Another Powell speech and quarter end coming up

The USD weakness extended yesterday, but not aggressively so as we await a speech from Fed Chair Powell this evening that offers a chance for him to push back at the market’s takeaway from last week’s Federal Open Market Committee meeting – if that’s what he would like to do.

Otherwise, energy is seeping out of the weak USD story at the moment to a degree as US interest rate drops. And with markets having moved so much – particularly bonds – ahead of quarter end we need to consider the risk that we’ll see large portfolio adjustments (In other words, a bit of consolidation for bonds in particular, which could in turn impact JPY negatively. Note that the last two quarters saw treasuries selling off at the beginning of the quarter after aggressive rallies like the one we have just seen and also note that the US 10-year benchmark has reached a big psychological level at 2.00%).

A Bloomberg article points to Sweden’s upcoming collective bargaining talks, where a number of labor unions are up in arms over the very low wage increase ceilings that look unfair, given widespread shortages in key professions, from teachers to nurses and doctors. This could be driving the  downside interest in EURSEK here as a larger wage increase this year could feed into higher inflation and affect the Riksbank’s policy outlook. EURSEK trading since yesterday below the key 10.60 area support.

NZD in focus after last night saw a stronger than expected trade surplus for May, with strong demand for milk products. On that note, China recently announced efforts to increase support domestic producers of infant formula, one of the key products driving demand for New Zealand dairy exports. This move heavily impacted New Zealand milk company stocks earlier this month. But more importantly, the Reserve Bank of New Zealand is set to meet overnight and could cut rates as a surprise cut has more impact than one that is flagged for a future meeting. With AUDNZD struggling below 1.0500, it might  be time for Governor Orr to seize the dovish initiative and cut the official cash rate (OCR) by 25 bps tonight.

Chart: EURSEK

EURSEK showing one of the more interesting technical developments at the moment as a strong move here below the local 10.60 pivot area begins to confirm the topping impression created by the prior rejection of the sequence above the old 10.70 high. Watching the outcome of the collective bargaining talks mentioned above as well as signals on the fiscal front in general for the potential for a larger revaluation of SEK versus the single currency.