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US 2-Year Yield Climbs, Fed’s Williams Talks Down Rate Cuts
Summary: The Euro (EUR/USD) plummeted 100 pips lower to 1.0895 (1.0995) after data showed that business activity in Europe continued to deteriorate. A poll released by S&P Global, a US financial information and analytics company revealed that activity in Germany and France shrank.
Germany’s Flash Services PMI fell to 48.1 from 48.7 previously, missing forecasts at 49.0. France’s Flash December Manufacturing PMI slid to 42 from 42.9 previously, missing estimates at 43.3.
On the other side of the Atlantic, New York Fed President John Williams said that “its premature to talk about rate cuts at the March meeting”, lifting 2-year US treasury rates to 4.44% from 4.39%.
Chicago Fed President Austan Goolsbee said it was too early to declare victory in the central bank’s inflation fight and that decisions would be made on incoming economic data.
The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies rebounded 0.63% to 102.60 from Friday’s 101.95. The British Pound (GBP/USD) slumped 0.8% to 1.2675 (1.2757).
Against the Japanese Yen, the US Dollar (USD/JPY) rallied to 142.20 from 141.85 Friday. While the 2-year US bond rate was up, the US 10-year treasury yield dipped to 3.91% from 3.93%, limiting the Greenback’s topside.
The Australian Dollar (AUD/USD) was little changed, settling at 0.6700 from 0.6697 Friday. The Aussie Battler held on to its gains after hitting a low of 0.6540 during the week.
The Greenback advanced against the Asian and Emerging Market currencies. USD/CNH (Dollar-Offshore Chinese Yuan) edged higher to 7.1350 from 7.1220. Against the Singapore Dollar (USD/SGD), the Greenback rallied to 1.3320 (1.3290 Friday).
Wall Street stocks finished higher. The DOW gained 0.35% to 37,340 (37,200) while the S&P 500 finished at 4,723, up from 4,715 previously. Japan’s Nikkei climbed to 32,780 (32,720).
Other economic data released Friday saw Eurozone Flash Services PMI tumble to 48.1 from 48.7 previously and lower than expectations at 49.0. US S&P December Global Services PMI rose to 51.3 from 50.8 previously, and higher than economists’ forecasts at 50.6.
- EUR/USD – the Euro reversed its gains made on Friday, plummeting to 1.0895 from 1.0995. The shared currency traded to a low at 1.0888 before steadying. In volatile trade, the EUR/USD pair hit an overnight high of 1.1004.
- GBP/USD – Sterling slid against the US Dollar in late New York to finish at 1.2677 against Friday’s open at 1.2757. In choppy trade of its own, the British Pound soared to an overnight high at 1.2791 before tumbling lower. The overnight low traded was at 1.2663.
- AUD/USD – the Aussie Battler finished little changed against the Greenback to 0.6700 in late New York on Friday from 0.6697. The Australian Dollar earlier rallied to an overnight high at 0.6728 before easing. The Aussie hit an overnight low at 0.6663.
- USD/JPY – against the Japanese Yen, the US Dollar edged higher to finish at 142.20 (141.85 Friday). Earlier in the session, the Greenback slid to an overnight low at 141.43 before steadying to rally to its New York close. The overnight high traded was at 142.46.
On the Lookout: Today starts the last full week of trading in the currency markets. The economic calendar is light and kicked off earlier with New Zealand’s Westpac Bank Consumer Confidence Index which climbed to 88.9, beating forecasts at 85.1 and higher than 80.2 previously. New Zealand’s Business NZ Services Index climbed to 51.2 from 49.2 previously. The Kiwi (NZD/USD) was little changed following the release, at 0.6197 (0.6202). China follows next with its November Foreign Direct Investment (y/y f/c -10 from -9.4 – ACY Finlogix). Australia releases its Mid-Year Economic and Fiscal Outlook (FX Street). Europe follows with Germany’s December IFO Business Climate (f/c 87.8 from 87.3 previously – ACY Finlogix), German December IFO Expectations (f/c 85.8 from 85.2 – FX Street) and German December IFO Current Assessment (f/c 89.5 from 89.4 – ACY Finlogix). Germany’s Bundesbank releases its monthly report. Canada starts off North America with its Canadian National Housing Price Index (NHPI – f/c 0.1% from 0.0% - Forex Factory). The US rounds up today’s data releases with its NAHB Housing Market Index (f/c 36 from 34 – ACY Finlogix).
Trading Perspective: After falling for most of the week, the US Dollar reversed its losses on the back of hawkish rhetoric from a couple of Federal Reserve Heads (see Summary). On the week however the Greenback is lower against most of its Rivals. Markets will be focusing their attention on this week’s upcoming Bank of Japan policy meeting tomorrow (19 December). Which will be the final one for the BOJ this year. Other notable events this week include the release of Australia’s latest RBA Monetary Policy Meeting Minutes (Tuesday, 19 December) and US Final Q3 GDP and US Core PCE Price Index (Friday, 22 December). Expect the Dollar to consolidate its gains at current levels with the possibility of more volatile trade ahead.
- EUR/USD – the Euro gave back all its gains in choppy trade Friday to 1.0895 (1.0995). Look for immediate support today at 1.0890 (overnight low traded was 1.0888). The next support level is found at 1.0860 followed by 1.0830. On the topside, look for immediate resistance at 1.0930, 10960 and 1.1000. The overnight high traded was 1.1004. Look for more choppy trade in the Euro today, likely between 1.0870-1.0970. Trade the range, nice and wide.
- USD/JPY – against the Japanese Yen, trading was more subdued with the US Dollar settling at 142.20. On the day, look for immediate support at 141.80, 141.50 and 141.20. Immediate resistance lies at 142.50 (overnight high traded was 142.46). The next resistance level lies at 142.80 and 143.10. Look for more choppy trade today, likely between 141.50-142.50.
- AUD/USD – the Aussie finished little changed against the US Dollar at 0.6700 (0.6697). Immediate support for the Australian Dollar lies at 0.6670 (overnight low traded was 0.6663), followed by 0.6640. Immediate resistance lies at 0.6730 (overnight high traded was 0.6728). Look for another choppy trading session, likely between 0.6630-0.6730. Sell AUD on rallies.
(Source: Finlogix.com)
- GBP/USD – Sterling slumped against the US Dollar to 1.2677 (1.2757). On the day, look for immediate support at 1.2650 (overnight low traded was 1.2663). Immediate resistance can be found at 1.2710, followed by 1.2750 and 1.2790 (overnight high traded was 1.2791). Look for more choppy trade in this currency pair, likely between 1.2650-1.2750. Trade the range, the preference is to sell Sterling on strength.
Have a good Monday and trading week ahead all.
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