Dollar Extends Climb, DXY Posts Strongest Monthly Finish

Aussie, Kiwi, Risk FX Tumble; Wall Street Stocks Slip

Summary:

Deteriorating market sentiment due to the US debt ceiling impasse and ongoing banking concerns and boosted the Dollar Index (DXY) to 102.7 from 102.1, its strongest finish this month.

Worries about the economic outlook due to political haggling over raising the US government’s borrowing limit grew. The US Michigan Consumer Sentiment Index plummeted to 57.7 in May from April’s 63.5, lower than median expectations at 63.0.

The risk leading Australian Dollar tumbled to 0.6642 (0.6702) while Wall Street stocks slipped to close lower. Sterling (GBP/USD) slumped 0.5% to 1.2460 from 1.2512 on Friday.

Against the Japanese Yen, the Greenback (USD/JPY) soared to 135.72 (134.57). The Euro (EUR/USD) slid to 1.0850 from 1.0915. New Zealand’s Kiwi (NZD/USD) plummeted 1.7% to 0.6190 (0.6298).

The US Dollar soared against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) rallied to 6.9720 from 6.9600. USD/SGD (Dollar-Singapore) rose to 1.3385 (1.3315).

Wall Street stocks settled lower. The DOW settled at 33,240 from 33,304 on Friday. The S&P 500 dipped to 4,119 (4,134). The tech laden NASDAQ fell to 13,310 from 13,384.

Global bond yields were mostly higher. The benchmark US 10-year treasury yield rose 8 basis points to 3.46%. Germany’s 10-year Bund rate climbed to 3.77% (3.70%). Japan’s 10-year JGB rate dipped to 0.38% (0.39%). Australia’s 10-year treasury yield fell 7 basis points to 3.32%.

Other economic data released on Friday saw New Zealand’s Inflation Expectations (q/q) slip to 2.79% from 3.3%. The UK’s April GDP (m/m) fell to -0.3% from 0% in March. On a quarterly basis, Britain’s Preliminary GDP was unchanged at 0.1%.

AUD/USD – The Australian Dollar tumbled against the Greenback (AUD/USD) to an overnight low at 0.6631 before stabilizing to 0.6640 at the close of New York on Friday, for a loss of 1%. In choppy trade, the overnight high recorded was at 0.6702. Risk off weighed on the Aussie.EUR/USD – The shared currency fell under the weight of an overall stronger Greenback to 1.0850 from 1.0915 on Friday. It was the lowest finish for the Euro in a month. The overnight low recorded was at 1.0843, while the high traded was at 1.0935.GBP/USD – Sterling fell against the broadly based stronger US Dollar to an overnight low of 1.2427 before climbing to 1.2460. The UK’s monthly GDP in April slipped -0.3% against median forecasts at 0%, which weighed on the British currency. In volatile trade, the overnight high recorded was 1.2540.USD/JPY – Against the Japanese Yen, the Greenback extended its gains to finish at 135.72 from its Friday open at 134.57. Higher US treasury rates boosted this currency pair. Overnight, the USD/JPY pair saw a high at 135.75. The overnight low traded was at 134.40.On the Lookout:

The week starts off with a light economic calendar which will get busier as the week progresses.

New Zealand kicks off with its April Business Services Index (f/c 54.0 from 54.4 – ACY Finlogix).

Japan follows with its April Producer Price Index (m/m f/c -0.1% from 0%; y/y f/c 6.5% from 7.2% - ACY Finlogix).

Australia follows with its March Building Permits (m/m f/c -0.1% from 3.9%, y/y f/c -17.3% from -31.4% - ACY Finlogix).

China releases its PBOC 1-year MLF (Medium Term Lending Facility Rate) f/c 2.75% from 2.75% - ACY Finlogix).

Germany starts off Europe with its April Wholesale Prices (m/m f/c 1.0% from 0.2%; y/y f/c 0.9% from 2.0% - ACY Finlogix).

Japan releases its April Machine Tool Orders (y/y f/c -13.0% from -15.2% - ACY Finlogix).

China follows with its FDI (Foreign Direct Investment – y/y f/c 4.0% from 4.9% - ACY Finlogix).

The Eurozone starts off Europe with its Eurozone March Industrial Production (m/m f/c 0.9% from 2.0%; y/y f/c -2.5% from 1.5% - ACY Finlogix).

Canada starts off North America with its Canadian March Wholesale Sales report (f/c -0.4% from -1.7% - ACY Finlogix), Canada’s April Housing Starts (f/c 224.6K from 214K – ACY Finlogix).

Finally, the US releases its New York Empire State Manufacturing Index for May (f/c -2.5 from 10.8 - ACY Finlogix).

Trading Perspective:

The US Dollar starts off the week on strong footing boosted by a rise in bond yields as risk aversion climbed.

Expect Asia to continue this trend today.

Economic data releases will also be closely watched as will comments from US officials and various central bank heads.

Hawkish talk from Lael Brainard, National Economic Council Director said that the budget deal talks were constructive, and that the US banking system was sound.

However, Brainard also warned that a default would be catastrophic for the economy.

Expect more volatility in the FX markets today and the week ahead.

EUR/USD – The Euro succumbed to broad-based US Dollar strength, slipping 0.59% to 1.0850 from 1.0915 Friday, its lowest close in a month. On the day, look for immediate support in the Euro at 1.0840. The next support level lies at 1.0800. A break at 1.0800 could see the Euro trade to 1.0700 and 1.0650. Immediate resistance lies at 1.0880, 1.0920 and 1.0950. Look for another choppy trading day in the Euro, likely between 1.0820-1.0920. Sell rallies.AUD/USD – The Aussie Battler tumbled by 1% to 0.6642 from Friday’s open at 0.6702. Broad based US Dollar strength combined with risk-off weighed on the Australian Dollar. Look for immediate support at 0.6630 (overnight low traded was 0.6631). The next support level is found at 0.6600 followed by 0.6570. On the topside, immediate resistance lies at 0.6670 and 0.6700. Look for another volatile session in the Aussie, likely between 0.6620-0.6720. Wouldn’t want to be caught short near the overnight lows on the Aussie today.USD/JPY – Against the Japanese Yen, the US Dollar extended its gains supported by rising bond yields. The USD/JPY pair settled at 135.72, up 0.8% from Friday’s open at 134.57. The overnight high traded was at 135.75. For today, immediate resistance can be found at 135.80 followed by 136.10. On the downside, look for immediate support at 135.30, 135.00 and 134.70. Expect the USD/JPY pair to trade a likely range today of 134.75-135.75.GBP/USD – The British Pound slumped against the overall stronger US Dollar to close at 1.2460 against Friday’s open at 1.2512. The overnight low traded was at 1.2427. On the day, look for immediate support at 1.2430 followed by 1.2400 to hold. Immediate resistance can be found at 1.2500 and 1.2540 (overnight high traded). Look for another volatile session in Sterling, likely between 1.2420-1.2520. Trade the range today.

Have a good trading week ahead all, happy Monday.

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