Bond yields climb; Euro, GBP steady, USD/JPY gains

Summary:

The Dollar Index (DXY) held steady, finishing near its recent peak at 105.35 heading into this week’s Fed meeting. Global bond yields rose. The US 10-year note settled at 4.33% (4.29%).

Better-than-expected US economic data supported the Greenback. The US Empire State Manufacturing Index rose in September to 1.9, much higher than August’s -19 and forecasts at -10.

Capacity Utilization in the US rose to 79.7% in August, up from 19.3% previously. August US Industrial Production rose to 0.4% month-on-month, better than forecasts at 0.1%.

Against the Japanese Yen, the Dollar gained to 147.70 from 147.45 Friday. In early Asian trade today, the Greenback soared to 147.82, overnight and fresh 10-month highs.

The Euro (EUR/USD) steadied to finish at 1.0655 (1.0645 Friday). Sterling (GBP/USD), meantime, edged lower against the Greenback to 1.2375 from 1.2410 on Friday.

The Australian Dollar (AUD/USD) was little changed, at 0.6437 (0.6440). Overnight, the Aussie Battler traded to a high at 0.6460, strong resistance level before easing in late New York trade.

The US Dollar was mixed against the Asian and EMFX. USD/CNH eased to 7.2750 from 7.2840 Friday. Against the Singapore Dollar the Greenback settled at 1.3625, modestly higher from Friday’s 1.3620.

Other global treasury rates rose. Germany’s 10-year Bund yield closed at 2.67% from 2.59% previously. The Australian 10-year bond rate was last at 4.10% from 4.11% on Friday.

Wall Street stocks slumped. The DOW finished at 34,642 down from Friday’s open at 34,942. The S&P 500 lost 1.13% to 4,455 (4,507 Friday). Other global share markets finished lower.

Other economic data released Friday saw China’s Industrial Production climb 4.5% annually, beating economist’s expectations at 3.9%. China’s Annual Retail Sales rose 4.6% from 2.5% previously. China’s August Unemployment Rate eased to 5.2% from 5.3% previously.

• USD/JPY – Supported by rising US yields, the Dollar soared to an overnight and multi-month high at 147.82 before easing to 147.70 at the New York close. The overnight low traded was 147.01 in choppy fashion. In early Asia, the USD/JPY edged higher, currently at 147.83.
• EUR/USD – The shared currency held its own against the Greenback, settling at 1.0655 at the close of trade in New York. Overnight, the low traded for the EUR/USD pair was at 1.0954. The Euro currently trades up at 1.0663 in early Asia.
• AUD/USD – The Aussie Battler was little changed against the Greenback, finishing at 0.6437. On Friday, the Aussie Dollar was changing hands at 0.6440. The low recorded trade for the Aussie was 0.6426, in early Asia.
• GBP/USD – Sterling edged lower against the US Dollar to 1.2375 against Friday’s opening at 1.2410. Overnight, the GBP/USD pair was pounded to a low at 1.2368 before steadying. In early Asia, the British Pound traded to a high at 1.2399.

On the lookout:

The highlight for this week is Wednesday’s Federal Reserve meeting (4 am, Thursday, in Australia). The US central bank is widely expected to hold interest rates steady and leave the door open for another rate hike if needed. Some analysts expect the Fed to lift interest rates 0.25%, bringing US rates to 22-year highs. The Dollar Index held steady and closed near its recent high at 105.35.

Today’s economic calendar is light and starts off with New Zealand’s August Services PMI (f/c 47.0 from 47.8 – ACY Finlogix). Japanese markets will be closed in observance of Respect for the Aged Day.

In Europe, Germany’s Bundesbank releases its Bundesbank Monthly Report. Canada kicks off North America with its August Housing Starts (f/c 245.3K from 255K – ACY Finlogix), Canadian August PPI (m/m f/c 0.5% from 0.4%; y/y f/c -0.8% from -2.7% - ACY Finlogix). The US rounds up the day’s light calendar with its US September NAHB Housing Market Index (f/c 50 from 50 – ACY Finlogix) and finally US Net Long-Term TIC Flows July (f/c USD 116.5 billion from USD 195.9 billion – Forex Factory).

On the lookout:

Expect the Dollar to maintain its bid stance heading into the Federal Reserve’s monetary policy meeting which starts on Wednesday (early Thursday in Asia at 4 am). The Fed is likely to keep its Fed Funds rate unchanged at 5.5% but leave the door open for additional rate hikes if inflation stays high. Some analysts expect the US central bank to hike rates 25 basis points to 5.75%. and maintain a bias for additional rate hikes, if needed. It’s a close call and likely to move markets. What is certain is that heightened volatility will feature in the FX markets this week. Happy days!

• USD/JPY – The Dollar Yen is the most sensitive currency pair to US interest rate moves. This is not likely to change anytime soon. The Greenback finished at 147.79 Japanese Yen Friday. This morning in early Asia, the USD/JPY currently trades at 147.83. Immediate resistance lies at 148.00 followed by 148.40 and 148.80. On the downside, look for immediate support at 147.30, 147.00 and 146.70. Look for more choppy trade in a likely range of 147.20-148.20.

Source: Finlogix.com

• EUR/USD – The Euro opens in Asia at 1.0665-68. On the day, look for immediate support in the Euro at 1.0640 and 1.0610. Immediate resistance can be found at 1.0680 and 1.0710. Look for another volatile trading day in the Euro, likely between 1.0620-1.0720. While the Euro trades heavy, the market is short.
• AUD/USD – The Aussie Battler managed to hold its own against the overall stronger Greenback, settling at 0.6437. In early Asia, the AUD/USD pair trades at 0.6437-0.6440. Immediate support can be found at 0.6410 followed by 0.6380. Immediate resistance lies at 0.6460, 0.6490 and 0.6520. Look for the Aussie to consolidate in a likely range today of 0.6380-0.6480. Prefer to sell rallies.
• GBP/USD – Sterling eased to 1.2375 from Friday’s opening at 1.2410. On the day, look for immediate support at 1.2350 followed by 1.2320. On the topside, immediate resistance can be found at 1.2410 and 1.2440. Look for more choppy trade in this currency pair, likely between 1.2350-1.2450. Despite rising expectations of an imminent rate hike by the Bank of England next week, the Pound trades heavy against the Greenback, for now. Trade the range.

Have a happy Monday and good trading week ahead all.