Yen, Swiss rise; Euro and Aussie drop as FX recession kicks in
Summary: Market volatility remained high, with major currency pairs trading in ranges of at least 100 points overnight. The Euro (EUR/USD) was the biggest loser, losing 0.47% to 1.0525 from 1.0570 yesterday. European manufacturing and services PMIs all fell in June, which weighed on risk appetite. The ongoing war in Ukraine due to the Russian invasion has disrupted Europe’s supply chains while keeping inflation at its highest level in years. The Eurozone flash manufacturing PMI fell to 52.0 in June, from 54.6 previously, and missing estimates at 53.9. Across the Atlantic in the United States, the Flash Markit Composite PMI slipped to 51.2 in June from 53.6 in May. In a speech to the US Congress on monetary policy, Fed Chairman Jerome Powell said the US central bank was fully committed to bringing prices under control, even if it risked causing an economic slowdown. Yields on US Treasury bonds fell, with the benchmark 10-year rate falling to 3.09% from 3.16% yesterday. The Dollar Index (USD/DXY), which measures the value of the greenback against a basket of 6 major currencies, edged up to 104.37 from 104.17 yesterday. Against the Japanese yen, the US dollar (USD/JPY) dipped to 134.95 from 136.10 yesterday, down 0.79%. Risk leader Australian dollar (AUD/USD) fell 0.36% to 0.6888 (0.6925) while the kiwi (NZD/USD) lost 0.1% to 0.6270 (0. 6285). The British Pound (GBP/USD) closed little changed at 1.2257 (1.2265 yesterday) while USD/CHF (Dollar-Swiss Franc) fell to 0.9612 from 0.9620 yesterday. The US dollar appreciated against most Asian currencies and emerging markets. USD/THB (Dollar-Thai Baht) rose to 35.50 from 35.37 while USD/SGD (US Dollar-Singapore Dollar) edged higher to 1.3897 (1.3870 yesterday).
Other global bond yields fell. The yield on the 10-year German Bund plunged to 1.42% (1.63%). The yield on the UK 10-year gilt last stood at 2.31% (2.50%). Japan’s 10-year JGB yield fell to 0.22% from 0.23% yesterday. The Australian 10-year bond yield rose slightly from 3.83% to 3.85%.
Wall Street stocks ended with modest gains. The DOW settled at 30,587 (30,460) while the S&P 500 climbed to 3,782 from 3,755 yesterday.
Further data released yesterday saw Australia’s flash manufacturing PMI climb to 55.8 from an upward-revised 55.7 (55.5). Japan’s Flash manufacturing PMI fell to 52.7 from 53.3, missing expectations at 53.5. The French Flash manufacturing PMI slipped to 54.4 from 58.3 previously, missing estimates at 57.6. Germany’s Flash manufacturing PMI fell to 52.0 from 54.8. The UK’s Flash manufacturing PMI fell slightly to 53.4 from 54.6, but beat estimates at 53.0. UK CBI sales fell to -5 from -1, missing the forecast at -2. The Flash U.S. manufacturing PMI fell to 52.4 in June, missing median expectations at 56.0, and below a previous lower-adjusted 57.0. UK GFK Consumer Confidence for June fell to -41 from -40 previously, missing estimates at -40.
- EUR/USD – On the slide, the common currency fell 0.47% to 1.0525 (1.0570), weighed by weaker readings of European and Eurozone manufacturing and services PMIs. The overnight low traded for the EUR/USD pair was at 1.0483 while the high recorded was at 1.0581. Trading was choppy within the recorded range.
- USD/JPY- Weighed down by falling US bond yields, the greenback fell against the Japanese yen to 134.95 from 136.10. The slump in global industrial activity saw currency flows spill over into the yen as risk appetite waned. In volatile trade, the overnight low on record was at 134.26. On the upside, the high traded overnight was at 136.20, taking the trading range close to 200 pips! Happy Days!
- AUD/USD – The shift to a risk aversion stance by financial markets weighed on the Aussie Battler. The Aussie fell back below 0.6900 support to close at 0.6888 (0.6925 yesterday), down 0.36%. The overnight low traded was at 0.6869 while the high recorded was at 0.6926. The Aussie was also down against other rivals. The AUD/JPY cross lost 1.17% to 92.95 from 94.23 yesterday.
- USD/SGD – Against the Singapore dollar, the greenback edged higher to end at 1.3897 from 1.3870 yesterday. The overnight high traded was at 1.3913 while the overnight low recorded was at 1.3893. Besides the Japanese yen and the Swiss franc, the Singapore dollar is one of the currencies to hold during a global recession, according to the experience of this writer.
On the lookout: Today’s calendar is relatively light which, after a volatile week for the markets, is welcome. That said, it was central bank talk that kept FX trading choppy. Today’s economic data releases kicked off with Japan’s headline CPI (m/m) falling to 0.2% from 0.4% and (y/y) unchanged at 2.5 %. Japan’s core CPI in May (y/y) matched April’s 0.8%. There are no other major economic data releases from Asia. UK starts with European data with UK retail sales in May (m/mf/c -0.7% vs 1.4%; y/yf/c -4.5% vs compared to the previous -4.9% – FX Street). UK Core Retail Sales in May (m/mf/c -1% vs 1.4%; y/yf/c -5.1% vs -6.1% – FX Street) . Germany follows with its June IFO Business Sentiment (f/c 92.9 vs previous 93.0 – FX Street), German IFO June Expectations (f/c 87.4 vs 86.9 – FX Street), China publishes its final current account (no f/c, previous was +118.4 billion USD). The US rounds out today’s releases with its final revised University of Michigan Consumer Sentiment (f/c 50.2 vs. 50.2 – ACY Finlogix), US New Home Sales in May (f/c 0.588 million vs. 0.591 million previous -FX Street).
Business perspective: Welcome to Friday. Expect heightened volatility to dominate FX trading today as global central banks continue their commitment to controlling prices, even if it risks the ‘R’ (recession) word. Expect the Yen, Swiss Franc, US and Singapore Dollar to continue to attract flows as the Australian, New Zealand and Emerging Market currencies remain vulnerable. Historically, this has been the trend over the past five recessions. However, this is not a rule and the best tool a trader can have during these times is flexibility. Trading ranges will remain wide, but they do provide some wiggle room. Keep a mental record of these ranges, especially the highs and lows. It is the best preparation for more of what is to come.
- EUR/USD – The common currency remains vulnerable due to Europe’s proximity to the Russian-Ukrainian conflict. While Ukraine presented itself on Thursday as a candidate for membership of the European Union, fulfilling the membership criteria will take time. The euro closed at 1.0525 (1.0570). Immediate support for the Euro is at 1.0500, 1.0480 and 1.0430. On the upside, immediate resistance lies at 1.0550, 1.0580 and 1.0610. Look for further choppy trade within a likely range today of 1.0470-1.0570. Just swap the lineup on this pup today.
- AUD/USD – The Australian dollar remains vulnerable in times of uncertainty. Overnight, the Aussie Battler traded as low as 0.6869, climbing late in New York to settle at 0.6887 (0.6925 yesterday). Immediate support lies at 0.6870, 0.6840 and 0.6810. At the top, look for immediate resistance at 0.6910, 0.6940 and 0.6980. Expect the Aussie to remain under pressure in the current environment. Likely range 0.6850-0.6930. Sell rallies.
- USD/JPY – Expect trading in this currency pair to remain volatile. On that day, falling US bond yields will weigh on USD/JPY. The greenback closed at 134.95 versus 136.10 opened yesterday. The overnight low was at 134.26. The overnight high recorded was at 136.20. For today, look for immediate support at 134.60, 134.30 and 134.00. Immediate resistance stands at 135.30, 135.60 and 136.00. Look for stronger moves in the USD/JPY pair. Likely range today 134.20-136.20. Just swap the range shag on this one, with a lot of pips in it.
- USD/SGD – We are looking at the most liquid Asian/EMFX markets today. The Singapore dollar is as stable as possible, even though it has experienced moments of volatility (Asian currency crisis in 1997). Overnight, USD/SGD rose slightly to end at 1.3897 from 1.3870. Immediate resistance stands at 1.3920 (overnight high was 1.3913). The next resistance level is at 1.3950 followed by 1.3980 and 1.4010. On the downside, immediate support can be found at 1.3870, 1.3840 and 1.3810. Look for a choppy move today, probably between 1.3870 and 1.3930. Prefer to sell rallies.
Good Friday trading above all, and top weekend too.