• Michael Moran, Senior Currency Strategist at ACY


• 25.10.2021 02:00 pm
#currency

EUR Climbs, GBP Slips, AUD Flat, EMFX Mixed, Bond Yields Drop

Summary: Currency markets were becalmed in early Asian trade on Monday. The only action was on the Emerging Markets with the Turkish Lira hitting an all-time low. Against the US Dollar, the TRY (Turkish Lira) hit a record low of 9.85 so far in early Asia.

(Source: Finlogix.com)

Over the weekend, Turkish President Tayyip Erdogan said he had ordered the expulsion of the ambassadors from the US and nine other countries. In a speech at an online conference hosted by the South African Reserve Bank Fed Chair Jerome Powell said that he was concerned about higher inflation. Powell reiterated that he didn’t think it was time to raise interest rates but favoured the timing of a QE reduction. The Dollar Index (USD/DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies, dipped 0.17% to 93.60 (93.77 Friday). In the majors, Sterling (GBP/USD) underperformed, slipping to 1.3760 from 1.3788. Data released on Friday saw a drop in UK Consumer Confidence and September Retail Sales. The Euro (EUR/USD) climbed to 1.1642 (1.1625) buoyed by mostly better-than-forecast rises in Euro area and Eurozone Manufacturing and Services PMIs. The Dollar slumped against the Japanese Yen (USD/JPY) to 113.58 (114.00) weighed by a fall in US bond yields. Risk leading FX, the Australian Dollar (AUD/USD) finished flat at 0.7467 while the Kiwi (NZD/USD) eased to 0.7145 from 0.7155 on Friday. The Greenback was little changed against the Canadian Loonie at 1.2375 (1.2372 Friday). Against the other Asian and Emerging Market currencies, the Dollar was mixed. The USD/THB pair (US Dollar- Thai Baht) closed in New York at 33.45 against 33.37 Friday. USD/SGD (US Dollar-Singapore Dollar) was last at 1.3475 (1.3470 Friday).
Global Treasury bond yields were mostly lower. The benchmark US 10-year note closed at 1.63% from 1.69% Friday. Germany’s 10-year Bund yield eased to -0.11% from -0.10%. The UK 10-year Treasury Gilt rate fell to 1.14% from 1.20%. However, Japan’s 10-year JGB yield climbed to 0.09% from 0.08% Friday. Wall Street stocks were mixed. The DOW finished at 35,617 (35,600) while the S&P 500 settled at 4,540 from Friday’s open at 4,552.
Data released Friday saw Australia’s Flash Manufacturing PMI climb to 57.3 from a previous downward revised 56.8. Japan’s Annual National Core CPI matched forecasts at 0.1%. Japanese Flash Manufacturing PMI rose to 53.0 from a previous 51.5, beating estimates at 51.6. Germany’s Flash Manufacturing PMI dipped to 58.2 from 58.4 but beat forecasts at 56.5. The Eurozone Flash Manufacturing PMI printed at 58.5, beating median estimates at 57.0. Eurozone Flash Services PMI dipped to 54.7 against forecasts at 55.4. The UK GFK Consumer Confidence slipped to -17 from a previous -13, missing forecasts at -16. UK Flash Manufacturing PMI rose to 57.7 from 57.1, beating expectations of 56.1. Canada’s Retail Sales rose to 2.8%, beating forecasts at 2.6%. Canada’s Core Retail Sales rose to 2.1%, against forecasts of 2.0%. US Flash Manufacturing PMIs for October fell to 59.2 from a previous 60.7, missing estimates at 60.5. US Flash Services PMI rose to 58.2 from 54.9, bettering estimates at 55.3.

• EUR/USD – The shared currency rallied modestly to finish at 1.1645 in late New York from Friday’s 1.1625. The Euro traded to an overnight high at 1.1655 in subdued trade. European and Eurozone Manufacturing and Services PMI’s were mixed.
• AUD/USD – The Australian Dollar finished flat at 0.7467 after trading to an overnight high at 0.7512. Overnight low for the Aussie Battler was at 0.7459. Australia’s Manufacturing PMI fell but this was offset by a rise in the October Flash Services PMI.
• USD/JPY – Against the yield sensitive Japanese Yen, the Dollar slumped to 113.58 from 114.00 on Friday. The fall in the US 10-year Treasury Bond yield by 6 basis points to 1.63% weighed on the USD/JPY pair. Japanese 10-year JGB yield was up one basis point to 0.09%.
• USD/SGD – The Greenback rose modestly against the Singapore Dollar to 1.3475 from Friday’s 1.3470. Despite the lower US bond yields, the weakening of the Turkish Lira and some other EM currencies like the South African Rand weighed on the Singapore Dollar.

On the Lookout: Expect a slow start today with little in the way of economic data releases. New Zealand celebrates its Labour Day today with a holiday. The calendar picks up mid-week though. Wednesday (27 Oct) sees the release of Australia’s Q2 CPI report. Thursday sees the release of US Advance Q3 GDP data. On Friday, Canada releases its October GDP report. Friday also sees US Core PCE Price Index and Chicago PMI.
The risk events this week pick up with several central bank policy meetings. On Wednesday, the Bank of Canada has its monetary policy meeting, rate statement and press conference. The Bank of Japan and the European Central Bank have their rate policy meetings, announcements, and press conferences on Thursday.
Data releases today start off with Japan’s August Coincident Index (no f/c, previous was 91.5), Japanese August Leading Economic Indicators follow (no forecast, previous was 104.1). Germany kicks off Europe with its October IFO Business Climate Index (f/c 97.9 from 98.8). Canada releases its Preliminary September Wholesale Sales (no f/c, previous was 0.3%). US releases start off with Chicago National Fed Activity Index for September (no f/c, previous was 0.29), and finally US October Dallas Fed Manufacturing Business Index (f/c 6.8 from 4.6 – FX Street).

Trading Perspective: The lower US bond yields and easing in risk appetite will weigh on the Greenback. But expect trade to be slow with most FX pairs consolidating around Friday’s levels. While the USD/TRY (US Dollar Turkish Lira) is an isolated event, the risk to EMFX will be supportive of the Greenback. It would be wise to monitor the more liquid USD against the Asian and EM currency pairs. USD/TRY currently trades at 9.78-9.88.

• EUR/USD – The Euro settled with modest gains to 1.1642 from 1.1625 on Friday. Overnight the shared currency hit a high at 1.1655. Immediate resistance for the EUR/USD pair today lies at 1.1655. The next resistance level can be found at 1.1685. Immediate support can be found at 1.1625 followed by 1.1600 and 1.1575. Look for the Euro to consolidate in a likely range today of 1.1620-1.1670. Preference is to sell rallies. A tumbling Turkish Lira cannot be beneficial for the Euro.
• AUD/USD – The Aussie Battler finished flat against the US Dollar at 0.7467. Overnight the Aussie traded to a high at 0.7512 before easing in New York trade. Immediate support for the AUD/USD pair lies at 0.7455 followed by 0.7425. If markets go into risk-off mode and Asian EMFX currencies fall, the Battler will follow. Meantime, the likely range today should be between 0.7440-0.7490. Prefer to sell rallies.
• USD/JPY – Could be an interesting currency pair today, and bears watching. A haven flight into the Japanese currency is a possible scenario under the current events. Overnight the USD/JPY pair traded to a low at 113.40, which is where immediate support lies. The next support level is found at 113.10. Immediate resistance can be found at 113.70 followed by 114.00 and 114.30. Look for the USD/JPY to trade in a likely range today of 113.20-90. Prefer to sell rallies.
• GBP/USD – Sterling eased to 1.3760 from 1.3788 on Friday. The British currency has immediate support today at 1.3750 followed by 1.3720. On the topside, immediate resistance can be found at 1.3780 and 1.3810. Look for Sterling to consolidate in a likely trading range today of 1.3730-80. Just trade the range shag on this one today.