DXY, US Yields Tumble on Dovish Fed; AUD Soars

Yen Surges; Euro, GBP Rebound; Asia-EMFX Climb

Summary:

The Dollar Index (DXY) which weighs the value of the Greenback against a basket of 6 major currencies tumbled 0.9% to 102.92 from 103.87, its lowest finish since early August.

The catalyst was a fall in US treasury bond yields, following a dovish posture by the Federal Reserve at its December meeting. The Fed kept its Funds rate unchanged at 5.5% but signaled a policy shift.

Fed Chair Jerome Powell reinforced the idea of a pivot when he remarked that US policymakers had discussed the prospect of rate cuts at the meeting. The US central bank flagged deeper-than-expected rate cuts in 2024.

The benchmark US ten-year bond yield tumbled 10 basis points to 3.92%, a 4-month low. The 10-year rate, which is a key indicator of bond market sentiment and safe-haven demand, had rocketed above 5% in October.

Lower US bond yields pulled the USD/JPY pair lower to a 141.83 finish in New York, down 0.7% from 142.30 yesterday. A week ago, the Greenback was changing hands against the Yen at 145.00.

The British Pound (GBP/USD) and Euro (EUR/USD) both rebounded, up over 1%, finishing at 1.2757 (1.2620) and 1.0995 (1.0878) respectively. The Euro soared to 1.1009 overnight high before settling. Sterling (GBP/USD) rallied to 1.2794, its overnight peak, before dipping to its close.

Yesterday, the European Central Bank and Bank of England both held interest rates unchanged but signaled that borrowing costs are set to remain elevated for some time.

The Australian Dollar (AUD/USD) jumped to finish at 0.6697, up from yesterday’s 0.6668. In volatile trade, the Aussie Battler soared to an overnight high at 0.6729 before easing.

The Dollar fell against the Asian and Emerging Market Currencies. The USD/CNH pair (Dollar-Offshore Chinese Yuan) slid to 7.1215 from 7.1400 previously. Against the Thai Baht, the US Dollar (USD/THB) settled at 34.90 from 35.30.

Wall Street stocks rallied. The DOW gained 0.3% to 37,195 (37,080 yesterday) while the S&P 500 rallied to 4,715 from 4.705. Australia’s ASX 200 climbed to 7,432 from 7,350 previously.

Economic data released yesterday saw Australia’s economy create 61,500 jobs, beating expectations of 10,600 jobs. Australia’s Unemployment Rate though climbed to 3.9% (3.8%).

US Headline Retail Sales rose to 0.3% from a downward adjusted -0.2%, beating forecasts at -0.1%. US Core Retail Sales climbed to 0.2% from a downward adjusted 0.0%, beating estimates at -0.1%. US Weekly Unemployment Claims eased to 202K from 221K previously, beating forecasts at 219K.

• AUD/USD – the Aussie Dollar jumped to an overnight and one-week high at 0.6729, before easing to 0.6697 in late New York. In choppy trade, the overnight low recorded was at 0.6662. The Australian Dollar also rose against most major and Emerging Market currencies.
• USD/JPY – slip-sliding away, the Dollar tumbled to 141.83 in late New York, down from yesterday’s 142.30. In another volatile session, the USD/JPY pair traded to an overnight high at 142.91 while the overnight low recorded was at 140.94.
• EUR/USD – the shared currency rebounded against the broadly-based weaker US Dollar to 1.0995 in late New York. Yesterday, the Euro was changing hands against the Greenback at 1.0878. In choppy trade of its own, the EUR/USD pair soared to an overnight high at 1.1009.
• GBP/USD – Sterling soared against the Dollar to finish at 1.2757, up from yesterday’s open at 1.2620. The British Pound saw an overnight high of 1.2794, while the overnight low traded was at 1.2612. The Bank of England kept its policy rate unchanged at yesterday’s meeting.

On the Lookout:

Following yesterday’s big tumble of the Greenback, expect markets to closely monitor the economic data released today.

New Zealand kicks off with its Business NZ Manufacturing Index (f/c 42 from 42.5 – ACY Finlogix). Australia follows with its Judo Bank December Flash Manufacturing PMI (f/c 48.5 from 47.7 – ACY Finlogix) and Judo Bank December Flash Services PMI (f/c 46.5 from 46.0 – ACY Finlogix).

Japan follows next with its Jibun Bank December Flash Manufacturing PMI (f/c 49.5 from 48.3 – ACY Finlogix) and Jibun Bank December Flash Services PMI (f/c 52 from 50.8 – ACY Finlogix).

China follows with its trifecta of November Retail Sales (y/y f/c 12.5% from 7.6% - ACY Finlogix), Chinese November Industrial Production (y/y 5.6% from 4.6% - ACY Finlogix) and Chinese November Fixed Asset Investment (y/y f/c 3% from 2.9% - ACY Finlogix). China also releases its November Unemployment Rate (f/c 5% from 5% - ACY Finlogix).

France starts off Europe with its French November Final Inflation Rate (m/m f/c -0.3% from 0,.2%; y/y f/c 3.4% from 4% - ACY Finlogix). France also releases its December Flash Manufacturing PMI (f/c 43.3 from 42.9), and France Services PMI (f/c 46 from 45.4 – ACY Finlogix).

Germany follows with its December Flash Manufacturing PMI (f/c 43.2 from 42.6 – ACY Finlogix), German December Flash Services PMI (f/c 49.8 from 49.6 – ACY Finlogix) and Eurozone December Flash Manufacturing PMI (f/c 44.6 from 44.2 – ACY Finlogix) and Eurozone December Flash Services PMI (f/c 49 from 48.7 – ACY Finlogix).

The UK releases its December S&P Global Manufacturing PMI (f/c 47.5 from 47.2 – ACY Finlogix), UK S&P Global Services PMI (f/c 51 from 50.9 – ACY Finlogix).

Italy releases its November Final Inflation Rate (m/m f/c -0.4% from -0.2%; y/y f/c 0.8% from 1.7% - ACY Finlogix). The U.S. rounds up today’s data releases with its U.S. Empire State Manufacturing Index (f/c 2 from 9.1 – FX Street), US November Industrial Production (m/m f/c 0.3% from -0.6% - FX Street), US November Capacity Utilization (f/c 79.1% from 78.9% - ACY Finlogix), US November Manufacturing Production (m/m f/c 0.4% from -0.7%; y/y f/c -1.1% from -1.7%), US December Global Manufacturing PMI (f/c 49.3 from 49.4 – ACY Finlogix), and US December Global Services PMI (f/c 50.6 from 50.8 – ACY Finlogix).

Whew, a lot to chew on later today.

Trading Perspective:

The near 1% overnight tumble on the Dollar Index, which is a popular gauge of the Greenback’s value against a basket of 6 major currencies, set the tone for a weaker Greenback ahead.

Being Friday though, we can expect profit taking and position adjustments to affect trading. Stronger than expected US economic data however will be Dollar supportive.

Market participants will continue to scrutinize data releases as well as Central Bank speak.

We’re in for another choppy Friday end of week session today. Keep those tin helmets on.

• EUR/USD – The shared currency rebounded powerfully to climb above the 1.1000 level in choppy trade, settling at 1.0995 at the close of trade in New York. Look for immediate resistance today at 1.1010 (overnight high traded was 1.1009). The next resistance level lies at 1.1030. Immediate support can be found at 1.0950, 1.0920 and 1.0880 (overnight low traded was 1,0879). Look for another volatile session in this currency pair. Likely range: 1.0920-1.1020. Trade the range, preference is to sell Euro rallies.
• AUD/USD – The Aussie Battler jumped like a wounded kangaroo, trading to an overnight high at 0.6729 before easing to finish at 0.6697 in New York (0.6668 yesterday). Immediate resistance on the Aussie lies at 0.6730 followed by 0.6760 and 0.6790. Immediate support can be found at 0.6660 (overnight low traded was 0.6662). The next support level is found at 0.6630. Look for the Aussie to trade a likely range today of 0.6650-0.6750.

(Source: Finlogix.com)

• USD/JPY – The Dollar plummeted against the Japanese Yen to 141.83 (142.30 yesterday) weighed by lower US bond yields. Look for immediate support in this currency pair at 141.50, 141.20 and 140.90 (overnight low traded was 140.94). On the topside, immediate resistance can be found at 142.10, 142.60 and 143.10. Look for more choppy trade in this currency pair, likely between 141 and 143 today. Trade the range, nice and wide.
• GBP/USD – Sterling soared against the overall weaker US Dollar to finish at 1.2757 (1.2620 yesterday). On the day, look for immediate resistance at 1.2790 (overnight high traded was 1.2794). The next resistance level lies at 1.2820. Immediate support today lies at 1.2720, 1.2690 and 1.2660. Look for another volatile trading session in the GBP/USD pair, likely between 1.2600-1.2800.

Happy Friday and trading all. A top weekend ahead.

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