Dollar Index (DXY) Rebounds Off 12-Month Low on Short Covering

Hawkish Fed Speak Boosts Bond Yields; USD/JPY Jumps, Euro Slides

Summary:

A favoured measure of the US Dollar’s value against a basket of six major currencies, the Dollar Index (USD/DXY) rebounded off 12-month lows on Friday to 1.0115 from 1.0033.

Despite a fall in US Headline and Core Retail Sales to -1% (from -0.2%) and -0.8% from 0%, Industrial Production, Capacity Utilisation and the Preliminary Michigan Consumer Sentiment all saw gains.

The US Preliminary University of Michigan Consumer Sentiment, a leading indicator of consumer spending, soared to 63.5 from a previous downward revised 62.0, beating estimates at 62.0.

Following the release of the data, Dollar shorts scrambled for cover heading into the weekend. The Euro (EUR/USD) slid 0.44% to 1.0987 after trading to a high at 1.1067.

The Greenback edged higher against the Japanese Yen to 133.85 from 133.65. Incoming Bank of Japan Governor Ueda said that the central bank would “stay the course”, which meant keeping rates ultra-low for now.

US Treasury yields climbed. The benchmark 10-year treasury bond rate rose to 3.51% from 3.39%. The 2-year US bond yield settled at 4.10% (3.96%). Other global bond rates rose, but to a lesser extent.

The Australian Dollar (AUD/USD) tumbled to 0.6700 from 0.6775 Friday. New Zealand’s Kiwi (NZD/USD) dropped to 0.6210 from 0.6300. USD/CAD (Dollar-Canadian) was little-changed at 1.3360.

Sterling (GBP/USD) dipped to 1.2415 (1.2445). Against the Asian and Emerging Market currencies, the US Dollar was mostly higher. USD/CNH (Dollar-Offshore Chinese Yuan) climbed to 6.8710 from 6.8670.

Wall Street stocks edged higher. The DOW was last at 33,945 (33,600) while the S&P 500 was last at 4,150 from 4,090 Friday. Other global indices were also higher at the close.

Other economic data released Friday saw New Zealand’s Business NZ Manufacturing Index slide to 48.1 from 51.7. Germany’s Wholesale Price Index rise to 0.2% from 0.1%, matching forecasts.

US Capacity Utilisation rose to 79.8% from an upward revised 79.6%, beating estimates at 79.1%. US Industrial Production rose to 0.4% from a previous upward revised 0.2%, and forecasts at 0.3%.

EUR/USD – The shared currency had a choppy session Friday, settling down 0.44% to 1.0987. On Friday, short covering saw the Euro rally to an overnight high at 1.1067 before sliding lower at the close. Overnight low recorded was at 1.0984.USD/JPY – Against the Japanese Yen, the US Dollar rallied to settle at 133.85 from Friday’s open at 132.70. In choppy trade, the overnight high traded was at 133.89 while the low recorded was at 132.17. The rebound in US bond yields boosted USD/JPY. Incoming BOJ Governor Ueda said that they would stay the course, keeping interest rates low.GBP/USD – The British Pound finished on Friday at 1.2415 after trading to an overnight high at 1.2447. Sterling slid to a low at 1.2393 in choppy trade of its own. The UK 10-year Gilt yield climbed 10 basis points to 3.66%, which supported the British currency.AUD/USD – The Australian Dollar tumbled to 0.6700 from 0.6775 on Friday. Overnight low traded for the Aussie Battler was at 0.6691 while the overnight peak recorded was at 0.6806. Australia’s 10-year bond yield climbed to 3.32% from a previous 3.24%.

On the Lookout:

The week kicks off with a light economic calendar. New Zealand releases its March Business NZ Services Index (f/c 53.6 from 55.8 – ACY Finlogix). China follows next with the release of its PBOC -Year Medium Term Lending Facility Rate which is forecast unchanged at 2.75% by ACY Finlogix.

Italy starts off European data with its Annual Final March Inflation Rate (f/c 7.7% from 9.1% - ACY Finlogix). China releases its March Foreign Direct Investment data (y/y f/c 7.8% from 6.1% - ACY Finlogix). Canada starts off North America with its Final February Wholesale Sales report (f/c -1.6% from 2.4% - ACY Finlogix). The US rounds up today’s data calendar with its New York Empire State Manufacturing Index for April (f/c -18 from -24.6 – ACY Finlogix).

The week ahead sees Australia’s RBA Meeting Minutes (Tuesday, 18/04), China’s trifecta of Retail Sales, Industrial Production and Fixed Asset Investment as well as GDP (Tuesday, 18/04). Germany will release it’s April ZEW Economic Sentiment Index (Tuesday, 18/04). European nations including the UK release their Inflation rates as well as Producer Prices. A busy week ahead of us indeed.

Trading Perspective:

The Dollar’s rebound on Friday was impressive due to the rise in US bond yields. Other global bond rates also rose but to a lesser extent than that of the US Dollar. Short covering in the Greenback also lifted the US currency. As we begin another week, expect more balanced markets with upcoming economic data closely monitored. The one certainty is that FX volatility will remain elevated. Strap yourselves in for another roller coaster ride in FX this week.

EUR/USD – The shared currency lost ground on Friday, settling at 1.0987 after a short covering rally pushed the Euro to an overnight high at 1.1067. Look for immediate resistance at 1.1020 followed by 1.1050 and 1.1080 to cap any rallies. On the downside, immediate support is found at 1.0980 followed by 1.0950 and 1.0920. Look for more choppy trade with a likely range today of 1.0950-1.1050. Trade the range shag on this puppy today.USD/JPY – With new leadership at the Bank of Japan, despite the mantra from incoming Governor Ueda that they would stay the course, we could see increased volatility. Traders should continue to monitor the 10-year US bond yield, traditionally a driver in this currency pair. The Greenback settled at 133.85 Japanese Yen on Friday. Look for immediate resistance at 134.05 followed by 134.35 to cap any rallies. Immediate support can be found at 133.60, 133.30 and 133.00. Look for another roller coaster ride, likely range today of 133.40-134.40.AUD/USD – The Aussie Battler tumbled to close at 0.6700 from Friday’s open at 0.6775. In choppy trade, the overnight high recorded was at 0.6806 before plummeting to a low at 0.6691. On the day, look for the AUD/USD pair to find immediate support at 0.6690 followed by 0.6660. On the topside, immediate resistance is found at 0.6740, 0.6770 and 0.6800. Look for another choppy trading day in the Aussie Battler, likely range 0.6675-0.6815. Preference is to sell rallies.GBP/USD – Sterling slid against the overall stronger Greenback to 1.2415 from 1.2445 Friday. Look for immediate support at 1.2390 (overnight low traded was 1.2393) to hold. The next support level lies at 1.2360. Immediate resistance can be found at 1.2450 (overnight high traded was 1.2426). The next resistance level is found at 1.2480 followed by 1.2510. Expect more volatility in this currency pair with a likely range today of 1.2370-1.2470. Prefer to sell rallies.

Have a good Monday and a top week ahead all. Happy trading.

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