Euro Slides on France Uncertainty; ECB Cautious after Rate Cut

Dollar Index (DXY) Extends Gains into US CPI, FOMC Minutes

Summary:

The Euro (EUR/USD) slid to a 5-week low at 1.0740 (1.0800) as political instability in France weighed on the shared currency. French President Emmanuel Macron called for a snap legislative election.

Macron’s move was in response to the far right’s success in the European Parliament election. Although Macron will retain his presidency, his ability to push through legislation could be impacted by the result and the appointment of a new Prime Minister. 

The Dollar Index (DXY), which gauges the value of the USD against a basket of 6 major currencies, rose to 105.27 (105.07). It was the highest level for the Dollar Index in over a month. 

The Greenback kept its bid ahead of the FOMC decision and release of the meeting minutes. Interest rate markets see just one rate reduction from the Fed, projected to come in November.

The US also releases its Headline and Core CPI data. Last week, the US economy added 272,000 jobs in May, significantly higher than April’s upward revised 165,000. 

At the start of this week, the US 10-year bond yield soared to 4.43% from 4.29% before settling to close at 4.40% yesterday. The two-year US treasury yield slid to 4.83% from 4.89%.

Against the Japanese Yen, the US Dollar grinded higher to 157.12 from 156.80 on Monday. Traders were cautious ahead of the Bank of Japan’s policy meeting later this week (Friday). 

The Australian Dollar (AUD/USD) steadied to 0.6607 after its steep decline to 0.6576 Friday. Despite a slowing in Australia’s economy in Q1, markets see almost no chance of an RBA easing this year. 

Sterling (GBP/USD) rallied to 1.2737 from 1.2720 despite a rise in UK Unemployment to 4.4% from 4.3% previously. The UK releases its Trade Balance, Industrial, and Manufacturing Production data later today.  

The Greenback rallied modestly against most of the Asian and Emerging Market Currencies. The USD/CNH (Dollar-Offshore Chinese Yuan) pair edged up to 7.2725 (7.2645). 

Against the Singapore Dollar, the Greenback (USD/SGD) was little changed, at 1.3530 (1.3520). USD/THB (Dollar-Thai Baht) settled at 36.75 from 36.80. 

Wall Street Stocks rose following strong demand at the US treasury auction which saw bond yields dip. The US S&P 500 rallied to 5,377 (5,345). The NASDAQ soared to 19,220 (19,000). 

Economic data released yesterday saw Australia’s NAB Business Confidence ease to -3 from a previously upward revised 2 (from 1). UK Average Earnings climbed to 5.9%, beating estimates at 5.7%. 

EUR/USD – the shared currency fell to 1.0740 in late New York, down from 1.0800 yesterday. France’s political uncertainty weighed on the Euro, which was also weaker against the other major currencies. The EUR/GBP cross tumbled to 0.8432 from 0.8490.USD/JPY – the Dollar kept its bid against the Japanese Yen, settling at 157.12, up from 156.85 previously. Overnight, the Greenback soared to 157.40 highs, which was the BOJ’s intervention level on 1 May. The overnight low recorded was 156.81.AUD/USD – the Aussie Battler steadied to close at 0.6607 from 0.6588 previously. Caution prevailed on risk aversion ahead of the US Federal Reserve’s decision. Overnight the Aussie slid to 0.6588 lows before steadying. The overnight high traded was at 0.6613.GBP/USD – Sterling gained to 1.2737 from 1.2720 ahead of the release of key UK Manufacturing and Industrial Production data as well as UK GDP and UK Goods Trade Balance. Overnight high traded for the British Pound was at 1.2751 while the overnight low recorded was 1.2706.On the Lookout: 

Today’s economic calendar kicks off with New Zealand’s April Visitor Arrivals (m/m no f/c, previous was 9.1%; y/y f/c 48.0% from 27.9% - ACY Finlogix). Japan follows with its May PPI report (m/m f/c 0.4% from 0.3%; y/y f/c 2% from 0.9% - ACY Finlogix). China follows with its Chinese May Inflation Rate (m/m f/c -0.2% from 0.1%; y/y f/c 0.3% from 0.3% - ACY Finlogix). Germany starts off Europe with its German Final May Inflation Rate (m/m f/c 0.1% from 0.5%; y/y f/c 2.8% from 2.4% - ACY Finlogix). 

The UK releases its UK April Industrial Production (m/m f/c -0.1% from 0.2%; y/y f/c 0.3% from 0.5% - ACY Finlogix), UK April Manufacturing Production (m/m f/c -0.2% from 0.3%; y/y f/c 0.3% from 0.5% - ACY Finlogix). This is followed by the UK April Goods Trade Balance (f/c -GBP 14.2 billion from -GBP 13.97 billion – ACY Finlogix), UK April GDP (m/m f/c 0% from 0.4%; y/y f/c 0.6% from 0.7% - ACY Finlogix). 

The US rounds up today’s busy data calendar with the release of its US May CPI (m/m f/c 0.1% from 0.3%; y/y f/c 3.4% from 3.4% - ACY Finlogix), and US May Core CPI (m/m f/c 0.3% from 0.3%; y/y f/c 3.5% from 3.6% - ACY Finlogix). 

Trading Perspective: 

Expect markets to maintain a cautious stance ahead of the Fed decision and US CPI numbers. The Fed is widely expected to maintain its Fed Funds Rate between 5.25% and 5.50%. The US central bank will also release its new economic projections. Traders will be focusing on the Fed’s DOT PLOT, which are the interest rate projections of the individual FOMC members. The FOMC’s press conference following the decision will also be closely monitored. Meantime, expect Asia to consolidate trading in the FX pairs within the established ranges overnight. Tonight’s Fed meeting, followed by its press conference could be the highlight for this week, so keep those tin helmets handy. 

EUR/USD – The Euro sprang back to life as France’s political turmoil moved the shared currency. Look for immediate support today at 1.0715 (overnight low traded was 1.0719). The next support level lies at 1.0680 followed by 1.0650. On the topside, immediate resistance can be found at 1.0775 (overnight high traded was 1.0773). The next resistance level lies at 1.0805. Look for more choppy trade in the Euro, likely between 1.0680-1.0780. Tin helmets on, trade the range. USD/JPY – the Dollar rebounded against the Japanese currency, finishing at 157.12. Look for immediate resistance at 157.40 (overnight high). The next resistance level lies at 157.70 and 158.00. On the downside, look for immediate support at 156.80 (overnight low) followed by 156.50. Look to trade a likely 156.70-157.70 range today. Tin helmets on, watch for verbal intervention from Japan Inc.AUD/USD – the Aussie Battler held its own against the overall stronger Greenback. Look for immediate resistance today at 0.6630 followed by 0.6660. Immediate support can be found at 0.6585 (overnight low traded was 0.6588). The next support level lies at 0.6555 followed by 0.6525. Ahead of the FOMC minutes and US CPI release, look for the Aussie to trade a likely range today of 0.6570-0.6620.GBP/USD – Sterling steadied to finish at 1.2737, up from 1.2720. Look for the British currency to have immediate resistance at 1.2757 (overnight high traded was 1.2751). The next resistance level lies at 1.2790. Immediate support for the British currency can be found at 1.2705 followed by 1.2685 and 1.2655. Look for consolidation in Sterling today, likely range: 1.2680-1.2780. Economic data releases on both sides of the Atlantic are huge. Tin helmets on, trade the range first up.Happy trading and Wednesday ahead all. 

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