Dollar, Treasury Yields Plummet; US Producer Prices Drop

GBP Soars to 17-Month High; Risk-On Boosts AUD, Stocks

Summary:

US Treasury Yields and the Dollar plummeted after US Producer Prices unexpectedly fell, increasing speculation that the Federal Reserve may be nearing the end of its rate-hiking cycle. US May PPI rose just 0.1%, missing estimates at 0.2%. Which followed a recent drop in the US CPI.

Wall Street stocks and resource currencies soared, lifted by the market’s risk-on stance. The DOW rallied to 34,365, up from 34 245. The Australian Dollar (AUD/USD) jumped 1.4% to 0.6888 (0.6685).

The Dollar Index (DXY), which gauges the value of the Greenback against 6 major currencies, sank below 100 for the first time in 17 months. The DXY plummeted to 99.35 in late New York (100.80).

The Bank of Canada raised its Overnight Rate to 5% from 4.75% as expected. USD/CAD (US Dollar-Canadian Dollar) slid to 1.3140 following the move. The USD/CAD pair closed at 1.3110 in New York.

Sterling (GBP/USD) outperformed, soaring to 1.3135 in late New York from 1.2980, its highest close since April 2022. UK May GDP contracted from the previous month but was better than forecast.

The Euro (EUR/USD) extended its rally, advancing to 1.1225 from 1.1105. The shared currency’s climb accelerated following a break of 1.1140, Wednesday’s high.

Against the Japanese Yen, the Dollar extended its slide to 138.05 from 139.40 yesterday. Overnight, the Greenback slumped to 127.96, its lowest since May. The fall in the US 10-year bond rate to 3.76% (3.97%) contrasted with a rise in Japan’s 10-year JGB yield to 0.46% from 0.44% Wednesday.

The US Dollar eased versus Asia-EMFX. Against the Offshore Chinese Yuan (USD/CNH), the Dollar plummeted to 7.1500 from 7.2100. The USD/SGD pair (Dollar-Singapore Dollar) slumped to 1.3230 (1.3410 Wednesday). The USD/THB (Dollar-Thai Baht) dipped to 34.52 from 34.77.

Other global treasury yields fell. The UK 10-year Gilt yielded 4.41% (4.65% Wednesday). Germany’s 10-year Bund yield was last at 2.47% (2.64%). Australian 10-year bond yield closed at 4.05% (4.18%).

Other economic data released yesterday saw UK Manufacturing Production June ease to -0.2% from an upward revised previous -0.1%, beating median forecasts at -0.5%.

US May Core PPI rose just 0.1%, missing forecasts at 0.2%. US Weekly Unemployment Claims eased to 237,000 from 249,000 previously, and better than expectations of 251,000.

GBP/USD – The British Pound soared against the US Dollar to 1.3141, overnight and April 2022 highs before easing to 1.3135 NY close. Yesterday, Sterling opened at 1.2915. While UK GDP contracted -0.1% in May, it was better than forecasts for -0.3%.AUD/USD – Broad-based US Dollar weakness and risk-on sentiment boosted the Aussie Battler to an overnight and June 16 high at 0.6894 before easing to 0.6887. Yesterday, the Australian Dollar was at 0.6780. The overnight low recorded was at 0.6786.USD/JPY – The Greenback tumbled against the Japanese Yen to 138.05 against 139.40 yesterday. In another volatile trading day, the USD/JPY ratcheted to an overnight high at 138.97 before falling in late New York. The overnight low recorded was 137.95.EUR/USD – The shared currency extended its advance against the US currency, rallying 0.86% to finish at 1.1225, not far from its overnight high at 1.1228. The Euro traded to an overnight low at 1.1125.On the Lookout:

After a busy week in FX, traders will welcome a light economic calendar.

Japan kicks off with its May Capacity Utilization report (m/m f/c -2.5% from 3% - ACY Finlogix).

Japan also releases its June Industrial Production (m/m f/c -1.6% from 0.7%; y/y f/c 4.7% from -0.7% - ACY Finlogix).

Germany starts off European data with its June Wholesale Prices (m/m f/c -1.2% from -1.1%; y/y f/c -1.2% from -2.6% - ACY Finlogix).

Italy follows with its May Trade Balance (f/c +EUR 1.450 billion from +EUR 0.318 billion).

The Eurozone releases its May Trade Balance (f/c -EUR 7.6 billion from -EUR 11.7 billion).

Canada starts off North America with its Canadian May Final Manufacturing Sales (m/m f/c 0.8% from 0.3% - ACY Finlogix).

Finally, the US releases its June Import Prices (m/m f/c -0.1% from -0.6% - ACY Finlogix), US June Export Prices (f/c -0.2% from -1.9% - ACY Finlogix) and the US July University of Michigan Consumer Sentiment Index (f/c 65.5 from 64.4 – ACY Finlogix).

Tomorrow (Saturday, 15 June), China is scheduled to release its July House Price Index (y/y f/c 0.5% from 0.1% - ACY Finlogix) and Chinese June FDI (Foreign Direct Investment) (y/y f/c 0.1% from 0.1% - ACY Finlogix).

Trading Perspective:

The Dollar extended its broad-based fall this week following the drop in US producer prices, which signaled inflation was cooling. While the Federal Reserve is expected to increase its interest rate by 25 basis points at the conclusion of their July meeting, traders increased bets that it would be the last hike of the tightening cycle.

In two trading days, the benchmark US 10-year treasury yield plummeted to 3.76% from 3.97%.

The Dollar Index followed, sinking below 100 for the first time in 17 months.

While the Dollar will remain heavy against its rivals, speculative short bets have been growing in the latest week.

Being a Friday, caution is warranted, and a corrective Dollar bounce is likely.

However, the trend is still for a lower Greenback unless US yields reverse their drop.

Watch for any Fed speak.

A few minutes ago, Federal Reserve Governor Christopher Waller said will need two more interest rate hikes to contain inflation.

The Dollar was little changed following his comments.

The US Michigan Consumer Sentiment Index should also be monitored.

ACY Finlogix forecasts it to climb to 65.5 from 64.4.

A climb higher than 65.5, say 65.8 will see a strong Greenback reversal north.

GBP/USD – The British Pound soared to finish 1.06% higher against the Greenback to 1.3135. Yesterday, Sterling was trading at 1.2980, so am cautious at this current high altitude. Look for immediate resistance at 1.3140 (overnight high) followed by 1.3170 and 1.3200 to hold. Immediate support lies at 1.3090 followed by 1.3040 and 1.3000. Look for Sterling to consolidate today between 1.3010-1.3150. Prefer to sell rallies.

(Source: Finlogix.com)

EUR/USD – The shared currency extended its gains versus the Greenback to settle at 1.1225 from 1.1105 yesterday. Look for immediate resistance at 1.1230 and 1.1260 to cap any rallies. Immediate support can be found at 1.1190, 1.1160 and 1.1130. Look for the Euro to trade a range today, likely between 1.1130-1.1230. Prefer to sell on Euro strength.AUD/USD – Despite broad based US Dollar weakness, the Aussie Dollar failed to clear 0.69 cents, closing at 0.6888. Yesterday, the Australian Dollar opened at 0.6685. Today look for the 0.6900 level to cap any rallies. A break above 0.6900 should see 0.6940 followed by 0.6980. Immediate support lies at 0.6850, 0.6820 and 0.6790. Look for the Aussie to trade a likely range today of 0.6810-0.6910. Prefer to sell rallies.USD/JPY – Against the Japanese Yen, the Dollar extended its slide, settling at 138.05 from 139.40 yesterday. On Wednesday, the USD/JPY pair was at 140.35. On the day, look for immediate support at 137.85 (overnight low traded was 137.96). The next support level is found at 137.50. Immediate resistance for USD/JPY is found at 138.40 followed by 138.90. Look for consolidation in this currency pair, likely between 138.00 to 139.00. Trade the range.Happy trading and Friday all. Have a top weekend.

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