The greenback strengthened further last week and stayed firm to close in spite of mild retreat. Dollar continued to receive support from Fed officials whose comment affirmed a rate hike one way or the other this year. It's still generally expected that Fed will lift interest from the current near zero level in September. But that's far from being a done deal as the strength of rebound in Q2 would be a pre-requisite. So far, the data from US weren't too convincing yet. The releases this week will be crucial and that include personal income and spending, ISM manufacturing to be released on Monday; ISM services on Wednesday and non-farm payroll on Friday.
Elsewhere, Euro regained some ground after facing much pressure over the week on Greek statement. The May 31 deadline for agreement with international creditors would likely be missed. But Greek officials emphasized that they could survive for another week without defaulting. The development will be closely watched. Also to be watched in European includes Eurozone CPI, GDP revision; UK PMIs. Also, ECB and BoE will meet this week.
Aussie and Kiwi were the weakness major currencies last week, followed closely by Japan yen. In particular Australian dollar was under pressure after weak Capex data raised the chance of another rate cut from RBA later in the year. There are a number of events this week that could trigger volatility in the commodity currencies as well as Asian markets. That include China PMIs, Australia GDP revision, trade balance, retail sales. RBA will also meet and the central bank will probably indicate its policy bias again in the statement.
Technically, the strong rebound in dollar index confirmed that pull back from 100.39 has completed at 93.13 already, just ahead of 38.2% retracement of 78.90 to 100.39 at 92.18. Further rise would be expected as long as 95.83 minor support holds. A test of 100.39 is expected. Nonetheless, the greenback will need a string of solid data to affirm the chance of September hike to push for a range breakout. Meanwhile, below 95.83 will extend the correction fro 100.39 lower.
Regarding trading strategies, we entered EUR/USD and AUD/USD short last week. The fall in EUR/USD originally looked promising but halted after hitting 1.0818. Euro bears seemed to be hesitating without a clear breakthrough in Greece. Also, the common currency was supported by buying in crosses including EUR/JPY, EUR/GBP and EUR/AUD. We'll stay short in EUR/USD but be cautious. Stop will be slightly lower to 1.15 to guard against a strong rebound.
Development in AUD/USD looked promising. The consolidation pattern from 0.7625 should be finished at 0.8161 and the larger down trend is likely resuming. A test on 0.7532 should at least be since. We'll keep the short position and put a stop at 0.7850.
Finally, the anticipated upside breakout in EUR/AUD finally happened after we've been holding long for more than two weeks. We'd like to emphasized that we're trading the possibility of a medium term trend reversal. That is, the correction from 1.5831 is possibly completed with three waves down to 1.3671 after hitting 50% retracement of 1.1602 to 1.3671. And, we're looking at least a test of 1.5531/5831 resistance zone. A break of 1.4443 near term resistance will affirm our view. Hence, we'll continue to stay long in EUR/AUD, with stop raised to 1.4160.
