Our standing trade call for the moment is to buy USD from levels of support and resistance after decent pullbacks. In addition to this we are looking for AUD selling opportunities after the very poor Capex data. Selling AUD against GBP and USD after pullbacks to support and resistance is recommended.
In yesterday’s US session we heard comments that Greece and its creditors may be close to a deal. This caused an aggressive short term rally in euro across the board, however these claims were later contradicted by other sources which said a final deal has not been made and there are still issue to overcome. EURUSD is over 100 pips of yesterday’s lows and looking to take out yesterday’s highs.
The major event from the Asian session was Private Capital Expenditure from Australia. The reading was much worse than expected coming out below the lowest range of estimates at -4.4%. This marks the third consecutive quarterly decline and the biggest decline since 2009. The Aussie dropped 90 pip immediately upon release, while GBPAUD rallied 220. This data is expected to weigh heavily on AUDUSD with analysts from some banks suggesting the RBA will cut again this year.
The USD remains the strongest currency in the longer term, and the short-term sentiment now matches this bullishness. Friday’s CPI along with positive data on Tuesday has reaffirmed USD strength amid speculation of a rate hike by September.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. If Greece fails to make any of their imminent repayments, the euro will be pressured further.
GBP is looking at a rate hike in the next 12 months and also has bullish short term sentiment which matches this fundamental backdrop. A recent run of positive data and upbeat meeting minutes have buoyed the pound against weaker currencies. This strength is expected to remain.
AUD has changed to a downward bias after the poor Capex data. This may weigh on the upcoming GDP reading. The RBA may consider further cuts this year. Recent strength in USD combined with low commodities prices forecasts will likely weigh on AUD in the weeks ahead.
NZD has a chance of decreasing interest rates in coming months. The Overnight Index Swap market is pricing a 51% chance of a June 11 cut. Several major banks predict a cut in both June and July, while NZIER expects the RBNZ to remain on hold for at least the rest of the year, as they believe the central bank cannot afford to boost the overheating housing market.
CAD remains on the weaker side of neutral until we see more data or direction from the BOC. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD. Last Friday’s CPI and Retail Sales came in worse than expected which is negative for CAD.
JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. This move is expected to continue. Sentiment on the JPY can turn bullish quickly if there is major uncertainty in the markets.
CHF is fundamentally a weaker currency given the SNB’s negative interest rates, however it is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is 74%.
We will be monitoring levels of support and resistance in unison with any impactful news in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).
Other Market Moving News:
Today we have GDP from UK. G7 meetings are ongoing.