‘Hot’ dollar cools, US consumption gauge slips to 11-year low

EUR Survives 2017 Low, AUD Rebounds as Risk Assets Rise

Summary: Markets ended a volatile week on Friday after the American University of Michigan’s consumer sentiment index slipped to 59.1 in May, well below April’s 65.2. It was the lowest reading since August 2011. The dollar index reversed to 104.46 from 104.76. It was the first decline in more than a week for the DXY, a preferred indicator of the value of the greenback against a basket of 6 major currencies. This allowed the Euro (EUR/USD) to rebound and end at 1.0412 after falling to 1.0349, overnight and to a 2017 low. Rising risk sentiment saw the Dollar Aussie (AUD/USD), beaten last week, jumped 1.22% to 0.6937 from 0.6855. The British pound (GBP/USD) rebounded 0.51% to 1.2261 (1.2200 Friday) after trading at 1.2155 overnight and new 2-year lows. Against the Japanese Yen however, the US Dollar finished higher at 129.20 (128.40 on Friday). The combination of risk and higher US bond yields pushed USD/JPY higher. The greenback eased against Asian currencies and emerging markets. USD/SGD (US Dollar-Singapore Dollar) fell 0.25% to 1.3920 from 1.3965 while USD/CNH (US Dollar-Chinese Offshore Yuan) fell to 6.7900 from 6.8220 Friday. Rising risk sentiment propelled Wall Street stocks to a strong finish in New York on Friday. The DOW closed at 32,205 (31,615) while the S&P 500 climbed 2.35% to 4,023 from 3,915.

Global bond yields rose. The yield on the 10-year US Treasury rose to 2.92% from 2.85%. The yield on the 10-year German Bund was last at 0.94% (0.83% on Friday). The British 10-year gilt fell 1.74% (1.66% on Friday).

Data released on Friday saw HIA new home sales in April fall to -1.2% from 3.9% previously. The French final CPI in April corresponded to a previous increase of 0.4%. Industrial production in the euro zone fell less than expected at -1.8% against 2.1%. The American University of Michigan’s consumer confidence index fell to 59.1 in May from 65.2 in April and below the economist’s forecast of 64.1.

  • EUR/USD – The Euro suffered another day of fresh selling, falling to an overnight intraday low of 2017 at 1.0349 (1.0380 open). The common currency bounced above 1.04 to end at 1.0412. The short cover prevented the EUR/USD pair from sliding lower. With many analysts calling for the euro to reach parity with the greenback, speculative betting on the euro continued to grow.
  • AUD/USD – The Aussie Battler rebounded against its US counterpart after a blow last week that saw the Aussie drop to 0.6853, an overnight low. A week ago, the AUD/USD pair changed hands at 0.7075. The risk sentiment that drove stocks higher supported the Aussie Battler.
  • USD/JPY- Against the trend, the greenback has gained 0.65% against the Japanese yen to 129.20 since Friday’s open at 128.40. The rebound in the US 10-year bond yield to 2.92% from 2.85% lifted this currency pair. In another volatile session, the overnight high was at 129.45, while the low was at 128.28.
  • GBP/USD – The British pound has rallied against the US dollar to 1.2261 since opening Friday at 1.2200, a gain of 0.51%. The broadly weaker US Dollar saw GBP/USD trade to an overnight high of 1.2264 before easing at the close. Overnight, the British pound hit 1.2155, the low of May 2020.

On the lookout: The economic calendar picks up speed today with the release of the Chinese trifecta of April retail sales (f/c -6.1% vs -3.5%), April fixed asset investment (7 .0% vs. 9.3%) and April industrial production (y/yf/c 0.4% from 5.0%) – all estimates from ACY Finlogix. China also publishes its unemployment rate (f/c 6.0% vs. 5.8% – Forex Factory). Japan follows with its April machine tool orders report (no f/c, previous was 30.2%). Europe starts with Germany’s April wholesale price index (m/m without f/c, previous was 6.9%; y/y not f/c, previous was 22 .6%). The euro zone publishes its trade balance for March (no f/c, the previous one was -7.6 billion euros). Canada leads North America with its April housing starts (f/c 246.4k vs 246.2k), Canadian manufacturing sales in March ending (f/c 1.7% vs 4.2 %), and its Canadian wholesale sales last March (m/mf/c -0.3% vs. -0.4%).
The US rounds out today’s economic data releases with its US NY Empire State Manufacturing Index for May (f/c 17 from 24.6 – ACY Finlogix). US Federal Reserve Chairman of New York and FOMC member John Williams is due to speak at the Capital Markets Conference in New York).

The coming week will see the release of the minutes of the RBA’s monetary policy meeting in Australia, the April headline in the United States and core retail sales (Tuesday May 17), the headline and the UK Core CPI, PPI; Canadian Headline, Core and Trimmed CPI (Wednesday May 18); Australian Employment Report, US Philadelphia Fed Manufacturing Index, US Unemployment Claims and US Existing Home Sales (Thursday May 19). The Japanese National Core CPI and UK Retail Sales round out the main economic data releases this week. Australia holds its parliamentary elections on Saturday May 21. A big week ahead.

Business Outlook: The dollar, which has been “hot” all past week, eased amid position adjustment and profit taking on Friday in another volatile session. A drop in the University of Michigan consumer confidence index to a low in August 2011 weighed on the greenback despite still-high inflation expectations. While risk and position adjustments dominated trading on Friday, the greenback’s overall strength against its rivals is well in place. Today sees the release of the trifecta of economic reports from China all of which should see lower readings. Strict lockdowns in Shanghai and Beijing due to a resurgence in Covid infections could weigh on risk sentiment. That said, retail sales, industrial production and capital investment are expected to contract. Any improvement in the outlook could see the greenback and risk sentiment rebound. What this guarantees is another choppy start to a busy week ahead.

  • EUR/USD – The common currency again felt the brunt of US dollar buying, trading at an overnight and 2017 low of 1.0349 before rebounding strongly to close at 1.0412. On Friday, the euro opened at 1.0380. The overnight high was at 1.0419. For today, immediate resistance can be found at 1.0420 followed by 1.0450 and 1.0480. Immediate support is at 1.0385 followed by 1.0350. Look for consolidation first today, probably between 1.0360 and 1.0430. The fall of the greenback may simply have postponed the disappearance of the euro. Negotiate the range.

(Source: Finlogix.com)

  • AUD/USD – The Australian dollar was beaten lower as risk aversion dominated trading early Friday. The overnight low traded for the AUD/USD pair was at 0.6853 before bouncing back to finish at 0.6935 at the New York close (0.6855 Friday at the open). For today, immediate support stands at 0.6900, 0.6870 and 0.6840. Immediate resistance stands at 0.6950, 0.6980 and 0.7010. Expect another volatile session on the AUD/USD pair, likely between 0.6860 and 0.6960.
  • USD/JPY- Against the yen, the greenback rallied to close at 129.20 since opening at 128.40 on Friday. The overnight high was at 129.45, which is today’s immediate resistance level. This is followed by 129.75. On the downside, immediate support can be found at 128.90, 128.60 and 128.30 (overnight low was 128.28). Look for another roller coaster ride in this currency pair, probably between 128.50 and 129.50. Prefer to sell rallies. A decline in risk sentiment could send the USD/JPY pair down.
  • GBP/USD – The British pound rallied against the weaker and broadly based greenback. On Friday, the GBP/USD pair closed at 1.2261 vs. 1.2200. The overnight high was at 1.2264. This puts immediate resistance at 1.2270 followed by 1.2300 and 1.2330. On the downside, immediate support is at 1.2230, 1.2200 and 1.2170. Look for further choppy trade in this currency pair with a likely range of 1.2150 to 1.2270. Prefer to sell in strength GBP.

Happy Monday and happy trading week ahead.

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