Euro ended last week as the strongest major currency as boosted by a few factors. Firstly, May CPI flash came in higher than expected at 0.3% yoy versus consensus of 0.2% yoy. And, core CPI also jumped 0.9% yoy versus expectation of 0.7% yoy, suggesting that the rebound in inflation was not entirely due to energy prices. Secondly, euro was lifted by surging German bond yields which touched the highest level since September at 0.996% before retreating back to 0.84%. The 36bps weekly gain was the largest since October 1998. Also, recent change in sentiment was rather drastic when taking into considering German yield was a low as 0.49% in back in April. This reflected optimism in improvements in the underlying economy of Eurozone. Thirdly, Greece and international creditors seemed to have entered into another stage of negotiation after EU, ECB and IMF came up with a unified proposal. While there are still many issues to resolve, the negotiations would likely be more focused.
Nonetheless, Euro pared back some gains towards the end of the week. Greece invoked a rarely used option and requested to bundle June 5 payment to IMF together with the other three totalling EUR 1.6b, and put them off till end of June. There were talks that the Greece and its international creditors are targeting to reach a deal by June 14. But now it looks like the negotiations could drag on till the end of the month. Also, German yield retreated before weekly close. And, Euro was also outshone on Friday by dollar.
After being pressured for most of the week, the greenback surged on Friday after a solid employment report. Non-farm payroll report showed 280k growth in May versus expectation of 218k. Prior month's figure was revised slightly down from 223k to 221k. Unemployment rate rose to 5.5% but that was mainly due to more people entering the labor force. The participation rate rose to 62.9%, up from 62.8%. Also average hourly earnings rose 0.3% mom, 2.3% you. The year-over-year rate was the highest since August 2013. While Fed would most likely hike interest rate from near zero level this year, the timing was uncertain. The strong May job report would raise the chance for an anticipated September hike.
Technically, we'd like to assess the general outlook of both Euro and Dollar. EUR/JPY resumed recent rebound from 126.09 and breached 140 level last week. Further rise would be seen towards next fibonacci level at 100% projection of 126.09 to 136.95 from 133.09 at 143.95. However, such rise is viewed as the second leg of the consolidation pattern from 149.76. Hence, we'd possibly see loss of momentum in EUR/JPY ahead. EUR/GBP's rebound from 0.7054 suggests that it's the third leg of the consolidation pattern from 0.7013. Hence, while further rise might be seen, there should be strong resistance above 0.7482. EUR/CHF faced strong resistance ahead of 61.8% retracement of 1.0807 to 1.0233 at 1.0588 and retreated sharply. And depth of the retreated raised some doubt on the buying momentum. Despite surging to 1.4159, EUR/CAD failed to sustain above 55 weeks EMA and closed sharply lower at 1.3810. Focus is back on 1.3802 near term support, which is in proximity. Break there would pressure EUR/CAD further lower back to next support level at 1.3428. EUR/AUD was the more convincingly bullish one. Recent rally extended last week and further affirm the case that fall from 1.5331 has completed at 1.3671. More important, 1.3671 could mark the complete of down trend from 1.5831. Thus, we'd anticipate a test on 1.5831 resistance ahead. So overall, except versus Aussie, Euro's strength is not too convincing.
Regarding dollar, USD/JPY's up trend continued and is still on course for 61.8% projection of 105.19 to 121.84 from 118.88 at 129.16 in near term. The pair would very likely have a take on 135.20/147.68 long term resistance zone. GBP/USD was a bit mixed. While the decline from 1.5814 was deep, the pair is still held above 1.5088 support and there is no confirmation of reversal yet. USD/CHF's rebound on Friday saved the bullish outlook that medium term fall from 1.0127 is completed at 0.9072. And we'd continue to favor a break of 0.9542 resistance. AUD/USD's recovery was limited below 0.7839 resistance. Thus, we're holding on to the view that AUD/USD is resuming recent down trend to 61.8% projection of 0.8910 to 0.7625 from 0.8161 at 0.7367. USD/CAD's pattern fro 1.2562 suggests that it's merely in consolidation. And rise from 1.1919 should resume later to 1.2834 high. Overall, dollar's maintains bullishness in general, with some doubts against sterling.
Meanwhile, the near term outlook in EUR/USD could be a bit mixed. Rebound from 1.0461 could extend higher through 1.1466 resistance. But in that case, strong resistance should be seen at 38.2% retracement of 1.3993 to 1.0461 at 1.0181 to bring reversal. Such rise is viewed as a correction and break of 1.0818 will suggests that it's finally ended. So, while Euro does have a chance to outperform dollar in near term, that should be relatively short lived. And this is consistence with the outlook in other Euro and dollar pairs.
Regarding trading strategies, the AUD/USD short once looked shaky but the recovery ended well below our stop of 0.7850. We'll stay short in AUD/USD with stop kept at 0.7850. We'd anticipate at least a test on 0.7532 low with much chance of hitting 0.7367 and beyond. The EUR/AUD long was also correct as rebound from 1.3671 extended to as high as 1.4710. We'd like to emphasize again that we're looking at medium term reversal in the cross, targeting at least a test on 1.5531/5831 resistance zone. If we're correct, the rally in EUR/AUD should start to pick up further upside momentum and we'll keep an eye on it. Meanwhile, we'll raise the stop to 1.4300 and keep it loose to let the trend run. Meanwhile, our EUR/USD short was wrong as the position was stopped due to unexpectedly strong broad based rebound in Euro. We'll look for opportunity to sell EUR/USD again, but at a latter stage.