Dollar, Bond Yields Rise; Welcome to Payrolls Friday

BOE Hikes Rates, Sterling Slumps; Yen Outperforms

Summary:

Data released yesterday saw US Unemployment Claims edge up to 227,000 from 226,000. Which was still near the lows for this year. US Factory Orders rose to 2.3%, beating median forecasts at 2.0%.

Global bond yields lifted, spurred on by higher US treasury rates. The US 10-year treasury yield closed at 4.18% from 4.08% yesterday. The UK 10-year Gilt rate climbed 7 basis points to 4.46%.

The Japanese Yen outperformed, gaining 0.6% against the US Dollar to finish at 142.55 from 143.35 yesterday. Lower US treasury bond yields weighed on the USD/JPY pair.

Sterling slumped to 1.2710 (1.2775) after the Bank of England hiked its Official Bank Rate to 5.25% (5.0%). It was the 14th rate hike in a row, and highest bank rate in 15 years, lifting recession fears.

The Euro (EUR/USD) dipped to 1.0950 from 1.0980. Overnight, the shared currency fell to a 1.0912 low. The Eurozone Producer Price Index (PPI) for June fell to -0.4%, against expectations of -0.3%.

Against the trend, the Australian Dollar (AUD/USD) pair rallied, extending its recovery to 0.6550 from 0.6515 yesterday. The RBA’s decision to keep its policy rate unchanged sent the Battler tumbling on Wednesday. Stronger Chinese Caixin Services PMI to 54.1 (vs forecasts of 52.5) supported the Battler.

The Dollar finished mixed against the Asian-EMFX currencies. The USD/CNH pair (Dollar-Offshore Chinese Yuan) dipped to 7.1820 from 7.1855. USD/THB (Dollar-Thai Baht) rose to 34.70 (34.35).

Other data released yesterday saw US ISM July Services PMI dip to 52.7 from 53 previously, and lower than expectations at 53.9. US S&P Global Services PMI fell to 52.3 from 54.4.

USD/JPY – After opening at 143.35, the Dollar plummeted to an overnight low at 142.06 before rallying to settle at 142.55 in late New York. In another roller coaster trading day, the overnight high recorded was 143.89. Higher US bond yields lifted the USD/JPY pair.AUD/USD – The Aussie Battler extended its recovery to settle at 0.6550 from yesterday’s open at 0.6515, which was a two-month low. In volatile trade the overnight high recorded was 0.6569. The overnight low traded was at 0.6514. The Aussie stayed heavy following the RBA’s decision to keep rates unchanged.GBP/USD – Sterling slumped against the US Dollar to 1.2710 from 1.2775 yesterday. The Bank of England increased its Bank Rate by 25 basis points to 5.25%. The British Pound traded to a high at 1.2728 before easing to 1.2710. The overnight low traded was 1.2618.(Source: Finlogix.com)

EUR/USD – The shared currency finished modestly weaker against the Greenback, closing at 1.0950 from 1.0980 yesterday. Overnight, the Euro traded to a high at 1.2728 before edging lower. The overnight high recorded for the EUR/USD pair was at 1.0963.On the Lookout:

Welcome to Payrolls Friday.

It’s all about the US July Non-Farms Payroll report due out later today (10.30 pm Sydney). ACY Finlogix predicts the NFP Change is at +200,000 from the previous +209,000.

The Unemployment Rate for July is expected to climb to 5.5% from 5.4%, while Wages (Average Hourly Earnings) are forecast to dip to 0.3% from 0.4% - ACY Finlogix.

Prior to the US NFP, other economic data releases for today kick off with Australia’s RBA Statement on Monetary Policy (11.30 am Sydney).

Germany kicks off Europe with its German June Factory Orders (f/c -2.0% from -6.4% - ACY Finlogix).

France follows with its June Industrial Production (m/m f/c -0.3% from 1.2% - ACY Finlogix).

Italy releases its June Industrial Production (m/m f/c -0.3% from 1.6% -ACY Finlogix).

The UK releases its July S&P Global Construction PMI (f/c 48 from 48.9 – ACY Finlogix).

China releases its Preliminary Current Account (f/c +USD85.0 billion from +USD81.5 billion – ACY Finlogix).

The Eurozone releases its June Retail Sales (m/m f/c 0.2% from 0.0% - ACY Finlogix).

Canada starts off North America with its Canadian July Employment Change (f/c 21.1k from 59.9k – ACY Finlogix), Canadian July Unemployment Rate (f/c 5.5% from 5.4% - ACY Finlogix).

Finally, Canada releases its July Ivey PMI (f/c 49.7 from 50.2 – ACY Finlogix).

Trading Perspective:

Trading in Asia and early Europe will keep to the ranges established overnight, awaiting the release of the US Payrolls report.

Median expectations for the US July NFP are between +200,000 to +205,000.

Anything outside of that number will move markets.

A US Jobs Creation of above 205,000, to between 220,000 and 230,000 will see the Greenback soar.

The Dollar Index (USD/DXY) should immediately test the key resistance level at 102.85 (102.45 currently).

A weak Payrolls gain of under +200,000, to say +185,000 or lower would see the Greenback plummet.

The Unemployment Rate will also be in focus. A Jobless rate above 3.6%, say 3.8% to 4% will push the US Dollar lower.

If the Unemployment Rate falls below 3.5%, say 3.3% to 3.1% will lift the Greenback up against its Rivals.

The one certainty is that FX volatility will spike ahead of the release and could stay elevated, depending on the report itself.

It’s Friday as well.

Keep those tin helmets on and stay flexible.

USD/JPY – Closed 142.55 in New York. Immediate resistance today lies at 142.80, 143.30 and 143.80. On the downside, look for immediate support at 142.20, 141.80 and 141.40. The Greenback has dropped steadily against the Japanese Yen since the BOJ board members said there was no need to make any tweaks to its Yield Curve Control. A strong US Payrolls could change all that and see the USD/JPY head back to the 145.00 level. A weak number will heap more pressure on the Greenback. Likely range until NFP, 142-144. Trade the range pre-NFP.AUD/USD – The Aussie Dollar recovered to 0.6550 from 0.6515 yesterday. On the day, look for immediate resistance at 0.6580 followed by 0.6610 and 0.6650. On the downside, immediate support can be found at 0.6510 (overnight low traded was 0.6514). The next support level lies at 0.6480 and 0.6450. Look for the Aussie to consolidate ahead of the US Payrolls report. Likely range 0.6500-0.6600.GBP/USD – Sterling slumped to 1.2710 from yesterday’s 1.2775. While the Bank of England hiked its Bank Rate by 25 basis points, it was the highest rate in 15 years, lifting fears of a possible recession. Immediate support can be found at 1.2680, 1.2650 and 1.2620. The overnight low traded was 1.2612. Immediate resistance lies at 1.2730 (overnight high traded was 1.2728). The next resistance level is found at 1. 2760 and 1.2790. Likely range today pre-US NFP – 1.2650-1.2750.EUR/USD – The Euro dipped against the US Dollar to 1.0950 against 1.0980 on the broadly based stronger Greenback. Look for immediate support today at 1.0920 and 1.0890. On the topside, immediate resistance is found at 1.0970 followed by 1.100 and 1.1030. Look for the Euro to trade a likely range between 1.0910-1.0990 prior to the US NFP release.Happy Friday and Payrolls all, trade well. And a top weekend to all.

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