JPY Plummets, BOJ Keeps Ultra Dovish Policy, Dollar Gains

China Factory Activity Slows; Fed Meet, US Payroll

Summary:

The Japanese Yen plummeted against the US Dollar, falling across the board after the BOJ kept its ultra-low monetary policy unchanged. Against the Yen, the Greenback rocketed 1.8% to 136.32 from Friday’s open at 133.92. The US Dollar advanced modestly against all its Rivals. 

A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (USD/DXY) edged 0.2% higher to 101.24 from 101.07. 

China’s April Manufacturing activity unexpectedly slowed in April to 49.2 against 51.4 forecast by analysts. The Australian Dollar (AUD/USD) slipped against the Greenback to 0.6615 (0.6630). 

The Euro (EUR/USD) dipped to 1.1017 from 1.1030 in subdued trade. Against the Swiss Franc, the Greenback (USD/CHF) eased to 0.8945 from 0.8975. 

Sterling (GBP/USD) though, rallied, to 1.2565 (1.2500) on divergence between the Bank of England and the US Federal Reserve. The British Pound soared to an overnight and fresh 2023 high at 1.2584 before easing at the close. 

US bond yields tumbled, led by the 10-year note which closed at 3.42% from 3.52%. Other global treasury rates settled lower. Germany’s 10-year Bund yield fell 2.31% (2.45%). The UK 10-year Gilt rate settled at 3.71% from 3.79% Friday. 

Wall Street stocks rallied. The DOW rose 0.9% to 34,095 (33,792) while the S&P 500 gained to 4,172 from 4,142. Other global share markets rose. Australia’s ASX 200 gained 0.48% to 7,355. 

Economic data released on Friday saw Tokyo’s Annual April Core CPI climb to 3.5% from 3.2%. Japan’s April Industrial Production rose 0.8% month-on-month to 0.8% against forecasts at 0.5%. 

Non-manufacturing activity in China dipped to 56.4 from a previous 58.2, and lower than economist’s forecasts at 57.0. The US Core PCE Price Index (m/m) was unchanged at 0.3% (f/c 0.3%). 

US Personal Income climbed to 0.3% in April, higher than median forecasts at 0.2%. US April Chicago PMI rose to 48.6, up from March’s 43.8 and higher than median expectations at 43.6. US Revised University of Michigan Consumer Sentiment matched forecasts at 63.5.

USD/JPY – In volatile trade, the USD/JPY pair rocketed to an overnight and 6-week high at 136.56 against Friday’s open at 133. 92. The Bank of Japan left its monetary policy settings unchanged. BOJ Governor Ueda remarked that Japan’s inflation is likely to slow under 2% later this year. The Dollar closed at 136.32 Yen.AUD/USD – Broad-based US Dollar strength weighed on the Aussie Battler which finished 0.35% lower to 0.6615 from Friday’s open at 0.6630. Overnight, the Australian Dollar slid to a low at 0.6573 before rallying at the New York close. Overnight high traded was at 0.6643.EUR/USD – The shared currency eased against the overall stronger US Dollar to 1.1017 at the close, against Friday’s opening at 1.1030. In choppy trade, the Euro tumbled to an overnight low at 1.0962 before climbing above the 1.10 threshold level.GBP/USD – Sterling soared against the US Dollar on the growing divergence between the Bank of England and the Federal Reserve. Double digit inflation in the UK is expected to see more interest rate increases from the BOE. The British Pound closed at 1.2565 against Friday’s open at 1.2500.

On the Lookout:

Today sees bank holidays in China, the Eurozone, Germany, France, Italy and the UK, all celebrating Labor Day. The economic calendar for today is light due to the holidays in China and most of Europe. The week ahead though is a heavy one.

Australia starts off today’s data with its Judo Bank Manufacturing PMI (f/c 48.1 from 49.1 – ACY Finlogix).

Japan follows with its Jibun Bank April Final Manufacturing PMI (f/c 49.5 from 49.2 – ACY Finlogix). Japan also releases its April Consumer Confidence (f/c 32 from a previous 33.9 – ACY Finlogix).

Canada kicks off North America with its Global Manufacturing PMI for April (f/c 48 from 48.6- ACY Finlogix).

The US releases its S&P Final April Global Manufacturing PMI (f/c 50.4 from 49.2 – ACY Finlogix), and finally US April ISM Manufacturing PMI (f/c 46.7 from 46.3 – ACY Finlogix). The week ahead sees a heavy data calendar, culminating in the US April Payrolls report on Friday.

Trading Perspective:

Dollar gains made over the weekend will slow today following the lower finish in US bond yields. Expect consolidation around current levels albeit with wide trading ranges.

Most traders expect the US Federal Reserve to hike rates 25 basis points at the conclusion of their meeting later this week. The market is carrying long Dollar positions. Which would limit significant topside advances.

USD/JPY – All eyes on the Dollar-Yen pair in Asia today. The Dollar maintained its impressive gains versus the Yen over the weekend. Today, the USD/JPY pair opens at 136.25. Look for immediate resistance at the 136.60 level (overnight high traded was at 136.56). The next resistance level is found at 136.90 followed by 137.20. On the downside, look for immediate support at 135.80, 135.30 and 134.80 to hold. Watch for comments from Japan Inc. We could be in for another roller coaster ride in this currency pair. Likely range: 134.70-137.20.AUD/USD – The Aussie Battler slid against the overall stronger Greenback to 0.6615 close in New York. Today, the AUD/USD opens little changed in Asia at 0.6612. Look for immediate support at 0.6575 and 0.6545 to hold. On the topside, immediate resistance is found at 0.6640 followed by 0.6670 and 0.6700. Look for the Aussie to stay pressurized in a likely range today of 0.6550-0.6750. Prefer to sell rallies above 0.6700.EUR/USD – The shared currency dipped against the US Dollar to finish at 1.1017. In overnight trade, the low recorded was at 1.0962. Look for immediate support at 1.0960 and 1.0930 to hold. The next support level lies at 1.0900. Immediate resistance can be found at 1.1050 (overnight high traded was 1.1045). The next resistance level lies at 1.1080. Look for the Euro to trade in a likely range between 1.0950-1.1050 today. Prefer to sell Euro rallies.GBP/USD – Sterling surprised many, soaring to close at 1.2565 up from Friday’s opening at 1.2500. In choppy trade of its own, the British Pound traded to an overnight high at 1.2584, which is today’s immediate resistance level. The next resistance level lies at 1.2600 followed by 1.2630. On the downside, look for immediate support at 1.2530 followed by 1.2500 to hold. The next support level is found at 1.2450 (overnight low traded was at 1.2446). Look for another roller coaster ride in this currency pair, likely range: 1.2450-1.2600. Sell rallies.Have a good trading week ahead all, happy Monday.

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