The EUR/USD slipped higher, asthe USD was broadly on the defensive from the USD/JPY rally failing to stick on Thursday. But is this fair? The week ahead is chock full of event risks, with key U.S. data and three central bank meetings.
Japan – the overnight data was somewhat encouraging, suggesting that Abenomics is getting some traction, as the latest manufacturing figures posted a new high since the summer of 2011, although still modestly above the 50 level. Meanwhile, inflation data showed higher than expected readings, even if the year on year nationwide data was still deflationary.
Looking ahead
Quite a few data reports are scheduled out of Europe late Friday morning after a weak German Retail Sales report, including the latest CPI estimate for May and the Unemployment data for April. Core inflation has dipped back close to the 2010 lows, suggesting the ECB will feel it has more room to act, if it can get around the Weidmann/German contingent’s trepidation.
But next week is choc a bloc with U.S. economic data, including all of the major surveys and the employment report next Friday. TheRBA rate decision is slated for Tuesday, and the BoE and ECB are due on Thursday.
Stay careful out there.
Chart observations
The overriding FX questions for Friday morning are “Is this USD correction one that will be small, medium or large?” and is the JPY correction the only driver of the USD correction, or will other JPY crosses bear a similar burden to USDJPY if the JPY heads stronger?
EUR/USD :There’s a solid area of resistance in the 1.3050, which was an old support area and the descending trend-line comes in a tad higher above that. It’s a tough call right here. The squeeze could continue a bit as the next range resistance levels come in at 1.3140 and 1.3240. Bears will probably see a failure back below 1.3000 before getting involved tactically, but might be tempted to get involved with initial shorts above 1.3000 with stops above Thursday’s highs.
USD/JPY: Thursday's rally was quite a display of the short term volatility of the JPY crosses. Interesting that the selling came back in so quickly – the 100.50 to 100.00 zone is critical, and the price action is likely to remain nervous as there is a combination of heavy positioning together with some looking to get back on every dip. Still using treasuries as a confirming indicator. Locally, the treasury rally is supportive of JPY upside as long as it lasts. I will focus on the 97.00/97.50 area if 100.00 breaks, as the Ichimoku daily cloud comes in around there.
GBP/USD: New highs in Asia took it to an “ideal” basic 0.382 retracement to 1.5240 area. The downside is still preferred, but let’s see when/if selling pressure comes in - soon/now to keep the downtrend healthy.
EURGBP: 0.8600 obviously remains important after Thursday’s third test of that level in six days. This could open up for 0.8750 if broken. There is no momentum after yesterday’s rally failure, so the risk is two-way in the short term. Let’s see where we are on the other side of Friday morning's European and U.K. data.
EUR/CHF: Momentum coming out a bit, as the support zone is still firm for now above 1.2400. It’s probably time to get involved in options on the other side of the June 20 SNB to express a view. I am generally looking for the pair to head back higher, but would like to see how it behaves in a possible JPY rally first. That might provide interesting levels for getting long upside volatility potential.
AUD/USD: Not much bounce here – interesting. 0.9400 is the next focus area, as mentioned and the new resistance is the 0.9700 area.
NZD/USD: 0.8000 is the huge support – if we don’t get bounce here on Friday, the downside risk opens up rather quickly again. There’s plenty of free room below the 0.8000 level for a chunky sell-off.
USD/CAD: Support came in just below 1.0300, which corresponds to the April high – a tactical level that will remain important through Friday’s Canadian GDP data.
NOK: Looking for whether support comes in now or later for NOK/SEK – preferred now at around 1.1200. Looking for EUR/NOK support between here at 7.60 and 7.55 for a fresh rally attempt.
SEK: Overachieving - looking for support ahead of 8.50 in EUR/SEK, and watching if 6.50/6.55 zone survives in USDSEK, which doesn’t look pretty after the sharp reversal from the new highs.
Economic Data Highlights
- Japan May Markit/JMMA Manufacturing PMI out at 51.5 vs. 51.1 in Apr.
- Japan Apr. Jobless Rate out unchanged at 4.1% as expected
- Japan Apr. National CPI ex Food and Energy outat -0.6% vs. -0.7% expected and -0.8% in Mar.
- Tokyo May CPI ex Food and Energy out at -0.3% YoY vs. -0.7% expected and -0.7% in Apr.
- Japan Apr. Industrial Production out at +1.7% MoM and -2.3% YoY vs. +0.6%/-3.4% expected, respectively and vs. -6.7% YoY in Mar.
- New Zealand May ANZ Business Confidence out at 41.8 vs. 32.3 in Apr.
- Germany Apr. Retail Sales out at -0.4% MoM and +1.8% YoY vs. +0.2%/+1.1% expected, respectively and vs. -2.5% YoY in Mar.
- Switzerland May KOF Swiss Leading Indicator out at 1.1 vs. 1.07 expected and vs. 1.04 in Apr.
- Norway May Unemployment Rate (0800)
- UK Apr. Mortgage Approvals (0830)
- Euro Zone May CPI Estimate and CPI Core (0900)
- Euro Zone Apr. Unemployment Rate (0900)
- UK BoE’s Haldane to Speak (0900)
- Canada Mar. GDP and Q1 GDP annualized (1230)
- US Apr. Personal Income/Spending (1230)
- US Apr. PCE Deflator/PCD Core (1230)
- US Fed’s Pianalto to Speak (1245)
- US May NAPM Milwaukee (1300)
- US May Chicago PMI (1345)
- US May Final University of Michigan Confidence (1355)
- China May Manufacturing PMI (Sat 0100)
- Australia May AiG Performance of Manufacturing Index (Sun 2330)
- China May Non-manufacturing PMI (Mon 0100)
- Australia Apr. Retail Sales (Mon 0130)
- China May HSBC Manufacturing PMI (Mon 0145)
- Us Fed’s Yellen to Speak in China (Mon 0150)