Dollar Index Steadies Above 106 on Hawkish Fed Speak, Risk-Off

AUD Dips, JPY Steadies on Ueda Remarks; US 2-Year Yield Nears 5%

Summary: 

The Dollar Index, a popular gauge of the Greenback’s value against a basket of 6 major currencies, steadied to close at 106.11 (106.15 Friday). 

Some Federal Reserve officials departed from previous intentions of rate cuts, preferring rate hikes. In the US Treasury Bond market, the 2-year yield hit 5% for the first time since November 2023 before closing at 4.99%. 

The US 10-year yield dipped to 4.62% (4.63%). Other global bond rates were lower. The UK 10-year Gilt Rate was last at 4.23% from 4.27%. Japan’s 10-year JGB Rate dipped to 0.84% (0.86%). 

New York Federal Reserve President John Williams said that another rate hike isn’t his base case but is still possible due to inflationary risks. Minneapolis Fed President Kashkari called for patience on rate cuts. 

US economic data released Friday saw Initial Weekly Jobless Claims fall, while the Philadelphia Fed Manufacturing Index soared to 15.5 from 3.2 previously, beating forecasts at 1.5. 

Against the Japanese Yen, the Dollar dipped modestly to 154.60 from 154.67 after BOJ Governor Kazuo Ueda said that the central bank may raise interest rates again if the Yen’s weakness leads to sustained price increases through high import costs. 

Risk leader, the Australian Dollar dipped to 0.6417 from 0.6425 as market sentiment weakened. After falling to an overnight low at 0.5888, the Kiwi (NZD/USD) settled at 0.5900 (0.5905 Friday). 

The Euro (EUR/USD) edged up to 1.0653 (1.0645), just above Five-Month lows. Potential escalation of tensions in the Middle East weighed on the shared currency. 

Sterling (GBP/USD) settled at 1.2375, down from 1.2425 on Friday and near 5-month lows. Data released Friday saw UK Retail Sales (m/m) slump to 0% against median forecasts at 0.3%. 

The US Dollar was mixed against the Asian and Emerging Market Currencies. Against the Offshore Chinese Yuan, the Dollar (USD/CNH) steadied to 7.2510 from 7.2485 Friday. The USD/SGD pair (Dollar-Singapore) finished at 1.3615 from 1.3625. 

Global stocks fell on the risk-off sentiment. The US S&P 500 slid to 4,967 down from Friday’s open at 5,007. Japan’s Nikkei slumped 1.7% to 37,140 (37,740 Friday). 

USD/JPY – the US Dollar finished modestly lower against the Japanese Yen at 154.60 from 154.67 Friday. Overnight, the USD/JPY pair traded to a high at 154.67, just one pip shy off its previous finish, a 34-year high. The overnight low recorded was 154.39.AUD/USD – the Aussie Battler dipped against the overall stronger Greenback to 0.6417, little changed from its open at 0.6425 Friday. The Australian Dollar hit an overnight low at 0.6370 before rebounding at the close. Overnight high recorded was 0.6423.EUR/USD – the shared currency was little-changed against the US Dollar, finishing at 1.0653 from 1.0645 Friday. The Euro traded in a relatively narrow range against the Greenback. The overnight high traded was at 1.0660 while the overnight low recorded was 1.0618. A rise in German PPI to 0.2% from -0.4% had little impact on the Euro.GBP/USD – Sterling slid against the US Dollar to 1.2437 from 1.2440 Friday. The overnight high traded was at 1.2485 while the overnight low recorded was 1.24330. UK March Headline Retail Sales dipped to 0% in March, from 0.1% previously.  On the Lookout: 

Today’s economic calendar is a light one and kicked off with China releasing its March Foreign Direct Investment (FDI) which fell to -26.1% from -19.9%. China also releases its 1-Year Prime Loan Rate (f/c 3.45% from 3.45% - ACY Finlogix) and China’s 5-Year Prime Loan Rate (f/c 3.95% from 3.95% - ACY Finlogix). The Eurozone starts off European data with its Eurozone Government Debt to GDP ratio (f/c 88% from 90.9% previously). 

The UK releases its CBI Business Optimism Index (f/c 2 from -3 previously – ACY Finlogix). Canada kicks off North America with its Canadian March PPI (m/m f/c 0.8% from 0.7%; y/y f/c -1.3% from -1.7% - ACY Finlogix). The US rounds up today’s data releases with its Chicago Fed March National Activity Index (f/c 0.09 from 0.05 – ACY Finlogix). 

Trading Perspective: 

Hawkish Fed rhetoric and a resilient US economy with persistent price pressures has put a bid on the US Dollar against its Rivals. The Dollar Index (USD/DXY) finished above106., close to its November 2023 highs. US bond yields stayed firm with the 2-Year Treasury Bond Yield closing at 4.99%, just off 5%. 

Reuters reported that IMM currency positions for the period between 10-16 April saw net speculative long US Dollar bets rise anew. Net speculative long bets in the Dollar Index (USD/DXY) were up 2.04%. Net speculative short bets in the Euro (EUR/USD) were -2.2% while net shorts British Pound (GBP/USD) were -1.96%. 

Against the Japanese Yen, net speculative long USD bets (USD/JPY) rose +1.94%. Against the Aussie, net speculative short bets climbed to a whopping -3.39%. The risk is for a shake-out in the net long US positions. And the question is what’s the catalyst? Thursday’s US GDP report looms large this week.

USD/JPY – Look for the Dollar to keep its bid against the Japanese Yen. Immediate resistance today lies at 154.70 (overnight high traded was 154.67). The next resistance level can be found at 155.00. Immediate support on the day lies at 154.20, 153.90 and 153.50. Look for more choppy trade in the USD/JPY pair, likely between 153.70-154.70. Am wary of the BOJ today. Prefer to sell USD/JPY on strength. AUD/USD- the Aussie Battler dipped against the Greenback to 0.6417 from Friday’s opening at 0.6425. On the day, look for immediate support at 0.6400 followed by 0.6370 and 0.6340. On the topside, immediate resistance lies at 0.6455 followed by 0.6485 and 0.6505. Look for consolidation today, likely between 0.6370-0.6470. With net speculative Aussie short bets overcrowded, the preference is to buy Aussie dips today.EUR/USD – the shared currency was little changed against the US Dollar, settling at 1.0653, from 1.0645 Friday. On the day look for immediate resistance at 1.0680 followed by 1.0710. Immediate support can be found at 1.0620 followed by 1.0590 and 1.0560. Look for the Euro to consolidate in a likely range today of 1.0610-1.0680. Prefer to buy Euro on dips today. Net speculative short Euro bets are way overstretched. GBP/USD – Sterling slid against the Greenback to finish at 1.2375 (1.2425). Look for immediate support today on the British Pound at 1.2345 followed by 1.2315. Immediate resistance lies at 1.2410, 1.2450 and 1.2490. Look for consolidation in the Sterling, likely between 1.2350-1.2450. Net speculative GBP shorts against the USD were up to -1.96%. Prefer to buy Sterling on dips to 1.2350.Have a good week ahead. Happy Monday and trading all. 

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