Yen surges on rate hike bets, Aussie jumps to one-month high

DXY slumps to eight-week low; Euro climbs; US payrolls up next

Summary:

The Dollar Index (DXY), a popular gauge of the US currency’s value against a basket of 6 major currencies, slumped to an 8-week low at 102.45 from 103.02 yesterday.

On the second day of his testimony to the US Congress, Federal Reserve President Jerome Powell that they would begin to cut borrowing costs at some point in the year.

Data released yesterday saw US Initial Jobless Claims climb to 217K, up slightly from median forecasts at 215K. Layoffs in February rose to their highest since 2009.

The Japanese Yen outperformed, soaring against the Greenback spurred by growing speculation that the Bank of Japan could hike interest rates this month. Wage growth in Japan beat consensus and surged 2% annually.

Bank of Japan board member Junko Nakagawa was quoted as saying “prospects for the economy to achieve a positive cycle of inflation and wages are in sight.”

The USD/JPY pair plummeted to 148.02 from 149.25 yesterday. Just a week ago, the Dollar hit 150.71 Yen. Speculative Yen shorts (USD longs) rushed for the exit to cover their positions.

The Australian Dollar (AUD/USD), outperformed, hopping to 0.6620 from 0.6565 previously. Overall weakness in the US Dollar and improved risk appetite boosted the antipodean currency.

The Euro (EUR/USD) climbed to 1.0945 from 1.0900 yesterday. The ECB held rates steady at 4.5% while reiterating that borrowing costs would remain elevated for as long as necessary.

Sterling (GBP/USD) rallied to 1.2805 from 1.2735 yesterday on broad-based Dollar weakness. Speculation that the Bank of England would cut rates after the Fed buoyed the British currency.

The Greenback dipped against the Asian and Emerging Market Currencies. The USD/CNH pair (Dollar-Offshore Chinese Yuan) eased to 7.2025 from 7.2085. Against the Singapore Dollar, the Greenback (USD/SGD) tumbled to 1.3335 from 1.3385 yesterday.

Other economic data released yesterday saw China’s Trade Balance (Surplus) climb to +USD 125.2 billion from +USD 75.3 billion, beating estimates at +USD 110.3 billion.

Germany’s Factory Orders (m/m) fell –11.3% in February from an upward revised 12% (from 8.9%) and worse than expectations at -6.0%.

• AUD/USD – The Aussie Battler ratcheted higher against the Greenback, jumping to an overnight high at 0.6625, up from 0.6565 yesterday. The AUD/USD pair dipped to settle at 0.6620 at the close of trade in New York. The overnight low traded was at 0.6558.
• USD/JPY – the Dollar plummeted against the Japanese Yen to an overnight low at 147.58 before stabilizing to close at 148.02, and yesterday’s open at 149.25. In choppy trade, the Greenback soared to an overnight high of 149.43 Yen.
• EUR/USD – the shared currency rebounded against the US Dollar, settling at 1.0945, up from yesterday’s 1.0900. The Euro traded to an overnight high at 1.0967 before easing. The overnight low recorded for the EUR/USD pair was 1.0868.
• GBP/USD – Sterling soared against the overall weaker US Dollar to 1.2805 in late New York from 1.2735 yesterday. In volatile trade of its own, the British Pound tumbled to an overnight low at 1.2723 before steadying. The overnight high recorded was1.2809.

On the lookout:

Welcome to Friday, with the release of US Non-Farms Payrolls later today. Japan kicks a data dump today beginning with Japanese January Household Spending (m/m f/c 0.4% from -0.9%; y/y f/c -4.3% from -2.5% - ACY Finlogix), Japan January Current Account (-JPY 330.4 billion from +JPY 744.3 billion – ACY Finlogix), Japan Preliminary January Leading Economic Index (f/c 110.1 from 110.2 – ACY Finlogix), and finally Japanese January Economic Watchers Sentiment (f/c 50.1 from 50.2 – ACY Finlogix).

Germany starts off Europe with its German January PPI (m/m f/c 0.2% from -1.2%; y/y f/c -6.6% from -8.6% - ACY Finlogix), German January Industrial Production (m/m f/c 0.6% from -1.6% - ACY Finlogix). France follows with its January Trade Balance (f/c -EUR 6.2 billion from -EUR 6.829 billion – ACY Finlogix). The Eurozone releases its Eurozone Q3 GDP Growth Rate (q/q f/c 0% from -0.1%; y/y f/c 0.1% from 0% - ACY Finlogix), and Eurozone Employment Change (q/q f/c 0.3% from 0.2%; y/y f/c 1.3% from 1.3% - ACY Finlogix).

Canada starts off North America with its Canadian February Employment Change (f/c 20.0K from 37.3K – ACY Finlogix), Canadian February Unemployment Rate (f/c 5.8% from 5.7% - ACY Finlogix), Canadian February Average Hourly Wages (y/y f/c 5.3% from 5.3% - ACY Finlogix) and Canadian February Participation Rate (f/c 65.3% from 65.3% - ACY Finlogix).

The US follows with its US February Non-Farm Payrolls (f/c 200K from 353K – ACY Finlogix), US February Unemployment Rate (f/c 3.7% from 3.7% - ACY Finlogix), US February Average Hourly Earnings 0.3% from 0.6% - ACY Finlogix), and US February Participation Rate (f/c 62.6% from 62.5% - ACY Finlogix). On Saturday (9 March, 12.30 am) China releases its February Inflation Rate (m/m f/c 0.5% from 0.3%; y/y f/c 0.4% from -0.8% - ACY Finlogix). Whew!

Trading perspective:

Friday, US Payrolls report and a data dump to add as well. Expect fun and games in the FX markets today. Asia should consolidate the overnight ranges for most FX pairs ahead of the US Jobs report. Market participants will be watching the USD/JPY pair closely as it has been the leader this week. Traders will be looking for any further rhetoric from Japanese officials (either from the Bank of Japan or the Ministry of Finance). Given the large swings seen in the Japanese currency this week, expect more choppy trade today.

It all boils down to the US Non-Farm Payrolls number, where median forecasts are for an employment gain in February of 200K from 353K previously. A US Payrolls gain of less than 200K will see the Dollar lose more ground. We would need to see a Payrolls gain of 230,000 or higher to see a Dollar turnaround.

The Unemployment Rate is expected to remain unchanged, at 3.7%. A Jobless Rate of say 3.8% or higher would see more position unwinding, pushing the Dollar lower. For the Dollar to rebound, we would need to see a Jobless Rate of 3.6% or lower.

Watch for revisions to previous Employment data as well.

• USD/JPY – The Greenback finished at 148.02 from 149.25 Yen yesterday. The overnight low traded was 147.58. Look for immediate support at 147.80 followed 147.50 and 147.20. Immediate resistance lies at 148.40 (overnight high traded was 148.43). The next resistance level is found at 148.70 followed by 149.10 and 149.40. Look for another choppy session in this currency pair, likely between 147.50-149.50. Prefer to sell rallies.

• AUD/USD – the Aussie Battler outperformed, jumping to finish at 0.6620 against 0.6565 yesterday. Look for immediate resistance in the Aussie at 0.6630 (overnight high traded was 0.6625). The next resistance level lies at 0.6650 followed by 0.6680. On the downside, immediate support can be found at 0.6590 followed by 0.6560 and 0.6530. Look for the Aussie to trade in a volatile range today between 0.6550-0.6650. Trade the range, nice and wide.
• EUR/USD – the shared currency rallied against the overall weaker US Dollar to 1.0945 from 1.0900 yesterday. On the day look for immediate resistance at 1.0970 (overnight high traded was 1.0967). The next resistance level lies at 1.1000. On the downside, immediate support can be found at 1.0910, followed by 1.0880 and 1.0850. Look for another roller coaster ride in this currency pair, likely between 1.0870-1.0970.
• GBP/USD – Sterling soared to 1.2895 from 1.2735 yesterday. Broad-based US Dollar weakness and short covering lifted the British currency. For today look for immediate resistance at 1.2810 (overnight high traded was 1.2809). The next resistance level lies at 1.2840 and 1.2870. Immediate support can be found at 1.2770, 1.2740 and 1.2719. Look for the British Pound to trade a likely range today of 1.2730-1.2830. Trade the range, nice and wide.

Happy Friday and US Payrolls Day, and a top weekend ahead all.