Disappointment for expectations of a USD rally once again yesterday, as AUD/USD squeezed back higher on the failure of the Reserve Bank of Australia to cut rates, GBP/USD couldn’t get anything going to the downside after an attempt through near-term support, EUR/USD continues to stick near the 1.1200 level with no signs of building momentum after last Thursday’s steep drop, and USD/JPY couldn’t maintain the 120 level after pulling above it yesterday.
Still, while the lack of action may be wearing on USD bulls’ sentiment, the inability of the greenback to follow through higher may be merely due to the reluctance of some participants to put on fresh positions until we get the major US data out of the way through the end of this week. It’s an awfully long wait until Friday and I suspect something may give, one way or the other, before then.
The RBA failed to slice the cash target by 25 basis points, which it seemed a majority were expecting. While the RBA maintained an easing bias, it cited worries over housing price pressures as an important contribution to not cutting rates this time around. AUD/USD backed up to the 0.7850 area on the news and now we watch 0.7900 and 0.7750 now for the next triggers in that pair.
USD/JPY tumbled from a try above 120.00 overnight as an economic adviser to Abe, Etsuro Honda, said that the USD/JPY rate is at the “kind of upper limit in the exchange rate’s comfort zone.” The effect of his words on the market has more to do with the market’s lacking conviction than their importance…If we re-break 120.00 and post new highs in the next day or two, the USD/JPY bulls will find encouragement.
Chart: USD/JPY reversed after trying at the descending line of consolidation above 120.00 yesterday. The near-term support of note looks like 119.50/25, but this chart is a mess unless we break clearly to the upside, as the downside range looks like a bit of swamp. 
The G-10 rundown
USD: slightly disappointing ISM manufacturing number yesterday, with the New Orders and Employment components looking particularly weak. Looks like USD traders want to wait for the data through the end of the week before taking a position on theUSD’s direction here.
EUR: Little to go on in the near term as data has little impact due to the known path of European Central Bank policy over the coming months and there is little anticipation ahead of this week’s ECB meeting. Watching for EUR/USD to depart significantly from 1.1200 for the next directional clue, generally preferring downside as long as we remain below 1.1250/75.
JPY: One adviser’s comment derail the USD/JPY rally, showing how little conviction the market seems to have at the moment. The technically more interesting development remains.
GBP: Struggling to find fresh bids after over-achieving a bit lately. Some risk of further near term consolidation on a lack of catalysts.
CHF: Looking toward the Friday Swiss National Bank foreign currency reserves report, which tells us whether and how much the SNB continues to intervene in the market to keep the CHF from strengthening. EUR/CHF levels of interest remain 1.0810 and 1.0610.
AUD: Rallying on RBA failing to cut, even despite the rather dovish bias. Rates backed up a bit higher, support AUD across the board. Watching 0.7900 in AUD/USD if the rally extends, and 0.7750 is an even more clear line in the sand to the downside now. Would be easy for an ugly GDP print to wipe away the rally…
CAD: looking toward GDP report today and Bank of Canada tomorrow to provide the next sparks for CAD – generally looking for CAD vulnerability, but near term vulnerability either way to swings in the data or the oil price.
NZD: Trading passively – watching 0.7500/0.7450 zone in NZD/USD for technical reason to encourage the bearish view.
SEK: Further room to run lower toward 9.27 in EUR/SEK, though not seeing a significant trend building there.
NOK: Very little focus here – generally looking for weakness, though oil is a constant wildcard until next Norway-specific event risks in the pipeline – particularly March 19 Norges Bank meeting.
Dollar bulls would find encouragement in a USD/JPY break of 120.00. Photo: iStock
Economic Data Highlights
- New Zealand Feb. QV House Prices out at +6.4% YoY vs. +5.7% in Jan.
- Australia Jan. Building Approvals rose +7.9% MoM and +9.1% YoY vs. -2.0%/-1.7% expected, respectively and vs. +9.6% YoY in Dec.
- Japan Jan. Labor Cash Earnings rose +1.3% YoY vs. +0.5% expected and vs. +1.3% YoY in Dec.
- Australia RBA kept rates unchanged rather than cutting 25 bps, which the majority were expecting
- Switzerland Q4 GDP out at +0.6% QoQ and +1.9% YoY vs. +0.3%/+1.7% expected, respectively and vs. +1.9% YoY in Q3.
- Germany Jan. Retail Sales out at +2.9% MoM and +5.3% yoY vs. +0.4%/+3.0% expected, respectively and vs. +4.8% YoY in Dec.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Feb. Markit/CIPS Construction PMI (0930)
- Euro Zone Jan. PPI (1000)
- UK Bank of England’s Carney to Speak (1000)
- Sweden Riksbank’s Skingsley to Speak (1130)
- Sweden Riksbank’s af Jochnick to Speak (1230)
- Canada Dec. GDP (1330)
- Denmark Feb. Foreign Reserves (1500)
- US Mar. IBD/TIPP Economic Optimism (1500)
- Australia Feb. AIG Performance of Services Index (2230)
- UK Feb. BRC Shop Price Index (0001)
- Australia Q4 GDP (0030)
- Japan Feb. Markit Japan Services PMI (0130)
- China Feb. HSBC China Services PMI (0145)