(Michael Moran – ACY Securities)
Yen Outperforms, Bond Yields Plunge, Stocks Slide
Risk aversion continued to dominate financial markets as the month of June and half-year ended. The Dollar-Yen (USD/JPY) pair, FX barometer for risk, tumbled 0.68% to 135.72 after trading to a 24-year peak at 137.00. Global stocks dropped. The DOW settled at 30,982 (31,582 yesterday) while the S&P 500 plunged 2.09% to 3,825 from 3,915. Global bond yields plunged. The 10-year US Treasury rate closed at 3.01% from 3.17% yesterday. Following Tuesday’s larger-than-expected fall in US Consumer Confidence, data released yesterday saw the Chicago PMI slump to 56.41 in June from 60.3 in May.
The plunge in bond yields which were led by US treasuries occurred after the Atlanta Federal Reserve slashed its Q2 GDP Growth forecast from 0.0% to -1.0%. The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, slid 0.39% to 104.37 from 104.52. This enabled the Euro (EUR/USD) to reverse its slide, climbing 0.35% to settle at 1.0483 (1.0433 yesterday). Sterling (GBP/USD) recovered 0.34% to finish at 1.2175, boosted by broad-based US Dollar weakness. The Australian Dollar (AUD/USD) finished little changed at 0.6902 (0.6900) while the Kiwi (NZD/USD) edged up to 0.6240 from 0.6235. Against the Swiss Franc, the US Dollar (USD/CHF) dipped to 0.9550 from 0.9560. The Greenback was mixed against the Asian and Emerging Market Currencies. USD/CNH (Dollar-Offshore Chinese Yuan) was last at 6.6955 (6.7065). Against the Thai Baht, the US Dollar (USD/THB) closed at 35.30, up 0.35% from 35.15 yesterday. The USD/SGD pair climbed to 1.3900 (1.3878).
Other global bond yields fell. Germany’s 10-Year Bund yield closed at 1.33% from 1.62%. The UK 10-year Gilt rate settled at 2.23%, down a whopping 23 basis points from 2.46% yesterday.
Other economic data released yesterday saw Japan’s Retail Sales (y/y) fall to 3.6% against median forecasts at 4.0%. Australia’s Retail Sales climbed to 0.9%, beating estimates at 0.3%. Germany’s Preliminary CPI rose 0.1%, lower than a previous 0.9%, and lower than estimates at 0.4%. Eurozone Private Loans (y/y) grew by 4.6% from a previous 4.5%. French Consumer Confidence fell to 82.0 from 85.0 and missing estimates at 84.0. US Core PCE Price Index (m/m) rose 0.3%, matching a previous 0.3%, but lower than median estimates at 0.4%. US Weekly Unemployment Claims rose to 231,000 down from a previous 233,000 but higher than estimates at 228,000.
EUR/USD – The Euro rebounded off its overnight and two-week low at 1.0382, finishing at 1.0485 at the New York close. The overnight high traded was at 1.0488. Technical month and half-year end saw speculative Euro short bets scrambling for cover. The EUR/CHF cross pair recovered to 1.0005 after plunging to overnight and fresh January 2015 lows at 0.9944.
USD/JPY – Slip-sliding away, the Greenback lost favour against the haven sought Japanese Yen, settling at 135.72 from 136.15 yesterday. Overnight, the USD/JPY pair hit a low at 135.55 in choppy trade. The high recorded was at 137.00, overnight and 24-year peak.
GBP/USD – Sterling recovered against the broadly based weaker Greenback to 1.2175 from 1.2135 yesterday. Overnight the GBP/USD pair hit a low at 1.2092. Bank of England Governor Andrew Bailey warned that Britain faces a faster and steeper downturn than other rich countries. The UK releases its Final Manufacturing PMI and Mortgage Approvals data later today.
AUD/USD – The Australian Dollar found some respite against the modestly weaker Greenback, edging higher to 0.6902 finish in New York (0.6900 yesterday). Overnight low traded for the Battler was at 0.6853, while the overnight high recorded was at 0.6919. Trading was choppy into the month and half year end.
On the Lookout
We begin a new month and the second half of 2022 with a busy economic calendar. Australia kicked off earlier with its AIG Manufacturing Index, which rose to 54 from a previous 52.4. New Zealand Building Permits for May (m/m) eased to -0.5% from a previous -8.6% and bettering estimates at -0.6%. Japan’s Tokyo CPI for June (y/y) climbed to 2.3% against median forecasts at 2.2%. Japanese May Unemployment Rate rose to 2.6% from a previous 2.5%. Japan is also scheduled to release its Tankan Manufacturing Index for Q2 (f/c 13 from 14), Japanese Q2 Tankan Non-Manufacturing Index (f/c 14 from previous 9); Japanese Jibun Bank Manufacturing Index for June (f/c 52.7 from 52.7). China follows with its Caixin June Manufacturing PMI (f/c 50.1 from 48.1 – FX Street). European data kick off with Spanish June Manufacturing PMI (f/c 52.2 from 53.8 – FX Street); French June Manufacturing PMI (f/c 50.7 from 51.9 – FX Street); German June Manufacturing PMI (f/c 52 from 52 – FX Street); Eurozone June Manufacturing PMI (f/c 52 from 52 – FX Street). The UK follows with its UK May Mortgage Approvals (f/c 64K from 65.97 K – FX Street), UK May Net Lending to Individuals (no f/c, previous was GBP 5.5 billion – ACY Finlogix); Finally, the US rounds up today’s reports with its ISM Manufacturing PMI (f/c 54.6 from 56.1 – Forex Factory); US June Final Manufacturing PMI (f/c 52.4 from 52.4 – Forex Factory), US Construction Spending (m/m f/c 0.3% from 0.2% – Forex Factory).
Expect a tentative start to the month of July and H2 2022 in Asia today. Growing fears mounting from a global recession amidst rising inflation will continue to dominate trading. Which resulted in a souring of risk appetite. Which saw US bond yields plunge with the benchmark 10-year rate down a whopping 16 basis points to 3.01%. This kept the Greenback under pressure against its rivals despite the risk-off stance. Expect this theme to continue in Asia today. Markets will focus on global Manufacturing PMIs, most of which are expected to either match previous results or ease. Overnight, the EUR/CHF cross tumbled to a fresh January 2015 low at 0.9944. On the day the EUR/CHF had a flash crash fall which spooked trading companies with many pricing platforms shutting down around the fall. Why is that important today? EUR/CHF bears watching, to many it is the global recession cross. The lower it goes, the more risks of a recession. We can be sure that the Swiss National Bank, the ECB and other central banks will be closely monitoring this cross. Particularly heading into the weekend. On the other hand, markets may just fizzle out, with no one wanting to take any big risks on Friday afternoon in New York. Looking back, basing it from past experiences, this is one of those Fridays. Tin helmets on for sure.
EUR/USD – Rebounded to finish at 1.0485 (1.0522 yesterday). Overnight the shared currency traded to a 1.0382 low, not far off May’s floor at 1.0349. A fall in Germany’s May Retail Sales to 0.6% against expectations of 1.1% weighed on the Euro. A lower finish in the EUR/CHF cross also pulled the shared currency lower. As the EUR/CHF cross slides lower, expect the EUR/USD pair to follow. Overnight the shared currency traded to a 1.0382 low, not far off May’s floor at 1.0349. Immediate support lies at 1.0450, 1.0420 and 1.0380. Immediate resistance is found at 1.0510, 1.0540 and 1.0570. Likely range today 1.0420-1.0520.
USD/JPY – The Dollar Yen pair had another volatile trading session, initially climbing to a 137.00 overnight and 24-year high before tumbling to close at 135.72. The fall in the US 10-year bond yield pulled USD/JPY lower. For today, immediate support lies at 135.55 (overnight low). The next support is found at 135.20 and 134.90. On the topside, look for immediate resistance at 136.10, 136.40 and 136.70. Look for another roller coaster ride in this currency pair, likely range 135.40-136.70. Just trade the range shag on this puppy today.
AUD/USD – The Aussie Battler finds itself wedged in between an overall weaker US Dollar and the market’s risk-off stance. Overnight, the AUD/USD pair edged up to finish at 0.6902 from yesterday’s open at 0.6900. On the day, look for immediate resistance at 0.6930 followed by 0.6960. Immediate support can be found at 0.6875, 0.6845 and 0.6815. Look for another choppy session, with a likely range of 0.6830-0.6930. Look to sell Aussie rallies.
GBP/USD – Sterling edged higher against the Greenback (GBP/USD) to 1.2175 at the New York close, up 0.34% from yesterday’s 1.2135 open. The British currency slumped following comments by Bank of England Governor Andrew Bailey. At the end of the day though it will be the US Dollar that dictates where Sterling will go. Immediate resistance today lies at 1.2200 followed by 1.2230. On the downside, look for immediate support at 1.2140, 1.2110 and 1.2080. Expect more choppy trade, likely range today of 1.2100-1.2200. Trade it.