Summary: US bond yields are on the rise, with the 10-year note hitting 1.5% (1.45% yesterday), a level not seen since June. The yield on benchmark Treasury bonds was 1.49%.
More and more Fed officials are anticipating an improvement in the economy, ensuring a moderation in the pace of asset purchases. Fed Governor Lael Brainard said if hiring of jobs continues “as I hope” the economy “may soon reach the mark” that would attract the reduction in monthly bond purchases. the Fed. The Dollar Index (USD / DXY), a popular indicator of the value of the greenback against a basket of major currencies, extended its gain to 93.40 (93.27). Risk appetite has improved following news that the Central Bank of China has injected more liquidity into the banking system in an attempt to contain contagion risks from struggling developer Evergrande. The Australian dollar rebounded 0.36% to 0.7285 from 0.7260 yesterday, while the kiwi (NZD / USD) was little changed at 0.7010 (0.7015 yesterday). Against the Japanese yen, the US dollar rose 0.33% to 111.00 (110.62). The euro dipped to 1.1695 from 1.1720 yesterday. The election of Germany did not yield any decisive results and the task of forming a coalition government weighed on the common currency. The British pound edged up to close in New York at 1.3700 (1.3667). USD / CAD fell to 1.2628 from 1.2650. Rising US bond yields boosted the greenback against most Asian and emerging market currencies. USD / THB (US dollar vs. Thai baht) rose 0.45% to 33.60 from 33.40 yesterday. The USD / SGD (US dollar vs. Singapore dollar) pair, however, dipped to 1.3535 from 1.3542. Against the Chinese offshore yuan, the greenback (USD / CNH) was little changed at 6.4585 (6.4615).
Global bond yields were mostly higher due to higher US rates. The yield on the 10-year German Bund came in at -0.22% versus -0.23%. The UK 10-year Gilt yield was last at 0.95% from 0.92% yesterday. Wall Street stocks ended mixed. The DOW closed at 34,890 (34,830) while the S&P 500 was last at 4,442 (4,460).
Data released yesterday saw Japan SPPI (Services PPI) dip to 1.0% in August from 1.1% in July, lower than estimates at 1.2%. Euro area private lending on an annual basis is forecast at 4.2%. US durable goods orders in August fell 0.2% from July’s 0.8%, lower than expectations of 0.5%. Orders for basic durable goods, however, rose to 1.8% from 0.5%. higher than median estimates at 0.7%.
AUD / USD – The Aussie Battler rebounded after early selling pressure saw AUD / USD trading 0.7241 overnight low since opening at 0.7260. AUD / USD closed at 0.7285 in moderate trade. The night traded high was 0.7294.
EUR / USD – The shared currency dipped to finish at 1.1695 from 1.1720 yesterday. According to Pablo Hernandez de Cos, member of the Governing Council of the ECB, the European Central Bank has not discussed the possibility of reducing asset purchases. This contrasts sharply with the recent speech of the Fed. The tedious task of forming a coalition government in Germany also weighed on the euro.
GBP / USD – The British pound rebounded from its overnight lows at 1.3654 to settle at 1.3700 in New York City, compared to 1.36665 yesterday. Bank of England Governor Andrew Bailey has hinted that a rate hike will precede the cut, citing fears of growth.
USD / JPY – Against the yield-sensitive Japanese yen, the US dollar jumped to 110.07 overnight before easing to settle at 111.00 at the end of New York. Yesterday the USD / JPY pair opened at 110.62. The rise in US bond yields supported the greenback against the yen.
On the lookout: Today’s events pick up while the data calendar remains light. The Bank of Japan will soon publish the minutes of its monetary policy meeting (9:50 a.m. Sydney). Australia releases its August retail sales report (m / mf / c -2.5% vs. previous -2.7%). European data starts with the German GFK consumer confidence survey for October (f / c -1.6 vs. -1.2 – ACY Finlogix). The ECB Central Bank Forum kicks off today with the opening speech by ECB President Christine Lagarde. The United States begins with its merchandise trade balance (f / c deficit of -87.4 billion USD compared to -86.4 billion USD previously). The US S&P Case-Shiller Home Price Index for July follows (m / m not f / c, previous was 2%; y / yf / c 20.0% vs. 19.1% – ACY Finlogix). The US house price index in July follows (m / mf / c 1.5% vs. 1.6%; y / y no forecast, the previous one was 18.8%). The Richmond Fed manufacturing index in September in the United States (f / c 12 compared to the previous 9), American consumer confidence in September BC (f / c 114.5 compared to 113.8 previously – ACY Finlogix) round off today’s data releases.
Commercial perspective: While the Dollar Index (USD / DXY) ended higher, the greenback was mixed against its rivals. This was due to the combination of a better risk appetite as Evergrande fears eased as US bond yields rose, prolonging the gains. With more and more Fed officials touting a reduction in its monthly bond purchases in hopes of an improving economy, the dollar has maintained its overall tone of supply. The widespread strength of the US dollar is due to the uncertainties of Evergrande in China and the growing likelihood that the Federal Reserve will start cutting its obligations soon. As a result, the latest CFTC Commitment of Traders report saw the entire US dollar long against 10 IMM currency futures soar 39% to $ 15.8 billion, which is a 21-month high. Which presents a risk. And sound the alarm bells, reminding me of a classic quote from the 1965-1968 American sci-fi television series, Lost in Space. “Danger, Will Robinson!
EUR / USD – The euro slipped to an overnight low at 1.1685 after opening yesterday at 1.1720. The split currency managed to settle at 1.1695 at the end of New York. The different rhetoric coming from Fed and ECB officials saw US and German bond yield spreads widen. This will keep the euro under pressure. However, the accumulation of speculative short bets on the Euro will ease any selling pressure on the EUR / USD pair. Immediate support is at 1.1685 followed by 1.1650. Immediate resistance can be found at 1.1710 and 1.1730. Look to trade a likely range today of 1.1670-1.1720. But watch out for Euro shorts.
AUD / USD – The Australian dollar benefited from risk flows, settling 0.36% to 0.7285 (0.7260 yesterday). Overnight, the Aussie Battler peaked at 0.7294. The overnight low for AUD / USD was 0.7241. Australia’s retail sales report for August is expected to improve to -2.5% from -2.7% in July. Any drop in sales above the -2.5% rate will put further pressure on the Aussie. For today, immediate support stands at 0.7250 followed by 0.7220 and then 0.7200. On the upper side, immediate resistance can be found at 0.7300 followed by 0.7330. Look for a consolidation with a probable range today of 0.7235-0.7305. While the Aussie is an ideal sell on rallies, beware of specific Aussie shorts. Trade the range shag on this puppy today.
GBP / USD – The British pound stood at 0.24% up to 1.3700 from 1.3667 yesterday. The Bank of England kept interest rates on hold last week while hinting that a hike is possible even before the UK central bank cuts its bond purchases. The BOE hawkishness supported the pound sterling. Overnight GBP / USD traded high at 1.3729. The overnight low was 1.3654. Immediate resistance today stands at 1.3730, followed by 1.3760. Immediate support can be found at 1.3670 and 1.3640. Look for the British Pound to trade a likely range of 1.3660-1.3730. Just swap the range shag on this one today.
USD / JPY – The greenback rallied against the Japanese yen to 111.00 at the end of New York, up 0.3% from yesterday’s 110.62. Overnight, USD / JPY hit a high of 111.07 before dropping to 111.00 at the close. Immediate resistance for today is at 111.10 followed by 111.40. Immediate support can be found at 110.70 and 110.40. Higher US bond yields will keep this currency pair strong. You are looking for a probable trading range today of 110.75 to 111.35. You prefer to buy lows, the USD / JPY could be heading further north.