The dollar got clobbered in New York session yesterday. The move was led by EURUSDâ€™s fast rise to highs over 1.1190, after opening near 1.1000. Stop loss buying was a key driver of the euroâ€™s rally, with buyers surging in on the break of 1.1010, and again at 1.1100. The move started yesterday as the core CPI figure showed the European inflation jumped to almost 1% and exceeded expectations. I had been looking for EURUSD to turn higher from the support but the strength of the move was surprising. This helped the pair hitting my target level and moving beyond it yesterday.
Yesterdayâ€™s US reports revealed a modest underperformance for the factory goods figures for April, but a firm round of vehicle sales figures thus far for May. For the factory report, the equipment and orders data were modestly disappointing. In yesterdayâ€™s speech Fedâ€™s Brainard underlined Fedâ€™s approach to be data dependent and was slightly dovish. She said a range of labour market indicators will be watched closely, including wage growth and part-time employment in judging whether the economy is fully healed. This is consistent with her earlier dovish slant and appears to echo the view embraced by Yellen and others that the absolute level of the unemployment rate is not the Fedâ€™s sole consideration in terms of the employment mandate.
Greece will not make IMF repayment if there is no prospect of deal. According to reports on Twitter the parliamentary spokesman of Tsiprasâ€™ Syriza coalition said Greece will not make the June IMF payment if there is no prospect of a deal with lenders. Both sides yesterday laid down their own proposals for an agreement, but reports suggest German PM Merkel is not optimistic of a deal before the start of the G7 meeting on Sunday and the first of Greeceâ€™s four IMF payments is due on June 5, although the IMF apparently may accept a bundling of repayments and a joint settlement later in the month.
Last Friday (May 29th) I wrote that if there is no strong decline today the weekly candle is will create a bullish pin bar. In this context the 50 day SMA is a minor resistance and we should see price moving higher next week. This move took place after some consolidation and was then powered by stronger than expected inflation numbers from Eurozone. Now EURUSD has moved above the previous weekâ€™s high but also to a level that used to act as a support in May. The higher timeframe picture usually dominates the smaller one and with weekly being so bullish I still expect market will work its way higher over the next two weeks and head towards the upper weekly 20 period Bollinger Bands (currently at 1.1440 and 1.1570). On daily and intraday level it is usual that there is some consolidation after such a strong move higher. Weâ€™ve seen this since the pair made the high of 1.1194 yesterday evening. If the pair attracts buyers above 1.1120 (trading now at 1.1131) it is likely that the recent highs will be challenged today. The nearest resistance levels are at 1.1208 and 1.1324 while the nearest daily support level is at 1.1006.
Currency Pairs, Grouped Performance (% Change)
AUD has been performing well against all the major currencies after the GDP improved so much from the Q4 2014 and yesterdayâ€™s rate decision. AUDUSD has now hit a historical resistance level at 0.7800 which has slowed it down and the pair corrected lower. NZD is still weak across the board while especially AUD has moved over 50 basis points against it. We are seeing some GBP weakness across the board with exception of GBP rising slightly against NZD and EUR strength this morning has turned into a mixed performance. The USD is down and JPYâ€™s performance is mixed. At the time of writing AUDNZD is about to challenge the May 12th high at 1.0895 while AUDJPY is nearing May 14th high at 97.30. GBPUSD closed yesterday above previous dayâ€™s high and created therefore a short terms bullish signal while EURCAD closed above 1.3754 resistance level yesterday.
Main Macro Events Today
- Australian GDP grew at a 0.9% pace in Q1 (q/q, sa), much better than expected after the 0.5% gain in Q4. GDP slowed slightly to a 2.3% y/y pace in Q1 from a revised 2.4% clip in Q4 (was +2.5%). The near doubling of the quarterly comparable growth rate is encouraging news given the global cross currents (notably the energy price drop) in Q1, consistent with the expected positive lift to the economy from the RBAâ€™s easing efforts this year. The firm Q1 GDP print trims the chances for further easing this year, consistent with our view that the Bank will maintain rates at the current record low 2.0% policy setting well into next year. AUD-USD jumped to 0.7800 in the wake of the data from 0.7700.
- ECB Interest Rate Decision and Monetary Policy Statement: The ECB is expected to keep policy unchanged at the June council meeting, with the announcement today, rather than on the usual Thursday slot. The focus in the press conference will be on comments on Greece and whether the ECB is willing to maintain Greek bankâ€™s lifeline in the form of extended ELA assistance. Draghi may also be quizzed again on demands to lift the ceiling for Greek T-bills and on the possibility of raising the haircut on Greece colletaral, as well as the central bankâ€™s stance in the case Greece defaults on one of its IMF repayments. The forecast revisions may contain an upward move to inflation projections amid signs that the combined impact of stabilising oil prices and a weaker EUR is pushing up annual rates quicker than initially thought. At the same time money supply growth has accelerated sharply. This will likely prompt another re-affirmation to markets that the ECB remains fully committed to the implementation of the QE program to prevent market expectations of policy tapering this year.
- US ADP Employment Change for May is forecasted to come in at 200 000. This would mean a healthy correction from Aprilâ€™s figure of 169 000.