Dollar extends decline on weak data, oil, emerging markets and stocks rise!
The Dollar dipped anew, extending its decline on weak New York State Area Manufacturing data. The US Empire State Manufacturing Index for April fell to -1.0 from 5.0 and a forecast 7.0. Chinese economic data was weaker than expected with April Industrial Production falling to 6.5% from 7.6%. Retail Sales rose 10.7%, slightly less than forecast at 10.8%.
Oil prices rose after Saudi Arabia and Russia agreed to extend supply cuts into 2018. Commodity linked and Emerging Market Currencies rallied.
Wall Street stocks rose, leading global and emerging market stocks and assets higher.
US Treasuries werelittle-changed. Ten Year bond yields closed at 2.34% (2.33% yesterday).
The Dollar Index (USD/DXY) slipped further to close at 98.928 from 99.189 yesterday, off 0.28%. EUR/USD climbed to finish at 1.0975 after trading to 1.0989 overnight. Sterling rose marginally closing at 1.2897 (1.2885 yesterday). USD/JPY closed up at 113.77 from 113.35 yesterday.
The Aussie rallied, trading to 0.7446 highs,settling at 0.7415 (0.7385 yesterday). USD/CAD slumped to a two week low of 1.3602 on the back of firmer oil prices and a broadly weaker Greenback. The Dollar settled at 1.3630 against the Loonie this morning.
Outlook: The Dollar fell sharply against the resource, commodity and Emerging Market currencies. This could see a further drop against the Majors. The Dollar Index (USD/DXY) finished 0.3% lower at 98.928. There is good support at the 98.50 level. A break of this level could see further Dollar losses.
The next set of economic data will be crucial starting with US April Industrial Production later today (GMT 1.15 am, May 16/Local Time 11.15 pm, May 16). Market forecasts are for rising of 0.3% from the previous 0.5%.
US Housing Starts (f/c 1.26 mio from 1.215 mio) and Building Permits (f/c 1.27 mio from 1.26 mio) are also due out later today (GMT 12.30 pm, May 16/Local Time 10.30 pm, May 16).
The RBA releases its Monetary Policy Meeting Minutes from the April 18 meeting this morning (GMT 1.30 am, May 16/Local Time 11.30 am, May 16).
UK April CPI (f/c 2.6% from 2.3%) and PPI (f/c 0.2% from 0.4%) are out at (GMT 8.30 am/May 16/Local Time 6.30 pm). Finally Euro zone Flash GDP (f/c 0.5% from 0.5%) and German ZEW Economic Sentiment Survey (f/c 22.0 from 19.5) are out (GMT 9am, May 16/Local Time 7pm, May 16).
Trading View: Markets will consolidate after a big start yesterday ahead of the data releases later. The Dollar remains on the defensive until the next set of data.
EUR/USD – faces stiff resistance at the psychological 1.1000 area with good support at 1.0930. Technicals are pointing to a break higher in the Euro but this needs to be supported by solid economic data. Let’s not forget that the speculators have actually turned long of Euro, albeit a small amount. And the political situation in Europe is far from settled in spite of the recent French election result. It’s difficult to get bulled up on the Euro at these levels just yet. Selling rallies still the preferred option.
USD/JPY – Interestingly, the USD/JPY is the only currency pair that managed to
gain today. The Dollar has rallied strongly from 108.00. The pause at these levels is a result of the Dollar’s weakness against the other Majors and EM currencies. Once again the USD/JPY will be sensitive to any moves in US yields. Last night US Ten Year bond yields finished a tad higher at 2.34% (2.33%)
Resistance lies at 114.00 andstring support at 112.50.
AUD/USD – The Aussie rose strongly on the back of the oil and commodities rally and the generally weaker US Dollar. Resistance is firm at 0.7450 and 0.7480. There is solid support at 0.7380. Markets will be looking at this morning’s RBA Meeting minutes for further upbeat messages. While the bounce from the low 0.73 cent area has been impressive, the speculators are still long of Australian Dollars. Would prefer to sell any rallies above 0.7450 today.
USD/CAD – The Dollar slumped to an overnight low of 1.3602 where some good support lies. The Loonie rallied strongly together with Oil prices. There is resistance at 1.3680 and then 1.3710. The latest CFTC/Reuters data showed that Speculators sharply increased their short Canadian Dollar positions. Net Speculative Short CAD contracts rose to -CAD 86,215 (week ended May 9) from the previous weeks -CAD 47,704 contracts. That’s a large increase of 38,511 short CAD contracts. The total net speculative short CAD position is the largest since January 2008! If you are a Dollar bear, the USD/CAD is the best currency pair to be short.
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