A brief recap of last Friday’s action on the other side of a three-day weekend for many of us: the US April CPI release saw the core CPI out at +0.3% month-on-month and +1.8% year-on-year, both beating by a tenth of a percent.
The market had grown accustomed to US data points surprising to the downside, so the reaction was exaggerated on the surprise to expectations, but nonetheless showed how easy it was for the greenback to get back on the rally track.
For this week, the question is whether we see sufficient follow through to declare the USD bull market back in full swing.
On that note, and especially from a technical perspective, today is an interesting day because the tail end of last week’s trading saw a break below local support at 1.10 in EURUSD, a bearish reversal in GBPUSD, and USDJPY pounding to new highs for the cycle above 122.00.
But in several USD pairs, there are key technical hurdles to overcome before we the USD pulling to new highs. We still have several figures of range to work with in EURUSD. In USDCHF, we’re still below the key 200-day moving average and flat-line area near 0.9500, and GBPUSD is still almost 900 pips from the lows of the cycle.
As for the commodity dollars, NZDUSD and AUDUSD still have a bit more range to work with before we see new lows for the cycle, and USDCAD is 50-100 pips from re-entering the higher range it dropped out of well over a month ago.
That covers the technical. On the fundamental side, I’m not sure today’s US data provides significant catalysts for the USD, but next week’s US data may provide us with a sense of whether we are going to get bogged down in a range for another month until the next data cycle or whether the USD can post new cycle highs across the board in June. It’s a bit of a long wait between now and next Friday’s employment report.
Chart: USD/JPY
USDJPY has broken to new highs – the highest since 2007 – this morning. At first blush, this move has been triggered by stops and likely systems traders that are buying the break out above the clearly delineated prior highs for the cycle at 122.00. From here it will be about whether the move sticks and sees a follow-up rally to the 124+ highs from 2007, though psychological levels starting with the likes of the 125.00 area are perhaps more important.
The G-10 rundown
USD: Watching for follow through this week with the two interesting days for data this week – today’s batch of second-tier stuff and then the Friday Q1 GDP revision – with expectations for an ugly downward revision to near -1.0%.
EUR: The euro is weak across the board on the theme of the European Central Bank stepping up its quantitative easing purchases and Greece headlines provided additional headwinds. Technically, the move below 1.1000 in EURUSD looks significant, warming up expectations for a test of the lows for the cycle, though there are a couple of last Fibonacci levels to contend with, starting with the 61.8% retracement down near 1.0880.
JPY: JPY remains somewhat resilient in places, and USDJPY is testing the highest levels since 2007 this morning and setting a new cycle high above 122.00. But will today’s move/break stick? From here, the focus will shift to the 2007 highs just above 124.00 and the psychological 125.00 level.
GBP: Sterling had a setback on Friday as the US CPI data saw GBPUSD posting a bearish reversal, and the technical implications are interesting there if we follow through lower below the 1.5450 area, as this could open up for 1.50-1.51.
CHF: Nervousness growing on Greece as the supposed June 5 deadline looms. Generally looking for more downside than upside potential in the longer run, though traders will need to tread carefully as negative shocks are certainly possible if a deal for Greece is not hammered out in time. As for USDCHF, the 0.9500/25 area is enormously significant from a technical perspective for putting the chart on a more bullish structural footing.
AUD: Generally weak, though the focus is elsewhere and AUDUSD is almost exactly mid-range and hasn’t really gone anywhere this year – still looking for a downside test eventually, with 0.7800 as the next hurdle.
CAD: CAD may prove resilient in the crosses (like AUDCAD) and on exposure to the US economy if the latter shows a few better numbers, but still focusing on whether USDCAD enters the higher range above 1.2400.
NZD: AUD and NZD are battling it out at the 200-day moving average in AUDNZD, but NZDUSD looks quite vulnerable to a test of the cycle lows below 0.7200 in the days ahead, assuming the USD continues to prove itself to the upside.
SEK: SEK looking strong in EURSEK terms, no doubt to the consternation of the Riksbank. If 9.2200 area support gives way, some potential toward the 9.10/05 area, but the Riksbank will soon be on the war path again if we are trading there in the days/weeks ahead.
NOK: EURNOK is flat, hiding how weak NOK is in other crosses like USDNOK. And from here, further risk to NOK downside from Norges bank, with the next potential catalysts (in addition to the any moves in oil prices) in the shape of Friday’s retail sales and unemployment rate data.
Upcoming Economic Calendar Highlights (all times GMT):
- UK May CBI Reported Sales (1000)
- Hungary Central Bank Rate Decision (1200)
- US Apr. Durable Goods Orders (1230)
- US Mar. S&P/CaseShiller Home Price Index (1300)
- US May Markit Preliminary Services PMI (1345)
- US Apr. New Home Sales (1400)
- US May Consumer Confidence Index (1400)
- US May Richmond Fed Manufacturing Index (1400)
- US May Dallas Fed Manufacturing Activity (1430)
- US Fed’s Fischer to Speak (1630)
- Japan Bank of Japan Meeting Minutes (2350)
- US Fed’s Lacker to Speak (0010)
- Australia RBA’s Lowe to Speak (0045)
- Japan Bank of Japan’s Iwata to Speak (0130)
- Japan May Small Business Confidence (0500)