Yesterday was potentially a watershed day for the US dollar. US Federal Reserve chair Janet Yellen almost entirely failed to provide forward guidance in two days of testimony, sending fresh USD longs packing as Fed rate moves were shifted further out over the horizon.
Then yesterday we saw several Fed officials mentioning the possibility of a June Fed hike and saw a relatively minor batch of US data, with a slightly stronger-than-expected US core CPI reading for January apparently one of the triggers for a tremendous bout of USD buying.
It is very interesting that the market is so ready to jump back into the long USD trade, even after a waffling, dovish leaning Yellen and the fact that yesterday’s Fed comments saw a mere two bps rise in the Fed Funds rate anticipation through the end of this year.
Regardless of whether we can summon convincing fundamental drivers for this USD rally, the technical implications are quite clear in a number of USD pairs after yesterday’s action, where there are now far clearer lines in the sand.
The chief exception is USD/JPY, where the 118-120 limbo continues.
We saw a solid local range break with yesterday’s big selloff, which now has the market projecting the next big levels lower. It’s always safe to start with a big round level like 1.1000, but this may not hold the pair if next week’s US data releases prove particularly strong.
The tactical resistance now comes in around 1.1275/1.1300.
AUD/USD
A large bearish engulfing reversal in AUD/USD, just after the pair was making a bid to start a new uptrend is a classic signal to stimulate fresh interest in shorting the pair back toward the range lows and possibly beyond.
The 0.7850/0.7900 zone is the resistance for this view. Next week is a critical one for AUD, with a Reserve Bank of Australia meeting up next Tuesday and other data all week. 
CPI data for February will be released in many Eurozone countries today, with the German number coming up at 1300 GMT.
The market may not be particularly reactive to these as the European Central Bank's quantitative easing is just now getting fully underway in March, so there will be no anticipation of an effect on ECB policymaking for quite some time from these inflation releases.
Economic activity data may be a bit different, but the incoming data anticipation is clearly more intense on US data releases, given all of the speculation on the trajectory Fed policy will take later this year.
Speaking of US data, today we have a US Q4 GDP revision that is getting considerable attention due to the expectation that growth will be revised down toward 2.0% annualised from the original estimate of 2.6%.
But is a hefty revision lower enough to derail this latest USD rally attempt, given weather-related uncertainties and the more forward-looking data from the US next week?
Scandies test
it's an important day for the Scandies today, with Swedish Q4 GDP, January Retail Sales and February PPI data up this morning. This comes after EUR/SEK broke down below 9.48/9.50 support recently, opening up the range toward 9.30 and possibly more to the downside.
At some point, the Riksbank will look with disapproval on a strengthening SEK, but may want to see more CPI data before raising the red flag.
Norway’s data today is perhaps more interesting for the reaction potential in the market, with Jan. Retail Sales and the February unemployment rate releases later.
Norway’s two-year interest rate (swap rate) plunged all the way to 92 basis points during the oil plunge in late January, only to move more than 20 basis points back higher. The market is paying too much attention to each uptick and downtick in oil.
As long as we don’t see a significant recovery in oil prices above perhaps $75/barrel, the Norwegian economy will remain under serious pressure and the Norges Bank’s Olsen will do what he can to talk down the krone.
Today could be a pivotal day for SEK as a raft of data could send EUR/SEK in a direction that meets with the disapproval of the Riksbank. Photo: istock
G-10 rundown:
USD: A smart comeback yesterday after showing signs of breaking weaker after the Yellen testimony means the bulls are taking heart again. Watching for continuation next week if we hold the line today through the economic data releases.
EUR: Very weak and watching for continuation after yesterday’s big downside continuation move in EUR/USD.
JPY: offering few clues and generally resilient, especially versus the hapless euro. In USD/JPY, watching 120 more intently now after the USD perked up again elsewhere.
GBP: GBP/USD turned back quite sharply after probing into the structural resistance zone of 1.5500/50. That may be it for the rally if the USD is making a broad comeback here. First resistance is 1.5450 now.
CHF: EUR/CHF under significant pressure as 1.0650/25 support zone is tested ahead of the ECB’s QE start. Interesting that this is happening without notable fear levels in risk assets.
AUD: Very smart bearish reversal in AUD/USD stung fresh longs – next week is a huge one for this pair with an RBA meeting Tuesday and important US and Australian data all week.
CAD: Yesterday defended the range supports in USD/CAD just below 1.2400. Watching for continuation higher as the pair has maintained an orderly consolidation period for weeks now.
NZD: AUD/NZD pushed back near cycle lows, while NZD/USD found resistance in the ultimate 0.7600/50 zone yesterday. Watching these levels.
SEK: data on tap as watch for reactivity to today’s data. 9.50 is resistance in EUR/SEK and the next big level lower is 9.27.
NOK: More important data here – EUR/NOK 8.55/8.50 area support very important on a closing basis if we’re to retain an upside bias.
Economic data highlights
- Japan Jan. Jobless Rate out at 3.6% vs. 3.4% expected and 3.4% in Dec.
- Japan Jan. Overall Household Spending out at -5.1% YoY vs. -4.1% expected and -3.4% in Dec.
- Japan Jan. National CPI ex Fresh Food and Energy out at +2.1% YoY as expected vs. +2.1% in Dec.
- Japan Jan. Industrial Production out at +4.0% MoM and -2.6% yoY vs. +2.7%/-3.1% expected, respectively and vs. +0.1% YoY in Dec.
- New Zealand Feb. ANZ Activity Outlook and ANZ Business Confidence out at 40.9/34.4, respectively, vs. 37.3/30.4 in Jan.
- UK Feb. GfK Consumer Confidence out at 1 vs. 2 expected and 1 in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- Sweden Q4 GDP (0830)
- Sweden Jan. PPI (0830)
- Sweden Retail Sales (0830)
- Norway Jan. Retail Sales (0900)
- Norway Feb. Unemployment Rate (0900)
- Germany Feb. CPI (1300)
- US Q4 GDP Revision (1330)
- US Feb. Chicago PMI (1445)
- US Jan. Pending Home Sales (1500)
- US Feb. Final University of Michigan Sentiment Survey (1500)
- China Feb. Manufacturing PMI (Sunday 0100)
- China Feb. Non-manufacturing PMI (Sunday 0100)
- New Zealand Q4 Terms of Trade (Sunday 2145)
- Australia Feb. AiG Performance of Manufacturing Index (Sunday 2230)
- Australia Jan. HIA New Home Sales (Mon 0000)
- Japan Feb. Final Markit/JMMA Manufacturing PMI (Mon 0135)
- China Feb. Final HSBC Manufacturing PMI (Mon 0145)