FX Update: Will Traders Buy USD Into Weak US Q1 GDP Revision?

The USD has consolidated a bit back to the weak side ahead of what is widely expected to be a steep negative revision to the US Q1 GDP, and well into outright negative territory on an annualised basis. But the question is whether traders will prefer to focus on a few data points that surprised to the upside recently and hopes that the key numbers for May set for release next week will override the Q1 concerns that are fast receding in the rearview mirror. (We’re a few weeks from Q3 for goodness' sake.)

The International Monetary Fund's Christine Lagarde was out saying that Greece could potentially leave the euro, but that it wouldn’t mark the end of the euro. The IMF was also out offering Greece to extend payment deadlines three more weeks to pay the €1.6 billion it owes next month. Do we risk a further extension of uncertainty? Most likely…

No huge surprise that Swiss GDP was negative on a quarter-on-quarter basis in Q1 as the CHF suffered a massive revaluation shock on January 15. The SNB has been relatively quiet as it licks its wounds from the CHF ceiling debacle, but we shouldn’t count the central bank entirely out of the global competitive devaluation game just yet.

EURNOK

EURNOK is poised at an interesting resistance level ahead of important data this morning – do we continue to range trade or blast back into the higher range on a capitulation?

EURNOK

The G-10 rundown

USD: It is no secret that the Q1 data revision will be an ugly one today, so we may sail right through this report with a strong USD today – or see zany churning around it before the same end result of the USD closing on a strong note, as the greenback has made a very convincing case this week that it is on the comeback trail and is at cycle highs versus the JPY and NZD, to be joined by other USD pairs in the weeks ahead if next week’s US data is strong.

EUR: Looking resilient in the crosses, but the rally versus the USD has been a gentle consolidation and looking for EURUSD to continue its sell-off provided the market doesn’t get worked up about today’s negative GDP revision. 1.1000 is the important line in the sand on a closing basis there. Next Wednesday’s ECB meeting is the next key event risk for the euro.

JPY: Officialdom is stepping up the verbal intervention as Finance Minister Taro Aso was out saying that the JPY decline was “rough” and that he would carefully monitor the market. Is 125.00 a line in the sand? Elsewhere, the JPY is firming up a bit, especially against the commodity currencies.

GBP: Managed a modest bounce yesterday, but don’t see what holds GBPUSD back from a run lower toward the 1.5100/1.5000 zone, which may form the bottom of the range for now. EURGBP has consolidated and we may have to see next Wednesday’s ECB meeting for the next sign of a directional move.

CHF: Negative GDP print today and no real progress on Greece – suspect the SNB is getting restive with the trade-weighted CHF nearly matching its highest monthly close ever from January. Risk skewed to the downside for CHF, but with considerable two-way ad hoc risks from the Greece situation.

AUD: Not far from the cycle lows below 0.7550 now, which look to be challenged next week on a dovish RBA on Tuesday and if US data offers support for the USD.

CAD: Managed a bit of a bounce after USDCAD pulled all the way above 1.2500 yesterday. The upside remains the focus there, though CAD is an interesting long. Watch out for Canada’s GDP release today.

NZD: NZDUSD at a major new low – if this sticks amid USD strength, we’ll be watching for 0.7000 and then 0.6850 next. AUDNZD is also back on the rally path – watching whether this remains the case after next Tuesday’s RBA meeting.

SEK: GDP print today and EURSEK embedded near mid-range – don’t like EUR or SEK, so what to do? Will likely react in the short term to direction of data.

NOK: Important data points today, especially with EURNOK poised at key resistance at the 200-day moving average – range or breakout? Generally seeing risks for further NOK weakness on potential for dovish Norges Bank.

Economic Data Highlights

• UK May Consumer Confidence out at +1 vs. +4 expected and +4 in April
• Japan April Jobless Rate out at 3.3% vs. 3.4% expected and 3.4% in March
• Japan April Overall Household Spending out at -1.3% YoY vs. +3.0% expected
• Japan April National CPI out at +0.6% YoY as expected
• Japan April National CPI ex Fresh Food, Energy out at +0.4% YoY vs. +0.3% expected
• Japan April Preliminary Industrial Production out at +1.0% MoM and -0.1% YoY as expected and vs. -1.7% YoY in March
• Australia April New Home Sales out at +0.6% MoM
• Switzerland Q1 GDP out at -0.2% QoQ and +1.1% YoY vs. 0.0%/+1.6% expected, respectively and vs. +1.9% YoY in Q4

Upcoming Economic Calendar Highlights (all times GMT)

• Sweden Q1 GDP (0730)
• Norway April Retail Sales (0800)
• Norway May Unemployment Rate (0800)
• Canada March GDP (1230)
• US Q1 GDP revision (1230)
• US May Chicago PMI (1345)
• US May Final University of Michigan Survey (1400)