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The USD is trading mixed and little changed against most of the major currencies as North American traders return following the Labor Day holiday.
The forex market was open yesterday, but the U.S. and Canadian stock and bond markets were closed. As a result, liquidity and trading activity were lighter than normal. That changes today as U.S. and Canadian traders return to their desks.
The largest move in the forex market is in the NZDUSD, which is down around 0.60%. The other major currency pairs are all within 0.30% of yesterday’s closing levels.
The USDJPY is trading modestly lower after yesterday’s sharp decline. That move was triggered by a technical break below last week’s lows and the early August low near 155.20–155.29. Once that support gave way, the buyers gave up control and the sellers pushed the pair sharply lower.
The selling continued in today’s trading, taking the USDJPY to a low of 152.90 before rebounding toward 154.28. The rebound has taken the price well off the low, but it has not erased the technical damage from the break below 155.20–155.29.
In the morning Kickstart video, I take a technical look at the three major currency pairs—the EURUSD, USDJPY and GBPUSD—and outline the levels that will define the bias and risk for traders today.
The snapshot of the major currencies shows:
- EURUSD: 1.1615, down 0.05%
- USDJPY: 154.23, down 0.08%
- GBPUSD: 1.3532, down 0.04%
- USDCHF: 0.8113, up 0.26%
- USDCAD: 1.3806, down 0.05%
- AUDUSD: 0.7213, down 0.03%
- NZDUSD: 0.5843, down 0.60%
U.S. yields move higher as the bond market reopens
U.S. Treasury yields are higher as bond traders return from the Labor Day holiday:
- 2-year yield: 4.381%, up 0.2 basis points
- 5-year yield: 4.565%, up 1.5 basis points
- 10-year yield: 4.796%, up 1.2 basis points
- 30-year yield: 5.253%, up 0.8 basis points
The larger increases are toward the longer end of the curve. Higher yields can provide support for the USD, but traders still need the price action to confirm the fundamental bias.
U.S. stock futures point lower
U.S. stock futures are pointing toward a lower opening as traders return from the long holiday weekend:
- Dow Industrial Average futures: down -462 points
- S&P 500 futures: down -27 points
- Nasdaq futures: down -34 points
The declines come as traders respond to higher yields and the latest escalation in the Middle East.
Middle East tensions send oil sharply higher
Crude oil is the clear mover in the markets today. WTI crude futures are up $2.28, or 2.49%, at $93.76.
Oil prices are being supported by another escalation in the Middle East. Iran-backed Houthi forces launched missile and drone attacks against several cities in southern Saudi Arabia, targeting energy-related facilities and other infrastructure.
The attacks started fires and temporarily halted operations at some energy sites. Saudi authorities said 73 people were injured. The Saudi-led coalition has promised a response, raising the risk that the conflict could broaden further.
The attacks add another layer of uncertainty to a market already concerned about reduced tanker traffic through the Strait of Hormuz. Iran has tightened restrictions on shipping through the Strait and warned that U.S. energy interests in the Gulf remain vulnerable.
For oil traders, the risk is not only the production that may have already been disrupted. The market also has to price in the possibility of retaliation, further attacks against energy facilities and additional disruptions to shipping.
That geopolitical risk premium is helping to push crude oil higher.
Elsewhere in the markets:
- Gold: down $34.19, or 0.74%, at $4,394.71
- Silver: down $0.27, or 0.40%, at $65.89
- Bitcoin: down $1005, or 1.27%, at $78,245
Gold and Bitcoin are both trading lower despite the renewed geopolitical tension. That tells us that the most direct reaction to the Middle East news is currently in the energy market rather than a broad flight into all perceived safe-haven assets.
A review of the overnight economic data
Japan’s final second-quarter GDP increased 0.4%, matching expectations and coming in slightly above the initial estimate of 0.3%. The final GDP price index was unchanged at 2.6%.
The larger surprise came from Japanese wages. Average cash earnings increased 4.7% year over year, well above the 3.8% estimate and up from 4.0% previously.
Stronger wage growth is important for the Bank of Japan. Higher wages can support consumer spending and help keep inflation pressures elevated, giving the BOJ more confidence that inflation is becoming sustainable.
Japan’s Economy Watchers Sentiment index edged higher to 46.4 from 45.7, marginally above the 46.3 estimate. However, the index remains below 50, indicating that respondents continue to view economic conditions as more negative than positive.
In Australia, Westpac Consumer Sentiment fell 5.2% after rising 6.0% previously. NAB Business Confidence also weakened to -8 from -7.
China’s trade surplus widened to CNY809 billion from CNY767 billion, slightly above the CNY805 billion estimate. In U.S. dollar terms, the surplus increased to $119.1 billion from $112.5 billion, also slightly above expectations. Trump will not like that. China Xi wlll be visiting later in the month.
In Europe, Germany’s trade surplus widened to €21.3 billion, well above the €16.0 billion estimate and up from €15.4 billion previously.
France’s trade deficit widened to €6.7 billion compared with the €6.0 billion estimate and the previous deficit of €5.8 billion.
In the United States, the NFIB Small Business Index fell to 98.7 from 99.8 and came in below the 99.4 estimate.
The U.S. economic calendar is relatively light for the remainder of the day. That will leave traders focused on the return of North American liquidity, the move higher in Treasury yields, the weakness in U.S. stock futures and the continued influence of Middle East developments on oil pric
This article was written by Greg Michalowski at investinglive.com.
