Originally updated: 08:00
Trading Bias: Neutral
Currency Pair: –
In today’s trading session I will be awaiting data from UK CPI and other major risk events to provide opportunities to get into the market.
Yesterday’s session saw the USD strengthen across the board with EURUSD dropping over 150 pips from Friday’s highs. The fall in euro was partly caused by rising speculation that Greece will not be able to make all of its June repayments to the IMF. This move higher in the dollar was not on the back of any fundamental data and as such another string of poor data this week will likely see the dollar sold off again. The FOMC Meeting Minutes on Wednesday may provide new direction in the dollar.
The RBA Monetary Policy Meeting Minutes contained little in the way of surprises but did show that they still have room to move lower on interest rates if needed. This was already reiterated by Deputy Governor Lowe yesterday, and is not unexpected. In usual fashion the RBA stated they believe the AUDUSD exchange rate should be lower. Aussie initially dropped 30 pips then retraced the entire move in the following hours to make fresh highs on the day.
Inflation Expectations from New Zealand (no expectation figure) arrived slightly higher than previous at 1.85% (1.80% prior). This prompted buying in the pair with Kiwi rallying over 70 pips off its lows. The market is still expecting a rate cut in coming months, with the OIS showing a probability of almost half to cut on June 11. Morgan Stanley, among others, are expecting two cuts this year from the RBNZ. However bullish sentiment remained in the currency for the Asian session with Kiwi sitting at daily highs.
The USD remains the strongest currency in the longer term. However the medium-term direction depends on data. The currency is verging on neutral in the short term and is extremely sensitive to negative data. Last week marked another week of poor data, with the dollar index finishing lower for the fifth consecutive week.
The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue. The EURUSD can easily get a boost on any USD weakness. Also given the huge short positioning in the pair, any liquidation of these positions can cause an aggressive rally. If Greece fails to make any of their imminent repayments, the euro will be pressured.
GBP has regained its place as one of the strongest (less weak) currencies however the Quarterly Inflation Report last week dampened expectations of a rate hike as growth forecasts were downgraded.
AUD is relatively neutral now there is no speculation of rate cuts in the near term. As such it will take most of its direction from the price of iron ore and economic activity in China. Movements in AUDUSD will largely be a function of USD sentiment. AUD enjoys a positive interest differential against all majors except NZD; fundamentally this is bullish for the currency.
NZD has a chance of decreasing interest rates in coming months. The Overnight Index Swap market is pricing a 46% chance of a June 10 cut. National Australia Bank says this is too soon. Inflation Expectations are higher than they were three months ago.
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 move lower on USD strength, as was seen on Monday.
JPY remains weak due to QE but the market will likely need a new bout of easing to sustain another fall. In the meantime, the sentiment on the JPY can turn bullish very quickly if there is 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 monitor the news wires and key technical levels for any high probability trading opportunities.
Other Market Moving News:
We will be awaiting data from UK CPI. Later we have German ZEW Economic Sentiment, USD Building Permits, NZD GDT Price Index then last up a speech from BOC Governor Poloz – which should not be missed.
In early Asian trade we will see GDP from Japan.
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Source:: Awaiting Data – Forex Trading Tips