The greenback managed a comeback on Friday, managing to close the day marginally stronger versus the wildly rallying euro even after a weak ISM manufacturing survey saw EURUSD pushing on the 100-day moving average intraday just below 1.1300.
For the USD to continue to gain traction, we’ll need to see more supportive data this week from the ISM non-manufacturing and more importantly from a strong nonfarm payrolls number on Friday.
I suspect that even somewhat softer than expected data will fail to damage the USD much, as the USD downside last week was out of all proportion with any shift in forward expectations from the Fed and was more likely inspired by a squeeze on heavy positioning. So it might take a truly ugly employment report on Friday to rattle the USD beyond its recent lows – and we've no reason to expect a particularly bad employment report this time around.
Today, the focus is on the Eurozone Manufacturing PMIs, where the preliminary readings were distinctly disappointing – hard to see how stronger data in general affects the euro positively, while negative data may have more potential to affect the currency to the downside.
Tonight we have the Reserve Bank of Australia, which will cut unless the central bank wants to repeat the sharp squeeze higher that the last meeting saw (at the time, from depressed levels – this time the levels aren’t so depressed) – highly doubtful!
With the weak data out of China overnight and the iron ore rally easing, the risk appears tilted to the downside though RBA guidance theoretically creates two-way risks beyond the initial reaction to the rate move. Still looking at further near term dips in AUDNZD as a way to look for long data call option strategies, as that pair may have bottomed for the cycle.
Stay on your toes this week, as there are plenty of event risks for most of the G10 currencies this week and we could see significant pivots in the action.
Chart: USDJPY
Focus on USDJPY as the pair is pushing on the key resistance levels of the Ichimoku cloud and the descending “trend line” from the highs. Upside data surprises from the US this week could finally break the longstanding technical logjam in this pair to the upside, ushering in a move to 125.00 and beyond – but seeing is believing for this pair.
The G-10 rundown:
USD: Solid comeback late last week puts offers a mixed picture for the USD (depending on the pair in focus), but it is clear we’ll need supportive data this week to get the USD fully back in rally mode across the board.
EUR: Much of this run higher has clearly been positioning-inspired and this week tells us whether it has run its course. Some of the action in pairs like EURAUD and EURGBP makes one soner. In EURUSD, the 100-day moving average is the latest hurdle to the upside (currently around 1.1290), while the bears need a move below 1.1000.
JPY: Friday’s CPI data show that Japan is basically back in deflation again, though the Bank of Japan hasn’t been sending many signals lately suggesting that it is gearing up for a new move. Focus in USDJPY back on the Ichimoku cloud and descending line of consolidation this week. The direction looks higher if US data are supportive.
GBP: Clearly, the air was getting thin for sterling after the recent, overambitious rally, but the move in EURGBP suggests that election jitters may be back on the agenda, and possibly even that the market is looking beyond the election and focusing on the UK’s structural issues (twin deficits.)
CHF: Surprised we’re not seeing more EURCHF upside, given the collapse in Greek yields recently and the general euro squeeze – watching that 1.0500/25 area for whether we can get back on track for a move back toward the 1.0800-plus highs since the Swiss National Bank's January move to abandon the CHF ceiling.
AUD: All eyes on the RBA tonight, which will surely cut as it is rather fixated on the exchange rate and wouldn’t want to encourage a move back above 0.8000 again in AUDUSD.
CAD: Good signs of support at the key 1.2000 area in USDCAD, but we’ll need solid US data this week to see the pair pulling back into the higher range above 1.2350.
NZD: A powerfully bearish weekly candlestick for last week’s action suggests the focus should remain lower until proven otherwise, though we’ll need some follow through action this week and the last support zone in NZDUSD looks like 0.7400. Watch for the New Zealand Q1 employment report on Wednesday.
SEK: Sharp reversal weaker in SEK after the market reconsidered its buying of SEK after the recent Riksbank meeting, which saw an expansion of QE (even if the expected rate cut didn’t materialise). Watching whether this attempt in EURSEK above 9.40 was a head-fake or whether the pair can pull back higher again.
NOK: A potentially pivotal week for NOK as we have the employment data up today and Norges Bank up on Thursday. Risks appeared skewed to the downside for NOK (unless oil rallies strongly) as Norwegian rates have risen sharply lately and it is tough to see the Norges Bank guiding rate expectations higher this week. Watching EURNOK 8.50/55 zone in particular.
Economic Data Highlights
- Australia Mar. Building Approvals out at +2.8% MoM and +23.6% YoY vs. -1.5%/+16.7% expected, respectively and vs. +14.6% YoY in Feb.
- China Apr. Final HSBC Manufacturing PMI out at 48.9 vs. 49.2 original estimate and vs. 49.6 in March.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Closed for Bank Holiday Today
- Euro Zone Apr. Final Manufacturing PMI (0800)
- Norway Apr. Unemployment Rate (0800)
- US Mar. Factory Orders (1400)
- US Fed’s Evans to Speak (1625)
- US Fed’s Williams to Speak (1910)
- Australia Apr. AiG Performance of Services Index (2330)
- Australia Mar. Trade Balance (0130)
- Australia RBA Cash Target (0430)