The Philippine peso jumped against the US dollar on Friday, forming a strong reversal signal away from the 50.50 level which has kept the USD/PHP exchange rate contained since February. USD/PHP had opened at 50.38 on the week’s final day but fell in each of the Asia, Europe and US sessions to end the week at 50.10.
In producing a reversal candle which opened virtually on its highs and closed on its lows, the USD/PHP rate should now have sufficient downward momentum to move back towards the lower boundary of its current trading range. The pair has been trapped between 49.30 and 50.50 for several months, having tested both boundaries several times.
Although the US dollar fell against most currencies on Friday, demonstrated by a fall in the US Dollar Index (DXY) from 97.56 to 97.30, the relative outperformance of the peso surprised some analysts given the absence of peso-specific news or economic data. While the peso gained 0.6% against the dollar – not a small amount for a currency which has an entire 2017 trading range representing just 2.5% – other regional currencies gained far less. The Thai baht and Singapore dollar, for example, both gained only 0.2%, and Indonesia’s rupiah fell marginally.
According to economist Guian Angelo of Land Bank of the Philippines, part of Friday’s outperformance was due to profit taking on US dollar long positions.
“Usually, investors take profits before the weekend, especially now there is a long weekend ahead. The market cannot react to any developments abroad on Monday, so better take profits,” Angelo told GMA News.
Between June 15th and June 21st, dollar strength had pushed the USD/PHP exchange rate from the mid-49s to the mid-50s – the rate’s largest five-day gain (five trading days) since September of last year. Dollar gains made against the baht, Singapore dollar and rupiah between the same dates were not as marked, and so naturally profit-taking was more evident in USD/PHP.
Other reasons for a broad US dollar decline towards the end of last week include a reassessment by investors of US interest rate expectations. Pricing in CME Fed funds futures now indicates just a 43.7% chance of a further quarter-point hike in 2017, down from more than 50% last week.
Junichi Ishikawa of IG Securities told Reuters journalists on Friday that “the main reason behind the weakness of the dollar is US yields [market driven interest rates earned on bonds] stuck at low altitude. Yields appear to best reflect US fundamentals.” The 10-year US Treasury yield ended last week at a seven-month low of 2.103%.
US fundamentals, which are most easily described by important economic data releases, have taken a turn for the worse in recent weeks. In mid-June, monthly data showed zero growth in US industrial production and a fall in consumer prices and retail sales. Earlier in June, US jobs data heavily disappointed, with the headline payrolls number falling short of the market forecast by some 40,000 jobs, coupled with a downward revision to the prior month’s number by nearly the same amount. The report was “a bad one across the board,” as stated by Saxo Bank’s head of FX strategy, John Hardy.
On Monday, financial markets in Southeast Asia are mostly closed for the holiday of Eid al-Fitr, otherwise known as Hari Raya Puasa, which marks the end of Ramadan.
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