In an otherwise quiet trade, Sterling soared on a story that Germany and Britain abandoned key Brexit demands. Which would pave the way for the UK to strike a deal with the EU. GBP/USD jumped 150 points. Germany later said that their position on Brexit was unchanged which saw the Pound slip 75 points to settle at 1.2910 (1.2855 yesterday), up 0.4%. The Dollar eased overall.

Outlook: Data releases yesterday saw Australian Q2 GDP jump and beat forecasts. This enabled the Aussie to climb off its 2016 lows. The US Trade deficit widened in July but the deficit was less than forecast.  US imports rose 0.9% to a record. UK Services PMI bettered expectations.

In Europe, Italy’s government reassured the European Union that they would respect EU deficit rules. Italian bond yields fell.  EM currencies stabilised. The USD/TRY eased 0.71% to 6.00 (6.67).

Trading View: Market positioning is coming into play.  We highlighted earlier this week that total net speculative USD longs are at their biggest since 2017. The Greenback’s medium-term uptrend needs a correction to stay healthy.

The Dollar’s 1-week rally has been due to a large part to Emerging Market weakness. US yields were unchanged yesterday with the benchmark 10-year bond stuck at 2.90%. While we have bounced off the 2.80 % support level, we are half-way to 3.0%. The Dollar needs yield support to see further gains.

Sterling’s volatile spike started off with fresh buyers emerging which then triggered short-covering.  Net speculative GBP short bets are at their highest since May 2017.
The fall in Italian sovereign bond yields saw the Euro climb after it held the 1.1530/40 level. The rally in the Pound and Euro could extend today which would see further easing in the Dollar Index.

The Aussie and Kiwi, both oversold, rallied on the back of a softer Greenback. We can expect further short-covering to boost the Antipodeans.

Events and economic data releases today: Australia August Trade Balance; Swiss Q2 GDP; German August Factory Orders; US Challenger Job Cuts, US ADP Non-Farm Employment Change, US Weekly Jobless Claims, Final Services PMI, ISM Services PMI, August Factory Orders; Canada August Building Permits.

USD/DXY – The Dollar Index retreated 0.3% to close at 95.129 (95.428 yesterday). Overnight high traded was 95.663. The 95.60/70 resistance level held once again and looks formidable. Immediate resistance today lies at 95.40. Overnight low traded was 95.085. Immediate support can be found at 95.00 followed by 94.80. Strong support remains at 94.40. Look to trade a likely range today of 94.85-95.35. Prefer to sell rallies.

GBP/USD – The British Pound jumped to a high of 1.29826 on the German/UK Brexit story before easing to 1.2890, and eventually closed at 1.2910 in New York. A German government spokesman said that Germany’s stance has not changed. Sterling still managed a 0.4% gain versus the Greenback. UK Services data bettered forecasts while the speculative community is short Sterling bets. GBP/USD has immediate resistance at 1.2940 followed by 1.2980. Immediate support can be found at 1.2890 followed by 1.2860. Look to trade a likely range today of 1.2890-1.2990. Prefer to buy dips.

EUR/USD – rallied to a high of 1.16401 before easing to 1.1630, finishing up 0.37% from yesterday (1.1585). EUR/USD has immediate resistance at 1.1650 followed by 1.1680. Immediate support can be found at 1.1600 followed by 1.1580. Euro area Services PMI data released yesterday were mostly as expected. The big support for the Euro was the move down in sovereign Italian bond yields. Today sees the release of German factory orders. Look to trade a likely range today of 1.1600-1.1680. Just trade the range shag on this one.

AUD/USD – initially jumped upon the release of the Australian Q2 GDP data which easily beat forecasts (+0.9% vs +0.7% f/c). AUD/USD soared to 0.7214 before slipping back following weaker than expected Chinese Caixin Services data. Today sees Australian Trade Balance for August. Overnight low traded was 0.71442. AUD/USD closed at 0.7195 (.7177 yesterday). Today sees immediate support at 0.7170 followed by 0.7140. Immediate resistance can be found at 0.7215 followed by 0.7245. Net short speculative Aussie short bets are at their largest since late 2015. Look to buy dips with today’s likely range 0.7170-0.7270.

111.52 (111.47 yesterday). The Dollar traded to an overnight high of 111.756 Yen. Immediate resistance can be found at 111.70/80. Immediate support lies at 111.30 (overnight low 111.311). The next support level is at 111.00. The focus for the USD/JPY will be on the US data which culminates on the Payrolls numbers tomorrow. For today look for a likely range of 111.10-111.70. Prefer to sell USD rallies, the specs are short JPY/long USD.

 

Haven picks Japanese Yen and Swiss Franc rallied as risk aversion rose, lifting the VIX (Volatility Index +5.3%). Mounting trade war concerns as well as protracted EM weakness weighed on market sentiment. The US Dollar eased heading into August Payrolls after the ADP National Private Employment report increased less than expected. Stocks fell, treasuries rose, yields dropped.

Outlook: Despite US Jobless Claims to hit a post 1969 low, private jobs numbers underwhelmed. The softer than expected private sector employment result undercuts analyst’s forecasts of an increase in August Payrolls. Watch Wages data tonight, they also matter. US ISM Services PMI beat forecasts.
Australia’s Trade Balance in August bettered analyst’s expectations. German Factory Orders fell.

Trading View: “Let’s get ready to rumble!” Michael Buffer’s trademark catchphrase says it all. It’s Friday, Payrolls day.Jobs Creation for August is expected to be around +190,000 from Julys modest +157,000. Average Hourly Earnings (Wages) are expected to ease from the previous month.

The fall in stocks saw Treasury prices rise and yields fall. The yield on the benchmark US 10-year treasury fell 3 basis points to 2.87%. Germany’s 10-year Bund yield slipped to 0.35% (0.38%). The yield on Japan’s 10-year JGB was flat at 0.10%.

Emerging Market stocks extended their fall while most currencies settled. The Dollar eased against the offshore Chinese Yuan (CNH) and South African Rand (ZAR). USD/RUB (Russian Ruble) was higher. USD/TRY (Turkish Lira) was little-changed.

Uncertainty on the trade front continues with President Trump due to announce a fresh tranche of tariffs against China later today. Chinese trade data is due out over the weekend. Look out!
Amidst all of this, current market positioning is still overbought US Dollars. Which is looking tired. Traders would need a much better-than-forecast Payrolls to re-invigorate the Greenback.

USD/DXY – The Dollar Index eased 0.09% to 95.022 at the New York close from 95.129 yesterday. Overnight low traded was 94.933. Immediate support lies at the 94.80/90 level followed by 94.40/50. The overnight high traded was 95.208, which is where immediate resistance can be found. The next resistance level is at 95.50/60. Look to trade a likely range of 94.80-95.30 today pre-Payrolls.

USD/JPY – slumped 0.65% to 110.71 from 111.52 yesterday. The Dollar got smacked by a double whammy of a lower US 10-year yield and risk-off sentiment. Overnight low traded was 110.52 which was hit when reports that President Trump is looking to target Japan next in his trade crusade. The report was more the opinion of a Wall Street Journal writer. Immediate support lies at 110.50 followed by 110.20, then 109.80. Immediate resistance can be found today at 111.00 followed by 111.30. The Yen has stayed relatively weak in the current environment but the rise in risk aversion and higher VIX could see Yen strength re-emerge. Watch this currency. Likely range today 110.40-111.10 before Payrolls. Prefer to sell rallies.