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Dollar back strength waiting FOMC on Friday

The Dollar Index (USD/DXY) finished up 0.6% at 96.20 (95.638 yesterday). EUR/USD slumped 0.55% to finish down for the second day running. The Dollar rose against all of it’s Rivals including the Emerging Market currencies. Markets were thin ahead of today’s US Independence Day holiday.

 

US ISM Manufacturing PMI rose to 57.8 (it’s highest since August 2014) against a forecast rise of 55.0. The expansion in manufacturing was broad-based with 15 out of 18 industries surveyed posting growth.

In contrast, UK Manufacturing PMI fell to 54.3 against a forecast 56.4. The previous month’s data was revised down to 56.3 from 57.3.

Chinese Caixin Manufacturing PMI rose to 50.4 in May from 49.6.

Australian Building Approvals for May fell to -5.6% against a forecast of -1.2%

 

US Treasury yields rose. The benchmark Ten Year bond yield closed at 2.35% (2.30% yesterday), it’s highs since early May. Two year yields ended at 1.41% from 1.38% yesterday.

 

Spot Gold prices slumped by 1.8% to close at US$ 1,220. (US$ 1241. yesterday).

 

The strong US ISM manufacturing data saw US yields climb to their highest in nearly 7 weeks. By contrast, yields from Germany, UK and Japan were flat. Trading activity was muted ahead of today’s US Independence Day holiday. The latest CFTC/Reuters report saw speculators trim down their net total US Dollar long contracts to the lowest in nearly a year. The Dollar should maintain it’s strength into Friday’s US Non-Farms Payrolls data.

Upcoming economic data and events today:

 

Australian Retail Sales Data (GMT 1.30 am, July 4/Local Time 11.30 am, July 4) – Forecast up at 0.2% from the previous 1.0%.

 

 

RBA Cash Rate Decision And Rate Statement (GMT 4.30 am, July 4/Local Time 2.30 pm, July 4) – The RBA is expected to leave rates on hold at its current 1.5%. Traders will be focussing on the rate statement which carries the RBA’s economic assessment. The assessment will be a guide to their thinking on interest rates.

UK Construction PMI (GMT 8.30 am, July 4/Local Time 6.30 pm, July 4) – Index is forecast at 55.2 from the previous 56.0.

UK Inflation Report Hearings (GMT 10 am, July 4/Local Time 8 pm, July 4) –

 

The Dollar should consolidate its gains around current levels in a slow start today. With the US on holiday, volumes will be lower and conditions thin.

 

EUR/USD – The overnight low for the Euro was at 1.1355. There is immediate support at 1.1340/50. A clean break of this level could see the EUR/USD lower to 1.1280/90 next support. Resistance lies at 1.1390-00 and then at 1.1420. The short term correction down for the Single Currency looks set to continue. Likely range today 1.1310-1.1380.

GBP/USD – Sterling fell back from the 1.30 level to hold finish at 1.2940. The miss in UK manufacturing data and overall US Dollar strength put the Pound on the defensive. Immediate support lies at 1.2910. The support at 1.2885 is strong and should hold. Resistance lies at 1.2970/80 and this should hold during our day. Speculators are short of Sterling which is in contrast to that of the Euro. Likely range today 1.2900-70.

USD/JPY – broke through the resistance at 113.00 to finish at 113.45. The rise in the US Ten year yield to 2.35 % boosted the Dollar. Ten year Japanese JGB bonds were unchanged at 0.08%. Resistance lies at 113.80 and then at 114.20. Immediate support is found at 113.00/10. Given the rise in US yields, the USD/JPY is likely to grind higher with an expected range today of 113.10-114.10.

AUD/USD – Closed lower at 0.7658 mainly due to the stronger US Dollar. There is good support at 0.7640 (overnight low was 0.76445). Immediate resistance lies at 0.7690 and then 0.7710. The RBA is expected to keep rates on hold at the conclusion of it’s meeting today. The rate statement and economic assessment will be the focus of traders today. Particularly in the light of the last week’s comment by an ex RBA board member who said that the RBA would have to raise rates 8 times. Likely range today 0.7620-0.7690.

NZD/USD – slip-sliding away. Closed at 0.7296 after re-testing a high at 0.7345 overnight. The Kiwi has been one of the stronger currencies to benefit from the recent US Dollar drop. There is immediate support at 0.7270 (overnight low was 0.7272). Immediate resistance lies at 0.7310. This corrective move lower could see the Kiwi back down to 0.7180. Look to sell rallies with today’s likely range 0.7250-0.7300.

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