The USD ended last week mixed, with the USD/JPY remaining too low for comfort for the bulls, while the EUR/USD churned sharply and failed to confirm an attempted bearish reversal. Elsewhere, the AUD weakness looked a bit more convincing as AUD/USD plunged back through the 0.7750 level and into the heart of the previous range on weakness in commodity prices, and USD/CAD launched a rally on weak oil prices.
Chart: AUD/USD
AUD/USD confirmed the failure of the breakout last week with the follow up move below 0.7750 arguing for at least a test of the range lows down below 0.7600, depending on the strength of US data this week.
Fed chair Janet Yellen's comments late Friday were relatively dovish and uninteresting as she clearly wants to send no signal at the moment on the timing and pace of the Fed’s removal of accommodation, which helped push Fed Funds futures close to the highest level for the cycle. She merely stated that a rate hike will “probably” occur in 2015.
The Bank of Japan’s Kuroda said that BoJ policy is aimed at achieving price stability and not at bringing FX into any specific range and outlined the positive effects of weak FX on exports and negative effects for household incomes. Also PM Abe says that the Japan’s policies are not aimed at weakening the JPY. Meanwhile, Japan posted an awful February industrial production figure.
China’s central bank head Xiaochuan was out bemoaning weaker than desired Japanese growth and suggested China needs to be “vigilant” on the risks of deflation.
This week looks like a pivot week for the USD, versus the EUR and JPY in particular, in reaction to incoming data. Note that the US futures positioning report from Friday (which shows positions as of last Tuesday) showed EUR shorts at a record despite the surge in the euro off the recent lows. This suggests that the euro could be highly reactive and volatile this week to US data – particularly if it is exceptionally weak data, not that weak data is necessarily expected.
The preliminary US Markit manufacturing PMI suggests little reason to expect a weak ISM on Wednesday and strong weekly jobless claims numbers suggest little reason to expect a particularly weak US jobs report on Friday. Still, USD bulls might find other pairs to express an upside view for the USD considering the perilous positioning levels.
The G-10 rundown:
USD: Looking stronger this morning against the smaller currencies, with better signs of strength below 1.0800 in EUR/USD and back well above 119.50 and really 120.00 in USD/JPY. Likely to be sensitive to US data release later this week.
EUR: EUR/USD is in a nervous pivot zone as we watch political more than economic developments. 1.0950 looks like the key local resistance and better sell-off confirmation lies below 1.0800.
JPY: USDJPY perking back up this morning, with resistance in the 119.50/120.00 area, but JPY crosses look heavy elsewhere. Remember we have end of Japan’s financial year tomorrow.
GBP: Has been underachieving of late – looking for EUR/GBP to ease back lower after the very large consolidation may now be complete. GBP/USD may yet fall toward bottom of range, however.
AUD: Looking very weak amid renewed pressure on commodity prices. AUD/USD looking at bottom of range and AUD/JPY suffered big bearish reversal last week.
CAD: Weak on weaker oil prices and watching whether survival of the range in USD/CAD can blossom into a full rally back to 1.2800 and beyond.
NZD: AUD/NZD has ground back to new lows for the cycle, and NZD/USD remains an interesting pair as it has pushed back lower to the middle of the 0.7500/50 pivot range that needs to be taken out to set the sights on the cycle lows again.
SEK: EUR/SEK looks like it wants to try higher levels above the 9.35 resistance. The next SEK sentiment test will be Wednesday’s Manufacturing PMI.
NOK: Oil price fall is pressuring NOK lower, next data point is the Norges Bank announcement of FX purchases tomorrow.
Economic Data Highlights
- Japan Feb. Preliminary Industrial Production out at -3.4% MoM and -2.6% YoY vs. -1.9%/-0.6% expected, respectively and vs. -2.8% YoY in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- UK Feb. Mortgage Approvals (0830)
- Euro Zone Mar. Industrial/Consumer/Economic/Services Confidence (0900)
- Germany Mar. CPI (1200)
- US Feb. Personal Income/Spending (1230)
- US Feb. PCE Deflator/PCE Core (1230)
- US Feb. Pending Home Sales (1400)
- New Zealand Feb. Building Permits (2145)
- UK Mar. GfK Consumer Confidence (2305)
- US Fed’s Fischer to Speak (2315)
- Australia Feb. HIA New Home Sales (0000)
- New Zealand Mar. ANZ Business Confidence (0000)
- Australia Feb. Private Sector Credit (0030)
- Japan Feb. Labor Cash Earnings (0130)