FX Update: USD To Move With Data

The USD selloff on the back of Wednesday’s weak US retail sales report is running out of steam, though not enough yet to suggest the USD bulls are entirely taking back the initiative. Still, it wouldn’t take much of an additional rally in the greenback here to neutralize the selloff threat for the currency in most of the major USD pair charts.

Today’s data from the US is second-tier stuff, but it feels like strong readings – particularly from the Empire manufacturing and the industrial production data – might see more of a reaction than these data points normally merit, simply because the market’s conviction may be rather lacking on how much weaker the USD should be driven at the moment.

But just as strong US data could give the greenback a fighting chance of turning the tide today, weak numbers across the board are likely to be greeted with a fresh wave of USD selling that will see it testing the lows for this cycle.

Key levels in the major USD pairs:

EURUSD: The local support level of note is yesterday’s low just below 1.1350, while a move below 1.1250 is needed to begin to argue that the squeeze threat has been neutralised. To the upside, 1.1500 is an important flat-line area and psychological level, while 1.1808 is the 38.2% Fibonacci retracement of the entire selloff wave from the high just below 1.4000 almost exactly a year ago. The 200-day moving average is falling fast and is now well below 1.2000.

EUR/USD

USDJPY: We’ve all fallen asleep a long time ago here, but the selloff after the weak data earlier this week has entirely failed to see momentum build, so we’re back to watching the 118.50/120.50 range for now.

GBPUSD: This one has rallied so far that it would require an enormous selloff to turn the technical direction. There are signs of momentum fading and I suspect further USD weakness in the nearest term would not see much upside here. If the USD tries to put on a rally, then 1.5500 is the first downside focus as this was a major focus for months, although ahead of that, we have the 200-day moving average near 1.5600, though that didn’t receive much attention on the way up.

USDCHF: We closed yesterday right near that 61.8% Fibo of the 0.8500-1.0130 rally, which comes in at 0.9123. That and the recent lows are important to the downside, while the major objectives to the upside are still rather far away, so we need to see a very significant and sharp rally here to begin turning the chart back higher, above 0.9300 to start.

AUDUSD: Looking a bit more vulnerable here after its recent and very sharp rally as we are trading this morning back below the previous 0.8075 area highs. At present, 0.8000 is a psychologically important level, while we probably need to cut down through the 0.7975/50 area to call an outright bearish reversal. To the upside, we will likely need to see weak US data and a close back above the 0.8100/25 area to emphasise the credibility of this rally, which will keep the 200-day moving average target in view (currently around 0.8320).

USDCAD: The bears have found it difficult to gain traction below the 1.1950 area on three occasions recently, which has increasingly neutralised the selloff threat and kept the technical in neutral. To turn the tables back higher, we need to pull back through 1.2100 here and eventually, through the 1.2200 resistance.

G-10 rundown

USD: Key levels noted above. Should be quite reactive to today’s data as market is jumpy after the strong reaction to the US Retail Sales data earlier this week.

EUR: Arguments abound that heavy positioning risk remains and could drive a further squeeze even from these levels. But there has also been a strong correlation with risk appetite (negative correlation, really, between EUR and risk appetite), and US and European stocks rallied very strongly yesterday, so considerable tension there.

JPY: Bank of Japan’s Kuroda out overnight saying that he sees no immediate need for further easing – surprised this isn’t getting a bit of traction in some of the JPY crosses. Really feels like the market has given up on JPY direction at the moment.

GBP: Looks overbought locally in GBPUSD, but that will depend on the direction of the US data. EURGBP bears might be looking to get involved again after the recent bounce.

CHF: The big move here likely awaits the outcome of Greece – generally favours CHF weakness, but need to see 1.0500/25 taken out in EURCHF.

AUD: AUDUSD likely to react strongly to US data direction either way; 0.8000/50 is an important zone of support if this rally is to stay alive.

CAD: USDCAD likely to move with US data direction and even more so, with the direction of oil prices. Looks well supported until proven otherwise.

NZD: NZDUSD comeback attempt fading a bit, but the pair needs to work. More room for consolidation lower in AUDNZD, but that rally has more upside potential in the medium term based on the shift in relative central bank expectations.

SEK: Rates are so low in Sweden – generally vulnerable for another test of the 9.50-plus area in EURSEK, though from a valuation perspective it is difficult to argue for major new lows for SEK versus EUR.

NOK: Will be vulnerable if oil prices head lower from here, especially as the market may be on the wrong foot on the Norges Bank – though we won’t know on that account until the June 18 Norges Bank meeting.

Upcoming Economic Calendar Highlights (all times GMT)

• UK Mar. Construction Output (0830)
• Canada Mar. Manufacturing Sales (1230)
• US May Empire Manufacturing (1230)
• Canada Apr. Existing Home Sales (1300)
• US Apr. Industrial Production and Capacity Utilization (1315)
• US May Preliminary University of Michigan Sentiment Survey (1400)
• New Zealand Apr. Performance of Services Index (Sun 2230)
• Australia RBA’s Lowe to Speak (Sun 2330)