Euro Soars; Hawkish ECB Hikes; AUD Jumps, China Cuts Key Rate

Fed Pauses; US Yields, DXY Tumble, Asia/EMFX Rally

Summary:

The Euro (EUR/USD) soared to 1.0945 (1.0840) after the ECB hiked its Main Refinancing Rate by 25 basis points to 4.0%. ECB President Christine Lagarde said it was likely for the European Central Bank to continue raising rates in July.

Earlier, in Asia, China’s central bank, the PBOC cut its 1-year lending rate to 2.65% (2.75%). The Australian Dollar (AUD/USD) jumped 1.29% to 0.6882 from 0.6795. Asian and EMFX rallied.

Ahead of today’s Bank of Japan monetary policy meeting, the Dollar edged higher against the Japanese Yen to 140.28 (140.17). The BOJ is widely expected to maintain its ultra dovish stance.

Claims for unemployment benefits in the US surprisingly rose to 262,000 against expectations of 246,000 which weighed on the Greenback. US Industrial Production fell to -0.2% from 0.5%.

The Dollar Index (DXY), a popular gauge of the Greenback’s value against a basket of 6 major currencies, fell to 102.12 from 103.02 yesterday.

US bond yields tumbled. The benchmark 10-year rate slid 8 basis points to 3.72%. In contrast, Germany’s 10-year Bund yield rose to 2.50% from 2.45%, following the ECB’s rate increase.

The British Pound (GBP/USD) spiked to 1.2786, the highest level this year against yesterday’s 1.2667. At the close of trade in New York, Sterling dipped to settle at 1.2780.

Against the Asian and Emerging Market Currencies, the Dollar slumped. The USD/CNH pair (Dollar-Offshore Chinese Yuan) plummeted to 7.1200 from 7.1750 yesterday. USD/THB (Dollar-Thai Baht) slid to 34.60 (34.80). The Greenback slumped to 1.3365 Singapore Dollars, against 1.3412 yesterday.

Wall Street stocks soared. The DOW finished at 34,360 (33,940) while the S&P 500 gained 0.96% to 4,420 against yesterday’s close at 4,365. Other global share markets rose.

Other economic data released yesterday saw Australia’s Jobless Rate dip to 3.6% from 3.7% in May. China’s Retail Sales tumbled to 12.7% from a previous 18.4%, and lower than forecasts at 13.7%.

China’s Annual Industrial Production was unchanged at 3.5%. China’s Unemployment Rate in May was unchanged at 5.2%. US May Headline Retail Sales dipped to 0.3% from 0.4% but beat forecasts at -0.2%. Core Sales were unchanged at 0.1%.

EUR/USD – The shared currency spiked to 1.0953, overnight and near 5-week high before easing to close at 1.0945. The news of the ECB rate hike and hawkish projection from President Lagarde boosted the EUR/USD pair. In choppy trade, the low recorded was 1.0804.AUD/USD – The risk leading Aussie Battler outperformed, jumping to 0.6893 overnight highs against yesterday’s 0.6795 in volatile trade. At the close of trade, the Australian Dollar settled at 0.6883. The overnight low recorded was 0.6765.USD/JPY – Against the Japanese Yen, the US Dollar edged higher to 140.28 against 140.17 yesterday. Overnight, the Greenback soared to a high at 141.51 before easing. In choppy trade, the overnight low recorded was 139.94. The Bank of Japan is expected to keep its ultra soft monetary stance at the conclusion of its meeting today.GBP/USD – The British Pound rose against the generally weaker US Dollar to finish at 1.2781 in late New York (1.2667 yesterday). Overnight the GBP/USD pair traded to 1.2786 highs before dipping at the close. In volatile trade, the overnight low recorded was at 1.2629.

On the Lookout:

Today’s economic calendar kicked off earlier with New Zealand’s Business NZ Manufacturing Index which was little changed at 48.9 from 48.8.

The Bank of Japan is widely expected to keep its Policy Rate unchanged at -0.10% while maintaining its ultra soft stance.

Markets will keep an eye out for comments from Japan Inc, ie BOJ officials.

China releases its Foreign Direct Investment data which was previously 2.2%. There were no estimates for this data.

The Eurozone starts off European reports with its Eurozone Annual Final CPI (f/c 6.1% from 6.1% - ACY Finlogix) and Eurozone Final Core CPI (f/c 5.3% from 5.3% - ACY Finlogix).

Canada kicks off North America with is Canadian Wholesale Sales report for May (f/c 1.6% from -0.1% - ACY Finlogix).

The US rounds up today’s reports with its University of Michigan Preliminary June Consumer Sentiment (f/c 60 from 59.2 – ACY Finlogix) and University of Michigan June Inflation Expectations (f/c 4% from 4.2% - ACY Finlogix).

Trading Perspective:

The rise in weekly US Jobless Claims to 262,000, the highest for this year, weighed on the Greenback.

Analysts had expected 246,000 claims. US bond yields tumbled.

Two-year US treasury rates fell to 4.64% from 4.70%.

The US 30-year bond yield tumbled 10 basis points to 3.84%.

Speculative long US Dollar bets, which have been growing steadily, reversed, and headed for the exits.

Strong rallies in the Euro, Aussie weighed on the Greenback. Only the Yen went against the trend.

Traders will be watching for comments from Japan Inc (Japanese officials) following today’s Bank of Japan monetary policy meeting.

Most Asian and Emerging Market currencies gained versus the Greenback.

We can expect the Dollar to stay weak in Asia and consolidate at current levels.

That said, being a Friday, anything can happen in FX, so traders should get ready to rumble!

AUD/USD – The Aussie Battler jumped against the Greenback as risk appetite rose. Broad-based US Dollar weakness also boosted the Aussie Batter. Look for immediate resistance at 0.6900 followed by 0.6930 to cap any rallies. On the downside, immediate support lies at 0.6850, 0.6820 and 0.6790. Look for more choppy trade in the Aussie, likely today between 0.6770-0.6920. Prefer to sell into Aussie Dollar strength today.USD/JPY – Against the Japanese currency, the Greenback bucked the trend, climbing to 140.28 from 140.17 yesterday. Look for immediate resistance at 140.50 (overnight high traded was 140.51). The next resistance level is found at 140.80 and 141.10. On the downside, immediate support lies at 139.90 (overnight low traded was 139.94). The next support level lies at 139.60. Lookout for rhetoric from Japan Inc. BOJ and other officials may not want to see more Yen weakness.EUR/USD – The shared currency soared to an overnight and yearly high at 1.0953 before easing to settle at 1.0945. On the day look for immediate resistance at 1.0960 and 1.0990 to cap any rallies. Immediate support can be found at 1.0900, 1.0870 and 1.0840. Look for more volatile trade in the Euro, likely between 1.0870-1.0970. Preference is to sell Euro rallies.

GBP/USD – Sterling benefitted from overall US Dollar weakness and short-covering, rallying to close at 1.2786, its highest level this year. On the day, look for immediate resistance at 1.2800 followed by 1.2830. On the downside, immediate support can be found at 1.2750, 1.2720 and 1.2690. Expect more choppy trade in the GBP/USD pair, likely range today: 1.2670-1.2800. Expect more volatile moves in the British currency. Prefer to sell rallies.

Happy Friday and trading all. Have a top weekend ahead.

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