The greenback’s rally last week was spoiled by a catastrophically bad Chicago PMI data point on Friday. With far more important US data up this week, the USD was largely able to brush this off as this week’s datastream from the US weighs far more heavily.
The potentially most important data point of the day will be the PCE inflation readings, as this recent bout of USD strength was kicked off by a strong core CPI reading – and the PCE data is supposedly the Fed’s favourite inflation measure.
Tonight we have a meeting of the Reserve Bank of Australia (RBA) at which the RBA is unlikely to offer anything on the hawkish side after the market already may have over-rated a perceived “hawkish” shift from dovish to more neutral.
In fact, the market’s RBA outlook may be far too complacent, and general uncertainties on China, weak commodities and downside risks might lead to a fresh wave of AUD selling – particularly as EURAUD, AUDUSD and AUDJPY are all poised near key levels that could provide further catalysts for selling (AUDUSD is not far from the cycle lows while AUDJPY and EURAUD are interacting with their respective 200-day moving averages)
AUDUSD
AUDUSD tested all the way below 0.7650 as the multi-year lows below 0.7550 are seen. Note that the lower, upward sloping line is the trend-line stretching all the way back to 2001. Any back-up after tonight’s RBA meeting, in the event said meeting produces very little guidance, may be quickly sold into ahead of the 0.7800 area.
Besides the data and the central bank meetings this week, one additional potential source of market volatility in currencies could come from pressures on risk appetite, if we see any follow through lower in the wake of Friday’s weak close, as the technical situation is looking a bit ominous from here on the basis of further downside in the major US and European indices.
Further bad nerves in risky assets might eventually support the JPY and generally support the EUR versus the commodity currencies and emerging market currencies in particular. The USD direction may be data driven regardless of risk appetite.
The G-10 rundown
USD: It’s all about the data, where we’ll have a hard time expecting anything positive from today’s ISM manufacturing after the abominable Chicago PMI on Friday, though a strong PCE inflation reading would easily garner more attention as the US manufacturing sector isn’t considered the key to the US recovery or Fed outlook.
EUR: Greece headlines can materialise at any time, but otherwise the focus on the ECB Wednesday, where we can hardly expect anything but a dovish commitment (“whatever it takes” even?) to keep sovereign yields stable after the recent disruptions.
JPY: The yen is traditionally the most reactive major currency to US data, but Japanese officialdom is leaning against this move – perhaps JPY downside might take a back seat this week?
GBP: Focus on today’s UK Manufacturing PMI as to whether we can see EURGBP resuming the selloff toward a test of the 0.7000 level. GBPUSD might be the preferred focus for further downside toward 1.5100 if the data misses today.
CHF: A waiting game here for Greece move, but wondering if there are under-appreciated risks of the SNB blindsiding the market at the June 18 SNB meeting. USDCHF recent highs above 0.9500 look like an important trigger and EURCHF support around 1.0300 has so far survived.
AUD: As expressed above – generally looking for downside risks to weigh more heavily on tonight’s RBA meeting – watching the cycle lows below 0.7550 in AUDUSD in the days ahead if so.
CAD: CAD trying to find support on oil price surge Friday, but there was also a weak GDP data point for March. Generally looking for USDCAD upside back toward 1.3000 eventually, but wondering if CAD outperforms the AUD and watching for a test of the 0.9400 area in AUDCAD in the event of AUD weakness post-RBA.
NZD: NZDUSD touching new lows for the cycle last week, and 0.7175/0.7200 is now resistance. Meanwhile, interesting to watch AUDNZD overnight in the wake of the RBA, as the pair has tried to rally again from a brief test below the 200-day moving average.
SEK: Sloppy range trade has predominated for weeks – perhaps risk appetite determines whether SEK weakness risk extends to 9.50 in EURSEK before we sell off again?
NOK: Remarkably weak, given the rise in oil prices on Friday and the strong data out of Norway on Friday – underlining our perceived risk to the downside in NOK pairs – next key is Norges Bank meeting on June 18 .
Economic Data Highlights
- China May Manufacturing PMI out at 50.2 vs. 50.3 expected and 50.1 in April.
- China May Non-manufacturing PMI out at 53.2 vs. 53.4 in April.
- Australia April Building Approvals out at -4.4% MoM and +16.3% YoY vs. -1.8%/+20.5% expected, respectively and vs. +24.6% YoY in March.
- Japan May Final Markit/JMMA Manufacturing PMI out unchanged at 50.9
- China May Final HSBC Manufacturing PMI out at 49.2 vs. 49.1 original estimate and vs. 48.8 in April.
Upcoming Economic Calendar Highlights (all times GMT)
- Sweden April. Retail Sales (0730)
- Euro Zone May Final Markit Manufacturing PMI (080)
- UK May Markit Manufacturing PMI (0830)
- US April Personal Income and Spending (1230)
- US April PCE Deflator/Core (12130)
- US Fed’s Rosengren to speak (1305)
- Canada May RBC Canadian Manufacturing PMI (1330)
- US Fed’s Fischer to speak (1330)
- US May Final Markit Manufacturing PMI (1345)
- US May ISM Manufacturing (1400)
- Australia RBA Cash Target (0430)