DXY Dips Ahead of Fed, ECB, BOJ Meetings; EUR Weakens

GBP, AUD, NZD Climb; USD Slides vs JPY, EMFX; Stocks Up

Summary:

The Dollar Index (DXY), a measure of the Greenback’s value against a basket of 6 major currencies, dipped to 101.20 (101.30) ahead of key central bank meetings (Fed, ECB, and BOJ).

The US Federal Reserve is widely expected to raise its Fed Funds Rate by 25 basis points to 5.50% at the conclusion of its meeting (4 am Thursday, 27 July). Markets will be scrutinizing comments from Fed Chair Jerome Powell.

The European Central Bank follows (10:15 pm Thursday, 27 July) is also widely seen to hike its Main Refinancing Rate to 4.25% from 4.0% currently. The Euro weakened to 1.1055 from 1.1125 yesterday.

On Friday, the Bank of Japan is expected to keep its ultra-easy monetary policy, maintaining its key rate at -0.10%. Against the Japanese Yen, the US Dollar slid to 141.05 from 141.67.

Sterling (GBP/USD) finished higher against the modestly weaker US Dollar to 1.2900 (1.2853). Despite weaker-than-expected PMI data, the British currency gained vs the Dollar from short-covering.

Antipodean currencies, the Australian and New Zealand Dollar rose against the Greenback. The AUD/USD pair jumped to 0.6788 (0.6734) while the Kiwi (NZD/USD) rallied 0.36% to 0.6222 (0.6175).

Against the Emerging Market and Asian Currencies, the Dollar was mostly lower. USD/CNH (Dollar-Offshore Chinese Yuan) tumbled to 7.1360 (7.1810) after China pledged to increase support for its economy. Chinese owned state banks were seen selling Greenbacks against the Yuan.

Global treasury yields were mixed. The US 10-year bond rate rose to 3.88% from 3.83%. Germany’s 10-year Bund yield eased to 2.42% (2.46%) while Australia’s 10-year yield rose to 4.03% (4.01%).

Data released yesterday saw most global Manufacturing and Services PMIs drop from previous levels. Germany’s Flash Manufacturing PMI fell to 38.8 from 40.6, missing estimates at 41.0.

Eurozone July PMIs were also lower than forecast. US July Manufacturing PMI rose to 49 from 46.3. US Services PMI though, slid to 52.4 from 57.2.

USD/JPY – Against the Yen, the Greenback slid to 141.05 from yesterday’s 141.67. The BOJ is widely expected to maintain its ultra-easy monetary policy which has seen a build in speculative short Yen positions at the start of the week. These were unwound in late New York. In volatile trade, the overnight high recorded was 141.74 while the low was at 140.69.AUD/USD – The Aussie Battler outperformed, rallying 0.75% against the Greenback to 0.6788 from 0.6734 yesterday. Overnight, the AUD/USD pair traded to a high at 0.6795 while the low recorded was 0.6725 in volatile trade. Australia’s July Manufacturing PMI beat forecasts.EUR/USD – The shared currency fell against the US Dollar to 1.1055 against 1.1125 yesterday. Overnight high in the EUR/USD pair was at 1.1087 while the low recorded was 1.1021. Weaker German and Eurozone PMIs saw selling pressure on the Euro ramp up.GBP/USD – Sterling fared better than the Euro, climbing against the Greenback to finish at 1.2900 from 1.2853 yesterday. In choppy trade, the British Pound soared to a high at 1.2905 while the overnight low recorded was 1.2809.On the Lookout:

Today’s economic calendar picks up, starting with Australia’s CPI report (q/q f/c 1% from 1.4%; y/y f/c 6.2% from 7% - ACY Finlogix).

Australia also releases its Trimmed Mean CPI, which is the favored gauge of inflation by the Reserve Bank of Australia (RBA).

Australia’s RBA Trimmed Mean CPI (q/q) is forecast to ease to 1.1% from 1.2% previously.

Japan follows with its Final May Leading Economic Index (f/c 109.5 from 108.1 – ACY Finlogix).

Switzerland starts off Europe with its July Economic Sentiment Index (f/c -31.1 from -30.8 – ACY Finlogix).

France follows with its June Unemployment Benefits Claim (f/c 15,000 from 6,200 – ACY Finlogix).

The US rounds up today’s calendar with its US June New Home Sales (f/c 0.725 million from a previous 0.763 million – ACY Finlogix) and US June Building Permits (f/c 1.44 million from 1.496 million – ACY Finlogix).

Trading Perspective:

Ahead of the US Federal Reserve’s monetary policy decision which is expected to see the Fed Funds rate increased to 5.5% from 5.25%, expect more unwinding of Dollar long bets.

It will boil down to comments from Fed Chair Jerome Powell.

Traders will be looking for clues on the US central bank’s interest rate guidance for the rest of 2023, and into 2024.

The European Central Bank and Bank of Japan have key rate decisions as well.

The ECB is expected to hike its Main Refinancing Rate by 25 basis points to 5.5%.

The Bank of Japan is widely forecast to maintain its key rate at -0.10%.

Expect the Japanese Yen to stay weak against the Greenback and other Rivals.

If FX volatility spikes, look for the BOJ to enter the market.

Upcoming data releases will also be scrutinized.

It’s going to be another roller coaster week in FX. Let’s get ready to rumble!

USD/JPY – Could well be in the limelight in the next few days. Overnight, the USD/JPY pair slid to 141.05 from 141.67 yesterday. Unwinding of long USD/JPY bets pushed the Greenback lower. On the day, look for immediate support at 140.70 and 140.40 to cushion any sustained selling. Immediate resistance can be found at 141.00, 141.40, and 141.80. Look for another volatile trading session, likely range today 140.70-141.70. Trade the range, nice and wide.EUR/USD – The Euro eased to 1.1055 from yesterday’s 1.1125. On the day, look for immediate resistance on the shared currency at 1.1085 followed 1.1105 and 1.1135. Immediate support can be found at 1.1025, 1.1000 and 1.0975. Look for the Euro to trade in a likely range today of 1.1000-1.1100. While the ECB is widely expected to hike rates by 25 basis points, many forecast it to be the last increase. Watch for comments from ECB President Christine Lagarde, which may be supportive for the shared currency. (Source: Finlogix.com)

AUD/USD – The Aussie Battler rebounded against the US Dollar, closing at 0.6788 after sliding yesterday to 0.6735. Look for immediate resistance today at 0.6800 followed by 0.6830. On the downside, immediate support lies at 0.6750, 0.6720 and 0.6690. Look for more choppy trading in the Aussie, likely between 0.6710-0.6810 today. Prefer to sell rallies.GBP/USD – The British Pound climbed to 1.2900 against 1.2853 supported by broad-based US Dollar selling which forced GBP shorts to cover. On the day, look for immediate resistance at 1.2910 (overnight high traded was 1.2905). The next resistance level is found at 1.2940. Immediate support can be found at 1.2860, 1.2830 and 1.2800. Look for Sterling to stay supported in a likely range of 1.2830-1.2930. Prefer to sell into Sterling strength today.

Have a good Wednesday ahead all, happy trading.

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