The USD managed to surge back to the strong side yesterday, though the rally generally failed to take out key levels in any of the major USD pairs. It was, nevertheless, encouraging for USD bulls that this comeback came after a weak close on Friday on poor US data releases, and the strong surge in risk appetite (S&P 500 closing strongly at a record high).
The Reserve Bank of Australia minutes overnight saw AUD a bit weaker, though there was nothing in the explanation for why the RBA neutralised its forward guidance that garnered much attention. AUDUSD quickly stabilised within the nervous pivot zone between 0.7950 and 0.8000 as we await a near-term direction there.
The RBA clearly prefers to keep things neutral, but said the “lack of guidance doesn’t limit scope for a future rate move.” There was also considerable focus on downside risks, so it is hard to see these minutes providing any hawkish shift:
“Members saw cases for cutting rates either in May or June…”Australia’s terms of trade expected to decline further”…”Timing of recovery in non-mining investment a key risk.”
The noise out of Greece continues to point toward a deal, as the clock is ticking ever louder and Greece’s creditors are turning the screws on Alexis Tsipras and company. Finance minister Yanis Varoufakis was out yesterday saying that a deal is near, and we should expect something within a few weeks because Greek finances are running on fumes.
The main question for currency traders will be where the reaction is felt. Note that the huge rally in shorter-dated Greek bonds yesterday failed to support EURUSD, so any EURUSD upside on a deal announcement may be limited and the bigger reaction may come in the likes of EURCHF, if it is Greece that is holding the pair at these levels.
Also, a deal is risk-appetite positive and therefore positive for the euro carry trade.
Chart: AUDUSD
AUDUSD survived a test of the pivot zone below 0.8000 as we await signs of either upside or downside conviction. It is the first major USD pair to challenge major support (resistance to USD strength) levels and has so far survived the test as we watch whether the greenback can impress further today.
Note that the 0.7925 area is loaded with technical significance, containing the 61.8% Fibo retracement of the local wave and the 38.2% retracement of the bigger wave from the cycle lows, as well as trend-line support.
A drop through this level looks significant for supporting the bearish case.
The G-10 rundown
USD: Is it a false dawn here or is the greenback getting something going? Note sure whether the Federal Open Market Committee minutes will provide much of interest, but market conditions are supportive of a USD rally if US data and the FOMC minutes prove benign.
EUR: Surging risk appetite and more stable European bond markets are helping the market to reposition for EUR downside – watching 1.1250 area in EURUSD for the first sign that we are beginning to break down ahead of the structurally more important 1.1000/50 area.
JPY: Playing the usual game of trading in lower beta to the USD direction (EURJPY tracking EURUSD directionally for example) and watching USDJPY reactivity to US event risks through the end of the week and the Bank of Japan on Friday (little new expected there after recent Kuroda comments on staying the course.)
GBP: A strong comeback against the euro yesterday suggests we might be back on the selloff path toward the cycle lows just above 0.7000 in EURGBP, while GBPUSD might remain in the higher range. It will be interesting to watch how the pair reacts if we test the 200-day moving average now below 1.5600, while the bigger structural area looks like 1.5500.
CHF: EURCHF looks poised for a break higher – are we awaiting for a trigger from Greece or further noise from the SNB or both? Watching 1.0500/25 in EURCHF and watching whether SNB Vice President Jean-Pierre Danthine has anything interesting to say later today.
AUD: RBA minutes overnight see a brief selloff in AUD, but we’ll need more to get a sense that AUDUSD is breaking down – note the chart discussion above.
CAD: Firmer USD and weakening oil see CAD sharply weaker – the next zone of resistance above 1.2200 and all the way up to 1.2350/1.2400 is the key for whether we can fully re-engage the secular USD rally. Watch out for Bank of Canada governor Stephen Poloz speaking later.
NZD: Firmer overnight on a higher-than-expected inflation expectations survey that saw a squeeze on shorts. And the rally also keeps the near-term uncertainty alive as we are only slightly below the middle of the range since late January, if that’s possible. Still prefer to focus on the downside, but let’s get clear of the local 0.7320 low first.
SEK: Swedish rates remain at rock bottom and yet EURSEK is back down toward the middle of the range – a sign of SEK resilience, but the chart has been a churning mess for some time and the Riksbank’s Stefan Ingves is out speaking later.
NOK: NOK should be generally vulnerable on weaker oil prices and central bank guidance risks are skewed to the downside, but EURNOK trading indifferently at the moment.
Upcoming economic calendar highlights (all times GMT)
- UK Apr. CPI/RPI/PPI (0830)
- Eurozone Mar. Trade Balance (0900)
- Germany ZEW Survey (0900)
- Eurozone Apr. CPI (0900)
- Sweden Riksbank Governor Ingves to Speak (1100)
- US Apr. Housing Starts and Building Permits (1230)
- Canada Bank of Canada’s Poloz to Speak (1530)
- Switzerland SNB’s Danthine to Speak (1600)
- Japan Q1 GDP (2350)
- Australia May Westpac Consumer Confidence (0030)