/USD broke through the support at 1.1700 for its lowest finish in over a month (August 20). Overnight low traded was at 1.1684.
• AUD/USD – The Australian Dollar managed to rebound as risk appetite improved following the comments from Chinese property developer Evergrande. The Aussie traded to an overnight low at 0.7223 before climbing to its New York close at 0.7240. Yesterday the Aussie opened at 0.7227 in Asia.
• USD/JPY – Against the Yen, the Dollar soared to finish at 109.80 from 109.22 yesterday. Broad-based USD strength following Powell’s taper timing talk and an improved risk stance lifted this currency pair. The BOJ left interest rates unchanged although the Japanese central bank had a grim outlook on exports.

On the Lookout: Markets will heat up today with a busy economic calendar. The Evergrande situation will continue to be closely monitored. Australia kicks off with its Headline Flash Manufacturing and Services PMI’s (no forecasts, previous was 52.0 for Headline Manufacturing PMI and 42.9 for Services PMI). Japanese markets are closed for a bank holiday (Autumn Equinox Day). European reports start with French, German, and Eurozone Manufacturing and Services PMIs for September. Expectations are for an easing in both Manufacturing and Services PMIs. UK September Flash Manufacturing PMI (f/c 59.0 from 60.3) and Flash Services PMI (f/c 55.0 from 55.0) -ACY Finlogix. The Swiss National Bank is expected to maintain its SNB Policy rate at -0.75%. The Bank of England is expected to keep its Official Bank rate at 0.10%. Canada reports on its July Headline and Core Retail Sales (m/m Headline f/c -1.2% from 4.2%, m/m Core f/c -1.5% from 4.7%) – ACY Finlogix. The US rounds up a busy day of data with its Weekly Unemployment Claims (f/c 320,000 from 332,000) and US Markit September Flash Manufacturing (f/c 61.5 from 61.1) and Services PMIs (f/c 55.0 from 55.1) – ACY Finlogix.

Trading Perspective: While the US Dollar managed to climb against most of its rivals, its overall performance was mixed. Today’s data dump sees the release of global PMIs and their results during the outbreak of the Delta variant of Covid will be keenly watched. Most are expecting a dip in global factory and services activity. After today’s Fed meeting and announcement, there will be the usual Fed speak that follows. Earlier this month we highlighted the fact that market volatility in September normally picks up. And so far, September 2021 has been true to form.

• AUD/USD – The Aussie bounced as risk sentiment stabilised following comments from Chinese property developer Evergrande. The Battler managed to close higher against the Greenback to 0.7240 from 0.7227 yesterday. Only just. AUD/USD has immediate support at 0.7220. A break of 0.7220, one-month lows could see us back to 0.7180. From the way the currency is trading, it feels as if there is some institutional or options support at the 0.7220 level. Immediate resistance lies at 0.7265 followed by 0.7290. A move above 0.73 cents opens the way for higher. Expect further choppy trade. The Battler remains heavy although the specs appear short. Look for any rebounds to sell into. Likely range today 0.7210-70.
• EUR/USD – The Euro broke through the 1.1700 support level to close at a fresh one-month low at 1.1688. Overnight low traded was at 1.1684. Immediate support lies at 1.1680 followed by 1.1660. A clean break below 1.1660 opens the way for a test a 1.1600 and lower. Immediate resistance can be found at 1.1720 and 1.1750 (overnight high traded was at 1.1756). Look for a choppy day in the Euro with a trading range likely between 1.1670 and 1.1740. Eurozone PMIs are released today, and the forecasts are for an easing. Anything outside of that could see fireworks back in the shared currency.
• USD/JPY – The Dollar rebounded against the Japanese Yen to 109.80 from 109.22 yesterday. The overall stronger Greenback and improved risk sentiment boosted this currency pair. The BOJ left rates unchanged as widely expected but the outlook for Japanese exports from officials was grim, given the recent Covid Delta surge. Overnight high traded for USD/JPY was at 109.88. Immediate resistance today can be found at 110.00 followed by 110.30. Immediate support lies at 109.50 and 109.20. Look for consolidation in a likely trading range between 109.50-110.20.
• GBP/USD – The British Pound slid to 1.3615 from yesterday’s opening of 1.3660. The Bank of England is widely expected to keep its Official Bank Rate at 0.10% with all nine MPC (Monetary Policy Committee) members supporting the vote. The BOE is unlikely to take a strong stand on policy given the recent Delta surge. Immediate support for Sterling lies at 1.3600 (overnight low 1.3609). A break at 1.3600 could see the next immediate support at 1.3570 tested, before lower. Immediate resistance can be found at 1.3650 followed by 1.3690. Expect the British currency to trade in a likely, albeit choppy range between 1.3580-1.3680. The preference is to sell on any rallies.

(Source: Finlogix.com)

Get those tin helmets on, the roller coaster ride is not yet over with. Happy days! Happy trading all.

Analysis written by Michael Moran, Senior Currency Strategist.

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