Weekly Jobless Claims data released today for the week ending Sept 18th were reported today at 870k, above the estimate of 840k. After relatively consistent declines from the March/April peak, jobless claims have plateaued at 800k over the last four weeks (884k, 893k, 866k, 870k).
There has been no letup in dollar strength, the Dollar Index (DXY) is higher by 0.15% today, its 5th daily gain in a row. The DXY has gained 1.69% this week, effortlessly leapfrogging all near-term resistance levels. Some resistance may surface at 94.650, the weekly low from March 13th. Aside from that there is little resistance until 95.750, another 1.28%.
USD/MXN is the leading pair in dollar strength with a gain of 1.11%. The peso has declined 7.79% over the last week, its biggest weekly decline since the COVID-19 breakout in mid-March. USD/BRL is up 6.35% and USD/ZAR is up 5.65% over the same 1-week period.
Turning our focus to the G10 currencies, the dollar is up 0.90% vs. SEK, +0.53% vs. NZD, +0.51% vs. AUD, and +0.46 vs. NOK, and minimal gains against the CHF, DKK, EUR, and CAD.
AUD/USD has breached support at 0.7050, next support seen at 0.6975.
The dollar is unchanged vs. the JPY and down against the GBP by 0.33%.
Gold is lower by 0.58%. Silver down by 3.26% to trade at $21.96, on track to reach support near $19/oz.
The dollar index (DXY) is higher again today for its 4th consecutive daily gain. A resurgence in coronavirus cases and renewed lockdown measures have further dampened the hope for near-term relief from the economic impact of the virus. Increased uncertainty in the global economic landscape is driving a risk-off market trend and flows to the safety of U.S. dollars and treasuries.
The DXY has gained 0.21% today and is up by 1.30% since last Thursday’s close. The dollar has risen most against exotic and emerging market currencies, but still has healthy gains the majors this week.
USD/MXN: the dollar is higher by 1.33% today and up 3.95% for the week at 22.0020. The break of weekly support at 21.5000 and peso strength to 20.8300 was short-lived.
Today’s primary dollar gains:
+1.13% vs. ZAR
+0.85% vs. BRL
+0.78% vs. AUD. The AUD/USD has declined 2.72% this week, next support is seen at 0.7050.
USD/CAD: The U.S. dollar is higher by 0.35% today with next resistance seen at 1.3390. Support at 1.3280.
Gold is lower by 1.35% today and down 3.88% this week, reflecting the diminishing expectations for inflation.
Markets have shifted to a defensive stance to start the week, reducing exposure to risk assets and driving flows to the safety of U.S. treasuries, the U.S. dollar, Japanese yen, and Swiss franc. A spike in global coronavirus cases has markets fearing a reinstatement of lockdown measures.
Treasury prices are higher (yields lower) in all tenors with the benchmark 10-year yield lower by 4.1 basis points. The U.S dollar index is higher by 0.53% with the dollar’s primary gains against the ZAR (+2.78%), NOK (+1.71%), MXN (+1.67%), NZD (+0.95%), and BRL (+0.94%). The dollar has also advanced against the GBP (+0.63%), AUD (+0.62%), EUR (+0.59%), CAD (+0.39%), and CHF (+0.23%). The dollar has declined vs. the JPY (-0.27%), driving the USD/JPY to support at 104.00.
Gold is lower by 1.91% to $1,913.54 (the logic being that renewed lockdowns will reduce economic activity and dampen the outlook for inflation). Silver is lower by 2.99%.
U.S equities are expected to follow the path of major European equity indices which have declined 3% on average today.
The FOMC left the federal funds rate unchanged in its policy announcement yesterday. No change was widely expected. The Fed reiterated that the federal funds target range (0% to 0.25%) would be maintained until maximum employment and sustained inflation over 2% are achieved. Key takeaways from the Fed’s statement:
Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year.
Overall financial conditions have improved in recent months.
The path of the economy will depend significantly on the course of the virus.
Today’s Economic Data
Initial Jobless Claims for the week ending Sep 12 were reported today at 860k vs. the 850k estimate.
Housing Starts data for August was also released today at -5.1% compared to July, well below the -0.6% estimate. Lumber futures prices declined 4.53% yesterday (the exchange maximum of $29 per 1,000 board feet), an early warning of declining building activity.
The dollar is mixed in trading today, +0.60% vs. the GBP, +0.30% vs. the CAD, and + 0.08% vs the EUR, but -0.33% vs. the JPY. The dollar index (DXY) is off the day’s high of 93.592 but is still +0.05% for the day.
The dollar is starting the U.S. session lower against each of the G10 currencies, adding to yesterday’s losses and extending the dollar’s losing streak to 5 consecutive days. But while the U.S. dollar index is off 0.75% from September’s high mark of 93.662 at 92.956, the dollar index is still higher by 0.88% for the month. The 200-period moving average is providing support for the index at 91.374.
Today’s results for the dollar in rank order are:
-0.63% vs. AUD
-0.40% vs. NZD
-0.34% vs. GBP
-0.30% vs. JPY
-0.29% vs. NOK
-0.19% vs. CHF
-0.14% vs. CAD
-0.09% vs. DKK, SEK, and EUR
The Mexican peso has continued to
strengthen following the USD/MXN’s break below 21.5000 support last week. Next
weekly support is at 20.6000.
Oil is lower by 11.55% during
September as a near-term global economic turnaround becomes less likely.
Today’s U.S. economic releases
have been a mix of over- and under-performance. Empire Manufacturing was reported
at 17.0 vs. a 6.9 estimate. And Industrial Production for August came in at 0.4%
vs. a 1% estimate.
The FOMC starts its two-day
meeting today and ends with tomorrow’s rate policy announcement. No rate change
is expected from the current 0.25% Target Rate. The current implied overnight
rate is 0.095%.
The dollar index (DXY) closed with a gain yesterday after trading to a fresh multi-year low earlier in the day. The momentum from this key reversal has carried into today’s trading, adding to dollar strength and lifting the DXY by 0.32%.
The EUR/USD is lower today by 0.51% at 1.1846 and 1.36% below yesterday’s multi-year high of 1.2011. Support is at 1.1825 and lower at 1.1775.
The GBP/USD has had a similar reversal, trading to a multi-month high 1.3482 yesterday, but lower today by 0.38% and down 1.36% over two days.
The Canadian dollar is holding onto its recent gains, only down by 0.05% vs. the USD today as the USD/CAD consolidates below 1.3100. Support remains at 1.3050 and 1.3000.
The Mexican peso is one of the few currencies to post a gain vs. the USD over the previous two days of trading, up by 0.38% since Monday’s close. The peso’s resilience is a surprise given its position as the main asset for exposure to emerging market risk. USD/MXN is trading just above the 200-day moving average at 21.7050. A break below support will target next support at 21.5000.
Fed Chairman Powell announced a new approach to rate policy last Thursday, termed ‘average inflation targeting’, that allows inflation to run above the 2% target for some time before adjusting interest rates. Previous rate policy was more preemptive, hiking rates while inflation was below 2% to stem future predicted inflation.
The Fed’s new approach is interpreted as an easing of monetary policy since the official rate will be kept at low levels for longer periods of time. And easier monetary policy has a direct impact on the outlook for the dollar. Since the Fed’s updated policy announcement the dollar index (DXY) has declined 1.25% to 91.844, its lowest level since April of 2018. Next support for the dollar is at 91.050, a further potential drop of 0.86%.
G10 gains vs. the USD since the Fed’s policy change:
The USD/CAD traded near its lowest
level of the year overnight at 1.2990, briefly overshooting support at 1.3000
before recovering to 1.3040. Next support is at 1.2950. A break below 1.2900 will
bring 1.2775 into view.
USD/MXN is trading at 21.7000 (the
200-day moving average), its lowest level since the week of June 10th.
Next support comes into play at 21.5000. A weekly close below 21.4000 will
suggest further weakness to 21.0000 and 21.5000.
The dollar index is holding onto a slight gain of 0.04% overnight. At 93.041 the DXY is trading in the middle of a sideways 93.991/92.127 range going back to late July. The lack of direction is primarily tied to uncertainty over additional coronavirus-related stimulus and a potential shift in the Fed’s policy towards inflation targets.
The AUD is holding the biggest gain vs. the USD today, up 0.37% at 0.7258, just short of multi-year high 0.7177 last traded August 19th. Next major resistance for the AUD/USD is at 0.7400.
The GBP is higher today by 0.08%, adding to the previous two-day gains and is on track to re-test the August high at 1.3267. Support for the GBP/USD is at 1.3000 and 1.3050.
USD/CAD is trading just a few points above 1.3130 support. The CAD is higher by 2.08% vs. the dollar during August and has gained 7.01% during the last five consecutive months. Upcoming support is at 1.3075 and lower at 1.3000.
Weekly Jobless Claims reported today for the week ending Aug 22nd came in at 1.006m, slightly higher than the +1mio estimate. High unemployment and labor market disruptions continue to be the primary drag on inflation.
Fed Chairman Powell announced new inflation policy today. The dollar is sharply lower on Powell’s comments and gold has gained 1.66% in the last 20 minutes. The market is clearly interpreting new policy as inflation-friendly. Details of the new policy will follow in further commentary.
The dollar index (DXY) is trading lower today by 0.34%, trading just below 93.000 and within the recent monthly range of 94.000/92.250. The dollar had rallied last Friday after a string of disappointing economic data releases for the Eurozone sparked a euro selloff which drove the EUR/USD to 1.1753, a 10-day low. Selling dollar strength is becoming a recurrent theme for August with three dollar rallies having been met with short dollar interest.
Today’s gains vs. the USD:
USD/CAD reached a fresh monthly
low today at 1.3130 and has now marked its 7th consecutive weekly
low. Next support is at 1.3075, then 1.3025 and 1.2950.
USD/MXN is trading just above monthly
support at 21.8500. Key support is at 21.5000 and major support remains at
Key data releases for the week are tomorrow's Consumer Confidence, New Home Sales, and Mortgage Applications. Thursday: GDP and Initial Jobless Claims. Friday: Personal Income.
*The arrows indicate how the base currency performed against the counter currency overnight. This document is for information purposes only and does not constitute any recommendation or solicitation to any person to enter into any transaction or adopt any trading strategy, nor does it constitute any prediction of likely future movements in exchange rates or prices or any representation that any such future movements will not exceed those shown on any illustration. All exchange rates and figures appearing are for illustrative purposes only. You are advised to make your own independent judgment with respect to any matter contained herein.