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In August, speculators have been selling DXY near 107, sending it back to the month’s average around 106. Tuesday was no exception. Within the DXY basket, buyers emerged below 1.0150 for the EUR and beneath 1.2050 for the GBP. At the top, sellers will be looking to take profits above 1.0350 for the EUR and 1.2250 for the GBP. Today, consensus expects Eurozone GDP to expand by 0.7% QoQ sa in 2Q22, the same pace as 1Q22. Despite the weak sentiment in the ZEW and IFO surveys from the Russia-Ukraine war and energy supply worries from Russia, hard data has yet to make good the recession worries in the bloc. The debate over the Fed’s hike pace dominated the JPY. After hitting a low of 130.41 on 2 August, USD/JPY was supported at 132, meeting resistance of around 135. However, a lower and stable 10Y JGB yield around 0.18% reflected the lack of pressure on the monetary divergence that pressured the JPY.
The US Treasury 10Y yield rose modestly 1.6 bps to 2.804% ahead of today’s FOMC minutes. It retreated after hitting an intra-day high of 2.87%. The 2Y yield was firmer by 7.5 bps to 3.257%, still trapped inside last week’s range between 3.10% and 3.30%. The futures market is discounting a 50 bps hike in September after the two 75 bps hikes in June-July. The impact of higher borrowing costs was evident in the US housing market. Yesterday, US housing starts fell 9.6% MoM plunge in June to their lowest level since February 2021 from homebuyers cancelling purchase agreements. After the first Fed hike in mid-March, lumber prices fell from more than USD1400 to around USD600.
Dow and S&P 500 rose 0.7% and 0.2% respectively to their highest closing levels since 21 April. US capacity utilization was stronger-than-expected at 80.3% in July vs the 80.2% consensus; June was revised down to 79.9% from 80%. Industrial production expanded 0.6% MoM in July at twice the 0.3% pace expected. June was revised up to 0% from -0.2%. Following the better manufacturing data yesterday, investors are bracing for slower US retail sales today. Consensus expects headline retail sales growth to decelerate to 0.1% MoM in July from 1% in June. Excluding autos and gas, retail sales growth will slow more modestly to 0.4% from 0.7%.
Commodity currencies struggled between better risk appetite and weaker commodity prices. The S&P 500 index rose another 4.2% this month after its stellar 9.1% jump in July. However, prices of gold fell a fourth month and crude oil prices a third month. Although AUD retreated from above 0.71 last week, support is around 0.70 or the average this month. Similarly, NZD is down from 0.6450 but is holding above 0.63 ahead of the expected 50 bps hike by the Reserve Bank of New Zealand today. USD/CAD has been gravitating towards 1.2850 after testing the upside at 1.2950 and the downside at 1.2750.
Quote of the day
“All great change in America begins at the dinner table.”
Ronald Reagan
17 August in history
Pulitzer Prizes began in America in 1903.
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