Stocks Fall; Just Another Day for You and Me in FX Land

Summary: Good morning all and welcome to FX Land. Markets did a U-turn from risk-on to risk-off overnight. And, as Phil Collins crooned in his hit 1989 tune, “It’s just another day for you and me in paradise (FX Land). A solid rise in October Producer Prices, though expected, fuelled inflation fears ahead of tonight’s crucial US CPI report, souring risk appetite. Risk-leader the Australian Dollar tumbled 0.49% to 0.7377 from 0.7425 yesterday, finishing as the worst performing major. On the other end of the spectrum, haven leader, the Japanese Yen 0.35% rallied against the Greenback. The USD/JPY pair settled at 112.85 (113.25). Against the second major haven FX, the Swiss Franc, the Greenback eased 0.33% to 0.9105 (0.9133). The Kiwi (NZD/USD) slumped 0.37% to 0.7133 (0.7166), weighed by the slide in risk sentiment, and the weaker Aussie. Higher Crude Oil prices buffeted the Canadian Dollar, with the USD/CAD pair unchanged at 1.2438 (1.2440 yesterday). The Euro was little changed, finishing at 1.1593 (1.1588) while the British Pound (GBP/USD) settled at 1.3562 (1.3557 yesterday). A favoured gauge of the Dollar’s value against a basket of 6 major currencies, the Dollar Index (DXY) dipped 0.12% to 93.93 from 94.05. The Dollar was mostly stronger against the Asian and Emerging Market currencies. The USD/CNH (Dollar – Offshore Chinese Yuan) rose to 6.3900 (6.3875). Against the South African Rand (USD/ZAR) the Greenback rallied 0.84% to 15,041.00 (14,910.00).  Equities closed lower while Treasuries rallied on the risk-off stance. Bond yields dropped. The benchmark US 10-year bond yield fell 5 basis points to 1.44% from 1.49%. Two-year US rates were last at 0.41% (0.46% yesterday). Germany’s 10-year Bund yield slid to -0.30% from -0.25%. UK 10-year rates eased 3 basis points to 0.82%. Wall Street stocks fell. The DOW settled at 36,256 (36,432) while the S&P 500 slid 0.42% to 4,680 (4,705).
Data released yesterday saw Japan’s Average Cash Earnings in September (y/y) dip to 0.2% from a downward revised 0.6% (from 0.7%). Japanese October Bank Lending rose to 0.9% from 0.6%, beating estimates at 0.7%. Japan’s September Current Account Surplus eased to +JPY 1033.7 billion from +JPY 1503 billion, lower than estimates at +JPY 1060 billion. Germany’s September Trade Surplus eased to +EUR 13.2 billion against forecasts of +EUR 14.2 billion. Germany’s ZEW September Economic Sentiment Index soared to 31.7 from 22.3, beating median forecasts at 20.3. US NFIB Small Business Index dipped to 98.2 from a previous 99.1. US Headline October PPI matched forecasts (m/m) at 0.6%. US Core PPI in October rose to 0.4% from 0.2% in September but was lower than the 0.5% median forecast.

• AUD/USD – The Aussie was pummelled lower in choppy trade as risk sentiment soured. The antipodean currency settled at 0.7377 from 0.7425. Overnight, the AUD/USD pair tumbled to a low at 0.7361. The recorded high trade was at 0.7432.
• USD/JPY – haven leader the Japanese Yen did not disappoint. Opening yesterday at 113.25, the Greenback slumped against the Yen to an overnight low at 112.72 before stabilising to finish at 112.85 in New York. Overnight high traded was at 113.26.
• EUR/USD – The shared currency edged higher against the US Dollar to close at 1.1593 from yesterday’s opening at 1.1588. Earlier in the day, the Euro slid to a low of 1.1570 before settling. Overnight high traded for the EUR/USD pair was at 1.3607.
• GBP/USD – Sterling was little changed, at 1.3562 from 1.3557 yesterday. The British Pound traded to an overnight high at 1.3607 before slipping to it’s New York close. Overnight, the GBP/USD pair traded to a low at 1.3524.

On the Lookout: The spotlight falls on the US CPI report released tonight. Ahead of the crucial inflation number, the economic calendar for today is relatively light. Asia kicks off with Australia’s Westpac Bank Consumer Confidence Index for November (no f/c previous was 104.6 – ACY Finlogix). The Westpac Bank’s Australian November Consumer Confidence Change is also released at the same time (no f/c, previous was -1.5% - ACY FInlogix). Japan releases its November Reuters Tankan Manufacturing Index (no f/c, previous was 16). China follows with its October Headline CPI report (m/m f/c 0.7% from 0.0%; y/y f/c 1.4% from 0.7% - ACY Finlogix). China also releases its October PPI report (y/y f/c 12.4% from 10.7% - ACY Finlogix). European data start off with Germany’s Harmonised October CPI (m/m f/c 0.5% from 0.3%, y/y f/c 4.6% from 4.1% - ACY Finlogix). Italy follows with its September Industrial Production (m/m f/c -0.1% from -0.2%, y/y f/c 4% from 0%). The US releases its Weekly Unemployment Claims (f/c 265,000 from 269,000 – ACY Finlogix). Rounding up the day’s economic data releases is the US Headline CPI (m/m f/c 0.6% from 0.4%, y/y f/c 5.8% from 5.4%), and US Core CPI (m/m f/c 0.3% from 0.2%, y/y f/c 4.3% from 4.0%). Whew!

Trading Perspective: Markets switched from risk-on to risk-off overnight heading into today’s US inflation report. Traders are bracing themselves for a high inflation read through the median forecasts from previous data. Concerns that the rise in inflation is outpacing the rise in growth saw risk sentiment sour. Equities closed lower while bond prices rose, and yields slumped.
In the FX markets, while the DXY was little changed, risk currencies tumbled, and the Yen outperformed. Expect consolidation ahead of tonight’s CPI release. Chinese data will be the focus in Asia. If the US CPI numbers are higher than forecast, we can expect a further sell off in risk FX. Japan’s Yen will continue to outperform while growth and resource leader, the Aussie could tumble further. We can look forward to “just another day for you and me in FX Land”. YAY!

• AUD/USD – slip-sliding away, the Battler sold off to finish at 0.7377, down 0.49% from yesterday’s open at 0.7425. This morning the AUD/USD pair opens unchanged at 0.7377. Immediate support for the Aussie lies at 0.7360 (overnight low 0.7361). The next support level is found at 0.7330. On the topside, immediate resistance is at 0.7410 and 0.7430 (overnight high 0.7431). Look for the Aussie to consolidate in a likely range today of 0.7350-0.7400 range. The Battler feels heavy, but for today, trade the range.

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(Source: Finlogix.com)

• USD/JPY – haven support for the Japanese currency was evident as risk sentiment soured. The Greenback closed 0.35% lower against the Yen to 112.85 from 113.25 yesterday. Overnight the USD/JPY pair slumped to a low at 112.72. Immediate support for USD/JPY can be found at 112.70. The next support level is at 112.40. Overnight, the USD/JPY traded to a high at 113.26. On the day, immediate resistance can be found at 113.10 followed by 113.30. Look for an initial drift lower in a likely range between 112.60-113.10 Prefer to buy dips at current levels.
• GBP/USD – Sterling finished little changed against the Greenback at 1.3562 (1.3557 yesterday). Overnight the GBP/USD pair fell to a low of 1.3524 before rallying to its New York close. For today, we can find immediate support at 1.3530 followed by 1.3510. Sterling hit an overnight high at 1.3607. Immediate resistance for today can be found at 1.3585 and 1.3605. The next resistance level lies at 1.3625. Sterling should trade between 1.3520-1.3620 today. Just trade the range shag on this puppy today.
• EUR/USD – The Euro finished with marginal gains to 1.1593 from 1.1588 yesterday. European data releases were mixed. Germany’s Trade Surplus eased while France’s Trade Deficit narrowed. Today Germany’s CPI report and Italian Industrial Production are released. The Euro has immediate resistance at 1.1610 (overnight high trade was 1.1609). The next resistance level lies at 1.1630 and 1.1660. Immediate support can be found at 1.1590, 1.1570 and 1.1540. Look for the Euro to consolidate in a likely trading range today of 1.1550-1.1610 today. Prefer to sell rallies.

Have a good Wednesday in FX land all, happy trading.

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