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FX Update: USD Set To Challenge Next Resistance Levels

Published 06/08/2015, 05:21 AM
Updated 03/19/2019, 04:00 AM
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We had more Greek drama ahead of the weekend as Greek PM Tsipras fired back at Greece’s creditors over their latest proposal, keeping the uncertainty on this issue as high as ever. Not surprisingly, EURCHF was pummeled late Friday after trying to rally above 1.0500 again.

The uncertainty over Greece will likely drag on at least until June 30 as the Greek government has exercised its option to roll all payments to the IMF into one payment at the end of this month. A Bloomberg article outlines how the uncertainty could drag on for far longer, as even if a few billions of funds are unlocked in a deal, this might only get Greece to the end of the summer before a new deal is needed.

China’s enormous trade surplus might look positive on the surface, but the drivers for the size of the surplus look everything but healthy, as a precipitous drop in imports seems to be the chief driver, and exports were actually down year-on-year as well. The trajectory of China’s economy and policy remains a burning question, as it is hard to ignore the renminbi’s strength despite the uncertainty and weaker Chinese economy. Societe Generale’s Albert Edwards points out some of the strains that the recent USD strength and yen weakening are exerting in Asia, as the currency wars are reaching a new stage.

This is a quiet week on the economic calendar front, though that is not likely to mean quiet in the currency moves after last week’s big US jobs report and the technical situation remains interesting, with the USD at new highs in places (vs. JPY and NZD) but not yet having taken out critical resistance elsewhere (vs. EUR and AUD).

The Turkish lira fell out of bed to start the week after a watershed election outcome that saw the Kurdish HDP party achieving the 10% threshold needed for representation in parliament and thus ensuring the failure of Erdogan’s bid to change the Turkish constitution and reform Turkey’s governing structure with a stronger role for the president. The AKP party will now need to form a coalition to form a government.

Chart: GBPUSD
GBP has been on the defensive amidst a general squeeze recently in euro crosses and on a weak services PMI report last week. So far, we are stuck in the higher old range between 1.5200 and 1.5450, but the risk of a drop into the lower range below 1.5000 grows with a move through the 1.5175 area lows, as we also have the 100-day moving average coming in around this level, as well as a kind of head-and-shoulders neckline, if a somewhat poorly defined one, and interest rate spreads pointing lower as well.

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GBP/USD

The G-10 rundown

USD: the strong US jobs report on Friday speaks for itself. This morning’s downtick is from a French official saying that Obama suggested that the strong USD is a problem. This has obviously caught fresh USD longs off guard – but can it be a sustainable source of USD selling? (Rhetorical question alert…)

EUR: The 1.1070/1.1000 area is critical for EURUSD and will be the focus if the pressure lower continues on USD strength – that and announcements on Greece and stability/instability of the European bond market, where we assume the recent blow-up will fail to see further contagion for now.

JPY: USDJPY above 125.00 and possibly looking for more as long as the fresh break holds.

GBP: this week will be about whether the EURGBP selloff can get back on track after a squeeze so large that the former bear trend has been neutralised for now. GBPUSD looks vulnerable if recent lows below 1.5175 are taken out.

CHF: Pushed back lower on Greece headlines going into the weekend – that type of ad hoc risk may prove a minefield for CHF traders all month even if longer term, looking for a selloff.

AUD: Looking weak after last week’s RBA-inspired rally was erased and Chinese data overnight no cause for cheer either. Firmly focused now on the sub-0.7550 lows in AUDUSD.

NZD: An RBNZ meeting up later this week with a rate cut only partially priced in – meaning significant reaction potential either way.

CAD: USDCAD has become bogged down in a range, but the action looks orderly and we may just be gathering strength for a push to 1.2800+ and 1.3000 eventually.

SEK: Looking for a reason to be inspired – SEK valuation very cheap, but for good reason on Riksbank dovishness, so it's tough to pull together a compelling view for the near term – EURSEK is also a technical mess.

NOK: Another surge higher in EURNOK on weak oil prices and a further downside risks for NOK heading into next week’s Norges Bank meeting.

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Economic Data Highlights

  • Japan Apr. Adjusted Current Account Balance out at +¥1274.2B vs. +¥1450B expected and +¥2066B in Mar.
  • Japan Q1 GDP revised up ato +1.0% QoQ vs. +0.6% previous estimate
  • China May Trade Balance out at $59.5B vs. $44.8B expected and vs. $34.1B in Apr.
  • Germany Apr. Industrial Production out at +0.9% MoM and +1.4% YoY vs. +0.6%/+0.9% expected, respectively and vs. +0.2% YoY in Mar.

Upcoming Economic Calendar Highlights (all times GMT)

  • Canada May Housing Starts (1215)
  • Canada Apr. Building Permits (1230)
  • Euro Zone ECB’s Mersch to Speak (1400)
  • Canada BoC’s Wilkins to Speak (2015)
  • New Zealand Q1 Manufacturing Activity (2245)
  • New Zealand May QV House Prices (0000)
  • Australia May NAB Business Conditions/Confidence (0130)
  • China May CPI/PPI (0130)
  • Australia Apr. Home Loans (0130)

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