• By Finsok
  • 11 Jan, 2023

  • 11 min read

The dollar rose ahead of the US consumer price index, Powell commented on rates

The dollar rose ahead of the US consumer price index, Powell commented on rates

Bond yields bounce back, equities finish moderately higher

Summary:

The dollar ended modestly higher after Fed Chairman Jerome Powell refrained from commenting on interest rates. Instead, Powell focused his speech on Fed independence.

Markets were waiting for the US CPI report released early Friday (12:30) in Sydney. Inflation for December is expected to decline year on year to 6.5% from 7.1%.

US bond yields have rebounded after falling earlier in the week. The benchmark 10-year bond closed at 3.61% from 3.53% yesterday. The two-year bond yield rose 3 basis points to 4.24%.

A popular indicator of the dollar’s value against a basket of 6 major currencies, the dollar index (DXY) rose 0.24% to 102.93 (102.80). The Euro (EUR/USD) closed marginally at 1.0741 (1.0733).

The US dollar rose against the Japanese yen (USD/JPY) to close at 132.20 from 131.85 at the open yesterday. Sterling (GBP/USD) fell to 1.2158 (1.2184).

The Australian dollar (AUD/USD) fell to 0.6893 (0.6912), while the kiwi (NZD/USD) closed at 0.6367. Against the Canadian loonie, the dollar rose to 1.3423 from 1.3390.

In relation to the Asian market and EMFX, the dollar exchange rate was multidirectional. USD/THB last traded at 33.45 from 33.47 yesterday. Against the offshore Chinese yuan (USD/CNH), the dollar closed at 6.7865 (6.7800).

Wall Street shares rose modestly. The DOW rose 0.37% to 33,647 from 33,527. The S&P 500 rose 0.48% to 3910 (3890 yesterday). Other global stock markets rose.

Economic data released yesterday showed that Japan’s annual consumer price index in Tokyo fell to 4% in December against forecasts of 4.5%, but higher than November’s 3.8%. December BRC retail sales in the UK rose to 6.5% from the previous 4.1%.

French industrial production (November) rose to 2%, beating forecasts by 0.8%. The US NFIB Business Confidence Index fell to 89.8 in December from 91.9 in November.

  • euro/US dollar – The euro edged up slightly against the US dollar, closing at 1.0741 (1.0733). This was the third day in a row that the common currency rose against the US dollar. The overnight high was at 1.0760, which is in line with yesterday’s high. The low was fixed at 1.0712.
  • Pound Sterling / US Dollar – Against the trend, the British pound fell against the US dollar, settling at 1.2158 from 1.2184 yesterday. After yesterday’s strong advance against the US dollar, the pound sterling lost steam and closed lower. The overnight high was at 1.2198.
  • Australian dollar/US dollar – The Aussie Battler fell against the stronger US dollar to 0.6893 at the New York close from 0.6912 yesterday. The Australian dollar traded to an overnight high of 0.6928 before slipping towards the close.
  • US dollar / yen – A recovery in US bond yields pushed the US dollar up 0.35% against the Japanese yen to 132.20 from 131.85 yesterday. In another volatile session, the overnight trading high was at 132.48 and the recorded low was at 131.38.

Looking for:

The economic calendar for the publication of data today is small. New Zealand starts with ANZ Bank December commodity prices (f/c -5.7% from -3.9% – FX Street).

Australia follows with its November retail sales report (0.6% m/m/s from -0.2%) and the Australian annual CPI for November (7.3% y/y/c from 6.9). % – ACY Finlogix).

Japan follows with its preliminary November leading economic index (f/c 98 of 98.6 – ACY Finlogix) and the Japanese coincidence index for November (f/c 99.2 of 99.6 – ACY Finlogix).

China releases December CPI (M/M, no price, previous was -0.2%; y/y, no price, previous was 1.6% FX Street), China December PPI (y/y, no prices, the previous one was -1.3% – FX Street).

Italy publishes European retail sales data for November (M/M/s -0.9% from -0.4%; Y/Y/C 0.5% from 1.3% – ACY Finlogix). There is an auction of 10-year bonds in the US, but there are no important economic data.

Trading perspective:

As traders look ahead to the US CPI report on Thursday (early Friday in Sydney), expect the US dollar to remain firm against its peers as traders look to speeches from key central bankers later this week.

A recovery in US bond yields will support the US dollar. This morning the focus will be on the Australian consumer price index and retail sales data.

The Australian dollar fell against the stronger US dollar. The consensus is to raise the annual consumer price index in November to 7.3% from the previous 6.9%.

Retail sales in Australia are also expected to rise to 0.6% from -0.2% in the previous month. Traders need both data releases to be above market expectations for the Aussie to advance against the US dollar.

  • Australian dollar/US dollarThe Australian dollar (AUD/USD) fell slightly against the US dollar, settling at 0.6895 after yesterday’s open at 0.6912. The Aussie dropped to a low of 0.6860 overnight before rebounding at the close. During the day, look for immediate support at 0.6860 to contain any aggressive selling. The next support level is at 0.6830. Immediate resistance lies at 0.6920 followed by 0.6950. Expect the Australian dollar to trade in a likely range of 0.6870-0.6920. I prefer to sell rallies.
  • euro/US dollarThe euro rose against the US dollar, closing at 1.0741 from 1.0733 yesterday. The overnight high was at 1.0760, which is today’s immediate resistance. The next resistance level is at 1.0790. On the other hand, look for support at 1.0710 followed by 1.0680 and 1.0650. Today we are looking for a range, probably between 1.0700-50. Preference is given to selling the EUR/USD rally.

(Source: Finlogix.com)

  • Pound sterling/US dollarThe pound fell against the stronger US dollar to 1.2158 from 1.2184 yesterday. The British pound traded to an overnight low of 1.2110 before rebounding towards the close. An overnight high was recorded at 1.2198. Look for more choppy British currency trading with a likely range of 1.2120-1.2220 today. Trade with a range.
  • USD/JPYThe US dollar edged up against the Japanese yen to 132.20 on higher US bond yields. The base rate on 10-year US Treasury bonds rose by 8 basis points and amounted to 3.61% against 3.53% yesterday. The overnight high of the USD/JPY was at 132.48. Immediate resistance today is at 132.50 followed by 132.80. On the other hand, look for immediate support at 132.20 followed by 131.90. Expect USD/JPY to remain stable today in a likely range of 131.50-132.50. I prefer to buy US dollars on dips.

Good environment everyone, good trading.

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