Daily FX Wrap
EUR and GBP still getting a firm lift against the USD and JPY, as central bank mood shift still dominates. US Q1 GDP revised a little higher, to help UST yields edge higher, but USD/JPY set to face resistance ahead of 113.00.
After a continuation of the themes from Tuesday/Wednesday, we saw the EUR striding ahead against the USD and JPY once more, as the fundamental backdrop in the Eurozone was further enhanced by a better than expected IFO survey in Germany as well as the latest CPI numbers moving higher again to alleviate some of the concerns over inflation. German employment report out Friday. Despite ECB sources suggesting that the market has misjudged president Draghi’s speech this week, there is no getting away from the fact that the market will continue to position for eventual stimulus tapering and/or a reversion in interest rates back to flat.
This will keep EUR/USD on the path for an eventual move to 1.1500, if not a little higher, and this will break the series of lower highs stretching back to early 2015. Against the JPY, the EUR is now eyeing a move on 130.00-132.00, with a series of daily highs recorded from the low 124.00’s seen last week.
Similarly, in the UK, the BoE has been turning hawkish in their rhetoric, but the focus here is on containing inflation due to exchange-rate weakness, but this has been addressed to a significant degree with Cable tipping 1.3000 and the pullback running into fresh buyers still looking to retest the highs seen mid May. Given the concurrent moves with EUR/USD, the cross rate has been pretty tight today, with a clear reluctance to test lower/key support levels in front of 0.8710. GBP/JPY has gone on to test the mid 146.00’s, having dipped briefly under 140.00 last week.
Widespread USD selling across the board with the exception of USD/JPY has been pushed to extremes, but looking at the DXY, we have more support levels to test. Based on the US data fade of late, we saw a slither of light in the Q1 GDP revisions, where the headline number was revised up to 1.4% from 1.2% and real consumer spending was marked up from 0.6% to 1.1%. Only USD/JPY has reacted to this, and into the last hour or so of trading in London, we are testing the resistance zone from 113.00-113.40 with the key 10-yr. yield now a touch off 2.30%. Nb, we have Japanese inflation figures out tonight, but the some of the modest growth in the broader economy is only set to have a modest impact on levels well shy of the BoJ’s target.
It is also worth noting that we have Chinese manufacturing and non-manufacturing PMIs out in Asia today.
To further underline EUR outperformance at the present time, we now see EUR/CHF pushing higher again with the cross rate touching highs just under 1.0950. This is helping to provide a modicum of support in USD/CHF ahead of 0.9550, but on the daily charts, 0.9530-15 looks extremely vulnerable, with the risk balance influential here.
Looking to the more traditional risk/commodity currencies, AUD has been doing well with Copper and iron ore rising – largely off the back of USD weakness – and this has been better reflected in the rise in AUD/NZD. 1.0500 has now been removed, but the key resistance area here lies up at 1.0550-70. AUD/USD gains are slowing into the upper 0.7600’s, but we do not rule out a move in 0.7700-50.
NZD has been particularly quiet today, and is it hard to gauge whether the market has been reluctant to test the 0.7330-50 highs in the spot rate of if AUD/NZD has been the darling of the day.
USD/CAD continues to eye a move on 1.3000, but as we noted, demand at these levels is strong, and we expect more of the same into the mid 1.2900’s, but record CAD shorts are being unwound, and this still looks to be feeding through. WTI is still trying to establish a foothold above USD45.0, but struggling, though the USD3.0 recovery over the last week or so has been more than enough the lift sentiment on the CAD. Canadian GDP for April due out tomorrow.