Dismal Global PMIs Lift DXY; Aussie, Sterling, Euro Slump

Yield Spreads Widen in Favor of Greenback, Jackson Hole Eyed

Summary:

Dismal Global PMIs weighed on risk appetite while lifting the Dollar up against its Rivals. The DXY (Dollar Index), which measures the value of the Greenback against a basket of 6 major currencies, rallied to a 2.1/2 month high at 103.70 (103.55).

Former St Louis Fed President James Bullard said that a pickup in the US economy during the summer could delay plans to wrap up interest-rate increases.

Yield spreads widened in favor of the US Dollar. The 10-year US bond yield settled at 4.24%, down from yesterday’s 4.32%. However, the UK 10-year Gilt yield tumbled further to 2.51% from 2.64%.

Germany’s 10-year Bund rate fell 13 basis points to 2.51% (2.64%). Australia’s 10-year Bond yield settled at 4.11%, down from 4.27% yesterday. The Aussie Dollar was last at 0.6415 (0.6455).

Sterling (GBP/USD) plummeted 0.95% to settle at 1.2600 (1.2730 yesterday). UK Flash Manufacturing and Services PMI’s both fell from higher levels, weighing on the British Pound.

The Euro (EUR/USD) tumbled to an overnight and fresh 11-week low at 1.0802 before stabilizing to settle at 1.0812 in late New York from 1.0848 yesterday.

Against the Japanese Yen, the Greenback rose 0.19% to 145.85 (145.75). Unlike the other currencies, the yield gap between US and Japanese 10-year rates narrowed.

The Dollar finished mixed against the Asian and Emerging Market FX. USD/SGD settled at 1.3584 (1.3550). Against the Offshore Chinese Yuan (USD/CNH), the Dollar slid to 7.2805 from 7.3080.

Other economic data released yesterday saw US New Home Sales climb to 714,000 from 697,000 the previous month. US Weekly Unemployment Claims eased to 230,000, bettering forecasts at 239,000.

Germany’s Flash Manufacturing PMI rose to 39.1 from 38.8 previously. However, German Flash Services PMI plummeted to 47.3 from 52.5, and lower than expectations at 51.5.

US Flash Manufacturing PMIs slumped to 47.0 from 49.0, and lower than expectations at 48.9. US Flash Services PMI fell to 51.0 from 52.3 previously, and lower than forecasts at 52.1.

EUR/USD – The shared currency grinded lower against the US Dollar, finishing at 1.0810 against 1.0845 yesterday. In choppy trade the Euro fell to an overnight and 11-week low at 1.0802. The overnight high recorded was 1.0876. Dismal German Flash Services PMI weighed on the Euro.GBP/USD – The British Pound fell against the overall stronger Greenback, finishing at 1.2600 against yesterday’s 1.2730. The UK Manufacturing PMI tumbled to 42.5 from 45.3, lower than expectations at 45.1. Overnight, Sterling traded to a near 2-month low at 1.2719.AUD/USD – The Aussie Battler fell under the weight of broad-based US Dollar strength, settling at 0.6415 against 0.6455 yesterday. In volatile trade of its own, the AUD/USD pair saw a high at 0.6488 before tumbling lower.USD/JPY – The Dollar rallied against the Japanese Yen to 145.85 from 145.55 yesterday. Risk-off and a narrowing yield advantage failed to stem the appetite for Greenback’s against Japanese currency. The overnight high traded was at 145.96 while the overnight low recorded was 144.62.On the Lookout:

Markets will welcome some stability as we finish off the week with a light economic calendar schedule.

Japan kicks off Asia today with its August Tokyo Headline and Core CPI report (Headline y/y f/c 3.2% from 3.2% - ACY Finlogix; Core CPI y/y f/c 2.9% from 3.0% - ACY Finlogix).

The UK releases its GFK August Consumer Confidence report (f/c -19 from -30 – ACY Finlogix).

Germany follows with its German Final GDP Growth Rate (q/q f/c 0 % from -0.1%; y/y f/c -0.2% from -0.2% - ACY Finlogix).

Germany also releases its IFO August Business Climate (f/c 86.7 from 87.3 – ACY Finlogix).

Pay close attention to this number, a result much further than estimates could shake up the EUR/USD pair.

France follows with its July Unemployment Benefit Claims (f/c -10k from -13.2k previously – ACY Finlogix).

Canada kicks off North America with its Canadian July Wholesale Sales report (f/c -0.8% from -2.8% - ACY Finlogix).

The US rounds up today’s reports with its Revised University of Michigan Consumer Sentiment (f/c 71.2 from 71.6 – ACY Finlogix).

Trading Perspective:

All eyes will be on Fed Chair Jerome Powell who is scheduled to speak at the Jackson Hole, Wyoming USA economic symposium later today.

Analysts expect Powell to lay down the final steps by the Federal Reserve to tame inflation, reinforcing the US central bank’s commitment to finish the job.

Which should be supportive of the Greenback overall. Anything less could see speculative Dollar long bets pare their positions and head for the exit. Making for a potential volatile finish.

EUR/USD – The Euro edged lower against the broad-based stronger Greenback to 1.0812 from 1.0848 yesterday. Look for immediate support in the Euro at 1.0800 followed by 1.0770 and 1.0740. On the topside look for immediate resistance at 1.0840, 1.0870 and 1.0900 to cap any rallies. Get set for another roller coaster ride in this currency pair, likely between 1.0800-1.0900. Trade the range.GBP/USD – Sterling succumbed to the overall stronger US Dollar, finishing at 1.2600 against yesterday’s 1.2730. On the day, look for immediate support at 1.2570 (overnight low traded was 1.2584). The next support level lies at 1.2540. The next support level can be found at 1,2500. Immediate resistance can be found at 1.2640, 1.2680 and 1.2720. Look for another choppy session in this currency pair likely between 1.2570-1.2730. Trade the range.

(Source: Finlogix.com)

AUD/USD – The Aussie Battler held its own against the overall stronger Greenback, settling to close at 0.6415 against yesterday’s 0.6455. Immediate support can be found at 0.6400 (overnight low traded was 0.6401). The next support level lies at 0.6370 followed by 0.6340. On the topside, look for immediate resistance at 0.6450, 0.6480 and0.6520. Look for another choppy session in the Aussie, likely between 0.6385-0.6525. Prefer to buy AUD/USD dips, the market appears very short.USD/JPY – Against the Japanese currency, the Dollar rallied to 145.85 New York close, little-changed from yesterday (145.75). The drop in US 10-year bond yield by 8 basis points contrasted with the one-point drop in Japan’s 10-year JGB yield at 0.64%. This should keep a lid on the USD/JPY pair. Immediate resistance can be found at 146.00 (overnight high traded was 145.96). The next resistance level lies at 146.30. On the downside, look for immediate support at 245.50, 145.20 and 144.90. Look for more choppy trading in this currency pair, likely between 144.70 and 146.20. Prefer to sell USD/JPY rallies.

Happy Friday and trading all. A top weekend too.

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