Dollar, Yields Push Up; US Initial Jobless Claims Ease

Dovish BOJ Weakens JPY, AUD Slumps on China Fears

Summary:

Better-than-expected Initial US Unemployment Claims, easing to 218,000 from 227,000 previously lifted bond yields and the Dollar. A popular gauge of the Greenback’s value against a basket of 6 major currencies, the Dollar Index (DXY) pushed up to 104.15 (104.00).

US treasury yields rallied with the 10-year finishing up 5 basis points to 4.17%. The two-year US treasury rate rose to 4.45% from 4.42%. In contrast, Japan’s 10-year yield fell to 0.69% (0.72%).

The US Dollar soared 0.9% to 149.37 Yen from 147.97 previously. Bank of Japan Deputy Governor Uchida said that the central bank was unlikely to raise interest rates aggressively.

Richmond Fed President Tom Barkin said that it’s a good idea that the US central bank take its time with interest rate cuts given all the uncertainty on where the US economy is headed.

China’s Consumer Prices slumped 0.8% in January from a year ago, the largest drop since 2009.

The USD/CNH gained to 7.2150 from 7.2050. Chinese authorities were expected to stabilize the currency and prop up the economy.

The Australian Dollar (AUD/USD) often seen as the FX proxy for China, slumped 0.51% to 0.6485 (0.6527).  The Aussie soared to 0.6532 after the RBA held rates steady but warned that a further interest rate hike is possible due to persistent high inflation.

Sterling (GBP/USD) dipped 0.15% to 1.2615 from 1.2630 while the Euro (EUR/USD) eased to 1.0773 (1.0780). Germany’s Annual Inflation released later today, is expected to steady at 3%.

Against the Asian and Emerging Market Currencies, the Greenback finished mostly higher. The USD/SGD pair (USD-Singapore) grinded up to 1.3475 (1.3460). USD/THB (Dollar-Thai Baht) climbed to 35.88 from 35.60 previously.

Wall Street stocks reversed earlier losses to finish with modest gains. The DOW was last at 38,715 from 38,705 while the S&P 500 steadied to 4,999 from 4,995. Other global shares rose.

Other economic data released yesterday saw Australia’s December Building Permits tumble to -9.5%, matching forecasts, but lower than the previous 0.3%. Japan’s Economy Watchers Current Index Survey Outlook in January rose to 52.5 from 50.4 previously.

• AUD/USD – Against broad-based US Dollar strength and the slump in China’s CPI, the Aussie was belted to 0.6480, the support level overnight. The Australian Dollar opened in Asia yesterday at 0.6527. Overnight high traded for the Aussie was at 0.6532.
• EUR/USD – The shared currency dipped modestly against the US Dollar to 1.0773 from 1.0780 yesterday. Overnight the Euro traded to a high at 1.0789 before easing. The overnight low recorded was 1.0741 in subdued trade.
• USD/JPY – The Greenback soared against the weaker Japanese Yen to 149.48 overnight highs. Broad-based US Dollar strength and a widening yield gap between the two currencies influenced trading. The overnight low recorded was 147.13 in choppy trade.
• GBP/USD – The British Pound eased modestly against the overall stronger US Dollar to finish at 1.2615 against 1.2630 previously. Sterling saw an overnight high at 1.2639. The overnight low recorded for the British currency was at 1.2572.

On the Lookout:

Today’s economic calendar sees light data releases. Asian markets will be quiet in anticipation of the Lunar New Year which kicks off over the weekend.

Germany kicks off Europe with its January Final Inflation Rate (m/m f/c 0.2% from 0.1%; y/y f/c 3.1% from 3.8% - ACY Finlogix).

Italy follows with its January Industrial Production (m/m f/c 0.9% from -1.5%; y/y f/c -2.2% from -3.1% - ACY Finlogix).

China releases its January New Loans (no f/c, previous was +CNY 1,107 billion -FX Street).

Canada starts off North America with its January Employment Change (f/c 15K from 0.1K – ACY Finlogix), Canadian January Unemployment Rate (f/c 5.9% from 5.8% - ACY Finlogix) and Canada’s January Participation Rate (f/c 65.3% from 65.4% - ACY Finlogix).

Trading Perspective:

The higher finish in US bond yields will continue to be Dollar supportive. While other global rates were also up, the Greenback maintains its yield advantage.

The US 10-year bond rate climbed to 4.17%. Germany’s 10-year Bund yield was last at 2.35% (2.31% previously). Being a Friday, traders can expect adjustments and profit taking to limit the Dollar’s topside.

Look for consolidation today with the Greenback maintaining its overall bid.

• AUD/USD – The Aussie Battler remained under pressure against the Greenback, breaking its support at 0.65 cents to finish at 0.6487. Look for immediate support today at 0.6480 (overnight low). The price action suggests strong bids at the 0.6480 level. The next support level comes in at 0.6450. Immediate resistance is found at 0.6540 and 0.6570. Look for a choppy trading session today, likely between 0.6470-0.6570.
• USD/JPY – The Greenback stayed bid against the Japanese Yen given a widening yield differential between the two currencies. Look for immediate resistance today at 149.50 (overnight high traded was 149.48). The next resistance level lies at 149.80 and 150.10. Immediate support can be found at 149.00, 148.70 and 148.40. Look for a choppy trading session in USD/JPY as well, likely between 148.20-150.20. Trade the range.

(Source: Finlogix.com)

• EUR/USD – The shared currency eased modestly against the US Dollar to finish at 1.0775. Look for immediate support today at 1.0740 (overnight low traded was 1.0742). The next support level can be found at 1.0710. Immediate resistance lies at 1.0800 followed by 1.0840. Look for consolidation in the Euro, likely between 1.0720-1.0820.
• GBP/USD – Sterling dipped to close at 1.2615 against the overall stronger Greenback (1.2630 previously). On the day, look for immediate support in the British Pound at 1.2570 (overnight low traded was at 1.2572). The next support level can be found at 1.2540 and 1.2510. Immediate resistance lies at 1.2640 (overnight high traded was 1.2638). The next resistance level can be found at 1.2670. Look for Sterling to trade a likely range today between 1.2550-1.2650. It’s Friday, looking to trade the range.

Happy Friday and trading all. Have a top weekend ahead.

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