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Greenback Primarily Unchanged from Its Currency Counterparts

By OFX

The USD softened over the weekend as risk sentiment again shifted against the Greenback. The US Dollar Index (DXY) opens this morning at 95.89, reflecting a small retreat of 0.36% that was mostly driven by the headlines out of Europe. Nevertheless, the Greenback remains primarily unchanged against most of its counterparts.

The movements on Friday were attributed from off-shore forces, but the US Dollar did see some domestic impacts as well. Starting in Asia, China’s GDP figures were released to the downside, dampening fortunes for the AUD, NZD, and CNY and supporting the Greenback. Adding fuel to the trade war fire are reports that Treasury Secretary Mnuchin is open to changing how the US determines which nations are manipulating their currency in a naked grab for leverage against China. In Europe, Brexit negotiations are reportedly 90% done which buoyed the EUR and GBP over the weekend. The EU and the US are also set to review their trade ties with US President Trump notifying Congress last week that he intends to begin official trade talks with the EU. Domestically, the United States enjoyed a small jump in equity markets which also helped the Dollar stave off further losses. Overall, the Greenback has traded within a tight range for much of Friday as markets wait to see how these stories develop.

Moving into the start of a new week, the USD is set to enjoy a quiet day on the economic calendar with the focus firmly fixed on the headlines for direction.

The Canadian dollar suffered a poor end to the week with USD/CAD briefly pushing through 1.31 as Friday saw big miss in both CPI and Retail Sales. Analysts had expected both sets of data to show a monthly uptick of 0.1%; however, each saw a drop of -0.4% causing loonie crosses to spike. USD/CAD has retraced a touch to around 1.3090 at present with the markets starting to eye Wednesdays Bank of Canada interest rate decision.

It is still widely expected that we will see the Bank of Canada raise rate this week even with CPI and Retail Sales missing expectations on Friday. Market Participants see the main catalyst for Governor Poloz to hike interest rate is the recently approved USMCA previously known as NAFTA. The trilateral agreement will keep North American economic fundamentals strong heading into the end of the year and 2019.

A look at the technical levels for the USDCAD we have first support at 1.3071 followed by 1.3029, while first resistance is at 1.3114 and a move through this level and the 1.3157 is seen.

The euro rallied against the Greenback on Friday after it was reported that British Prime Minister Theresa May is ready to drop a critical Brexit demand to make a deal for Britain to leave the European Union (EU). The euro reached a high of 1.1512 against the U.S. Dollar on Friday after earlier falling to 1.1433 earlier in the session, the lowest since Oct. 9.

Looking ahead today and the macroeconomic calendar will be quite light with the only release the German Deutsche Bundesbank (Buba) Monthly Report. On Tuesday we will see the release of the German Producer Price Index (PPI) and EU Consumer Confidence. On Wednesday we will see the release of EU Purchasing Managers' Index (PMI).

From a technical perspective, the EUR/USD pair is currently trading at 1.1491. We continue to expect support to hold on moves approaching 1.1465 while now any upward push will likely meet resistance around 1.1535.

The Pound Sterling moved within a very tight 11-pip range against the Greenback during Asian trade on Friday bouncing between 1.3016 and 1.3027. The European and North America session pushed the GBP/USD higher, spiking to 1.3100 on reports Theresa May floated the idea of a ‘Brextension’ – a one year extension to the already sought two-year transition period. European Council President Donald Tusk had told reporters in Brussels that the E.U would in all likelihood agree to the extension of the transition period if requested by the U.K. The move was short-lived and stabilized around the 1.3065 level before the markets closed for the weekend.

In economic news, Public sector borrowing for September 2018 was at lowest for 11 years. The Office for National Statistics said the UK borrowed £4.1billion in September, some £0.8bn less than the same month a year ago. The numbers are a boost for Chancellor Philip Hammond who is under enormous pressure to loosen the purse strings at his Budget later this month.

Looking ahead, then there are no data releases scheduled until tomorrow. On the technical front, the first line of support sits at 1.3010 followed by 1.2980, on the upside, resistance is at 1.3085 and 1.3130.

The Australian Dollar tried valiantly in attempts to break through 0.7150 on Friday evening, a barrier tested multiple times last week and is taking its cues from offshore global developments. Opening Friday treading water just below the 71 US cent handle, The AUD/USD managed to hold steady despite the release of a raft of economic data in China including Gross Domestic Product which slowed to 6.5% on an annualized rate. The reading came in at its slowest pace since 2009 with the result being offset by a stronger than expected retail sales of 9.2%.

Bottoming out following the news at 0.7090, the Aussie clawed its way back to an intraday high of 0.7150, fueled by a reversal in risk sentiment and an uptick in commodity prices, most notably copper futures. Gains were eventually given up into North American trade as the Greenback resumed its strength, closing at 0.7118. On the data front locally, it is light on with direction to be taken from several speeches this week by RBA Assistant Governor Guy Debelle.

From a technical perspective, the AUD/USD pair is currently trading at 0.7104. We continue to expect support to hold on moves to the 71 US cent handle while any upward push will likely meet stiff resistance again at 0.7150.

The New Zealand Dollar continued higher through trade on Friday pushing back through 0.6550 before testing breaks above 0.66. Despite a risk-off undertone the NZD continues its upward march and recovery from two and a half year lows at 0.6435 as it moves outside typical risk-off trends. The Kiwi remains stubbornly uncorrelated with broader risk appetite tendencies maintaining little proclivity to follow the CNY and equities lower.

Having edged through 0.66 on open, the NZD buys 0.6579 at time of writing. With little of note on the domestic calendar through the front half of the week, our attention remains squarely affixed to broader risk flows. Expect resistance on the extension beyond 0.66 and approaching 0.6650 with backside support on dips nearing 0.65 and year to date lows at 0.6425/35.