Dollar Dips, US CPI Cools; Fed Expected to Keep Rates Unchanged

GBP Soars on Strong UK Jobs Data, JPY Weakens; Stocks, Yields Up

Summary:

The Dollar eased against its Rivals as traders anticipate a pause in the US Federal Reserve’s hiking cycle at the conclusion of their meeting tomorrow (Sydney 4 am Thursday, 15 June).

A key inflation report, (US CPI), cooled in May to 0.1% from 0.4% (y/y), and lower than median expectations at 0.2%. US Annual Headline CPI fell to 4% from 4.9%, below forecasts at 4.1%. US Core CPI (m/m) was unchanged at 0.4%, matching expectations at 0.4%.

Markets will also focus on remarks from Fed Chair Jerome Powell following the Fed meeting. Some expect Powell to signal that one more rate hike is on the cards.

A favored gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) dipped 0.32% to 103.30 (103.60). The Euro edged up to 1.0792 (1.0780).

The British Pound (GBP/USD) outperformed, soaring 0.8% to 1.2610 (1.2533 yesterday) following stellar UK employment data. The Unemployment rate fell to 3.8% from 3.9%, beating forecasts at 4%. Wages in Britain increased significantly to 6.5% from a previous upward revised 6.1%.

Against the Japanese Yen however, the US Dollar (USD/JPY) ratcheted higher to 140.23 (139.42) on higher US bond yields. In volatile trade the Greenback saw an overnight low at 138.95.

The benchmark US 10-year Treasury rate rose 9 basis points to 3.81%. Japan’s 10-year JGB yield was unchanged at 0.41%.

Global treasury yields were mostly up. The UK 10-year Gilt yield rose 10 basis points to 4.43%. Germany’s 10-year Bund rate was at 2.42% (2.38%). Japan’s 10-year JGB rate was flat at 0.41%.

Risk currencies rallied. The Australian Dollar (AUD/USD) climbed 0.2% to 0.6767 (0.6755). New Zealand’s Kiwi (NZD/USD) was up 0.2% to 0.6150. The USD/Asia EMFX pairs were mixed.

Wall Street stocks rallied. The DOW finished up at 34,220 (34,093) while the S&P 500 gained 0.68% to 4,373 (4,350). Japan’s Nikkei soared 1.3% to 33,479 (33,155).

Other economic data released yesterday saw Australia’s Westpac Bank Consumer Sentiment climb to 0.2% from a previous -7.9%. UK Claimant Count Change (the number of people claiming unemployment benefits) dropped to -13,600 against economist’s forecast at +21,400.

Germany’s ZEW Economic Sentiment Index rose to -8.5 from -10.7, beating forecasts at -13.2. The Eurozone’s ZEW Economic Sentiment Index beat forecasts at –11.9, climbing to -10.0.

USD/JPY – In another roller coaster ride, the Dollar soared to an overnight high at 140.311 before easing to settle at 140.24 in late New York, a gain of 0.56% from yesterday. The overnight low traded for the USD/JPY pair was at 138.95.GBP/USD – The British Pound had a sterling performance, climbing to an overnight and one-month high at 1.2625 before easing to settle at 126.10 (1.2533 yesterday). In choppy trade, Sterling initially plummeted to an overnight low at 1.2504 before rallying.AUD/USD – The Aussie Battler gained modestly against the US Dollar to 0.6767 (0.6755 yesterday). In another choppy performance, the Aussie Battler traded to an overnight low at 0.6738 while the overnight high recorded was at 0.6807. Risk-on sentiment lifted the Aussie.EUR/USD – The shared currency rallied against the generally weaker Greenback to finish at 1.0792 (1.0780 yesterday). The overnight high recorded for the Euro was at 1.0824 while the overnight low traded was at 1.0759. The ECB is widely expected to hike interest rates by 0.25 basis points when they meet tomorrow.On the Lookout:

This week’s heavy economic calendar kicked off today with New Zealand’s Current Account which improved to -NZD 5.215 billion from a previous -NZD 9.458 billion, and better than median forecasts at -NZD 6.83 billion.

The Kiwi (NZD/USD) pair rose to a high at 0.6161 from this morning’s opening at 0.6150, settling currently at 0.6160. New Zealand’s Annual Food Price Index will be released later this morning (10 am Sydney).

The UK kicks off European data with its UK April Trade Balance (f/c -GBP 5.2 billion from -GBP 5.458 billion – ACY Finlogix), UK April Industrial Production (m/m f/c -0.1% from 0.7%; y/y f/c -1.7% from -2% - ACY Finlogix), UK April Manufacturing Production (m/m f/c -0.2% from a previous 0.7%; y/y f/c -0.9% from -1.3% - ACY Finlogix), UK Goods Trade Balance for April (f/c -GBP16.5 billion from -GBP 16.356 billion), UK April GDP (m/m f/c 0.2% from -0.3%; y/y f/c 0.5% from 0.3% - ACY Finlogix).

Germany follows next with its Wholesale Price Index (WPI) for May (m/m f/c 0.2% from -0.4%, y/y f/c -1.3% from a previous -0.5% (ACY Finlogix).

China releases its FDI (Foreign Direct Investment) for May (y/y f/c 2% from 2.2% - ACY Finlogix).

The Eurozone follows next with its April Industrial Production (m/m f/c 0.8% from -4.1%; y/y f/c 0.8% from -1.4% - ACY Finlogix).

Canada kicks off North America with its April New Motor Vehicle Sales report (f/c 145,000 from a previous 150,960 – ACY Finlogix).

The US rounds up today’s data releases with its May Headline PPI (m/m f/c -0.1 % from 0.2%; y/y f/c 1.5% from 2.3% - ACY Finlogix).

US May Core PPI (m/m f/c 0.2% from 0.2%; y/y f/c 2.9% from 3.2% - ACY Finlogix).

Trading Perspective:

Ahead of tomorrow morning’s big event (US Fed decision), and heavy data calendar, expect markets to consolidate, albeit in choppy fashion.

Markets are expecting the Fed to pause in its hiking cycles at the conclusion of their meeting (Sydney 4 am, tomorrow – 15 June).

Focus will be on remarks from Fed Chair Jerome Powell following the meeting.

If Powell signals one more rate hike is on the cards, expect the Dollar to rebound off current levels before more consolidation.

FX traders will be wise to monitor the US credit markets which determine the next move in bond yields.

Volatility will remain elevated for the rest of this week. Happy days!

USD/JPY – Expect more choppy waters ahead in this currency pair. The Greenback closed at 140.23 Japanese Yen. Look for immediate resistance today at 140.35 (overnight high traded was 140.31). The next resistance level lies at 140.60 followed by 140.90. Immediate support can be found at 139.90, 139.50 and 139.20. Look for more volatile trade in this currency pair, likely between 139.40-140.40. Prefer to sell rallies, the BOJ will not be happy to see the Yen weaken further amidst choppy waters.EUR/USD – The Euro rallied against the broadly based weaker US Dollar to 1.0792 against yesterday’s close at 1.0780. Look for immediate resistance at 1.0825 (overnight high traded was 1.0824). The next resistance level lies at 1.0850 followed by 1.0880. On the downside, immediate support can be found at 1.0760 (overnight low traded was 1.0759). The next support level is found at 1.0730. Look for more choppy trade in the Euro, likely between 1.0750-1.0850. Trade the range, nice and wide.AUD/USD – The Aussie Battler edged higher to finish at 0.6767 against yesterday’s 0.6755 close. Look for immediate resistance at 0.6810 to cap (overnight high traded was 0.6807). The next resistance level is found at 0.6830 followed by 0.6860. On the downside, look for immediate support at 1.0760 (overnight low traded was 1.0759). The next support level is found at 0.6730. Look for a likely trading range today of 0.6730-0.6830. Look to sell rallies. The Aussie will likely find it difficult to breathe at higher levels.GBP/USD – The British Pound soared against the Greenback to an overnight high at 1.2626 before easing to settle at 1.2610 in late New York. On the day, look for immediate resistance at 1.2625 followed by 1.2660 to cap any rallies. Immediate support can be found at 1.2580 followed by 1.2550. Look for more choppy trade in this currency pair, likely between 1.2525-1.2625. Amidst more choppy trade in the GBP/USD pair, look to trade the range.

(Source: Finlogix.com)

Have a good Wednesday all. Happy trading.

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