Up Down Turnaround
Global markets returned from various Mayday celebrations with a risk-friendly spring in their step and were rewarded as equities were buoyed by good US earnings results and had another run at making all all-time highs before retreating slightly. For the most part, markets continue to trade in tight ranges ahead of FOMC, NFP and the French elections later this week.The US dollar storylines remain numerous and shifting sentiment continues to pull the greenback in every which direction.
Japanese Yen
Price action in the US bond market with 30-Year yields topping 3.02% saw USD/JPY touch 112.30 before the 30-year yields faded post-Mnuchin’s long end supply headlines after April US car sales plummeted. Supporting the headline USD/JPY, there has been a focus on the EUR/JPY which broke its trendline resistance at 122.20/25. With French election surprise very unlikely, we could see a push higher on EUR/JPY which will underpin USD/JPY. Overall, the headlining pair remains positioned for a move higher, and with equities and risk trading well, we should expect dips to stay supported.
As for trading tonight, FOMC should provide some interest but will offer little in the way of a surprise with the market more focused on the language surrounding June. Overall, I suspect traders are looking past tonight’s release, preferring to focus on Friday’s NFP as one of the key barometers for the Fed June rate hike.
Australian Dollar
Making “ Cents” of the Aussie dollar moves can be challenging at times, even more so with typical short-term indicators becoming notoriously unreliable, so we take what the market gives us and trudge on.
AUD/USD has been in the limelight post-RBA after the bank held base rates steady. Lately, expectations had shifted slightly to the dovish side expecting that the balance of likelihoods may see a cut as the next move from the bank rather than a hike. The RBA is sounding a tad more upbeat while maintaining the constant theme of a glass half full approach to growth and underlying inflation, was enough to convince the market that chances for a rate cut are very unlikely and the AUD pressed to .7550.
Traders are keeping an eye on .7550-75 levels as there may be some more AUD shorts to get unwound in the days ahead. This could be aided by how well the cross JPY pairs are trading, underpinning the AUD/USD headline pair.
Aussie bulls continue to bank on a rebound in risk, commodity prices as the AUD pairs have continued to lag the moves in global equity prices.With risk rebounding, the interest rate picture a bit more clear and commodity prices apparently basing, we could see an extension of the current moves but could run into a supply of offers near .7575-7600 level as it’s unlikely we’re in the midst of any longer term move on the AUD.
FRENCH ELECTION TIMELINE
– May 5 – [from midnight] Poll blackout
– May 7 – Second round of French presidential elections. Last polls close at 19:00 BST / 14:00 EDT, with an exit poll result announced immediately.
– May 11 – Official proclamation of the new President.
– May 14 – [from midnight] End of Francois Hollande’s mandate
– June 11 – First round of legislative elections
– June 18 – Second round of legislative elections.