Market Brief
The US dollar continued to lose ground against most currencies as the boost provided by Fischer’s hawkish comments fades away. US treasury yields were moving sharply lower with monetary policy sensitive 2-year yields hitting 0.74% this morning, down from 0.78% in the early trading session on Monday. Commodity currencies surged the most against the greenback - with the exception of the Norwegian krone, which traded sideways in Tokyo - in spite of another sell-off in crude oil. The West Texas Intermediate was down another 1% at $47 on Tuesday after falling more than 3% the previous day as investors struggled to find a good reason to lift prices higher. From a technical standpoint, the 50dma - currently at $45.47 - will act as support. The following one can be found at around $40 (low from early August).
The New Zealand dollar was the best performer in overnight trading as it surged 0.78% against the greenback to 0.7325, the highest level since August 10th. This is the fourth time since mid-August that the currency pair has tested the 0.7335-0.7350 resistance area and failed. Indeed, renewed Fed rate hike expectations over the last week have prevented the Kiwi from moving higher.
In Japan, the yen extended gains against the dollar with USD/JPY falling 0.30%, down to 100.08. The currency has been testing the 100 support area for the last seven days as the market anticipates that the BoJ will not allow the yen to strengthen further. On the data front, Japan’s flash manufacturing PMI rose to 49.6 in August compared to 49.3 and 51.7 a year ago. In spite of the improving trend since May this is the sixth straight month of contraction. The market is already starting to price further monetary easing from the BoJ as indicated by the sharp increase in risk reversal measures. Indeed, 1-month 25 delta risk reversal in USD/JPY bounced to -0.98% compared to roughly -2% last week. 1-month at-the-money implied volatility reached 14.40% from less than 10% at mid-August.
Today traders will be watching consumer confidence from Denmark; manufacturing, service and composite PMI from France, Germany and the euro zone; an interest rate decision from Turkey (market is expecting a 25bps rate cut of the lending rate to 8.50%); manufacturing PMI, Richmond manuf. index and new home sales from the US.
Currency Tech
EUR/USD
R 2: 1.1616
R 1: 1.1428
CURRENT: 1.1340
S 1: 1.1046
S 2: 1.0913
GBP/USD
R 2: 1.3534
R 1: 1.3372
CURRENT: 1.3176
S 1: 1.2851
S 2: 1.2798
USD/JPY
R 2: 107.90
R 1: 102.83
CURRENT: 100.07
S 1: 99.02
S 2: 96.57
USD/CHF
R 2: 0.9956
R 1: 0.9775
CURRENT: 0.9604
S 1: 0.9522
S 2: 0.9444