FX Trading focus: USD tilting over the edge… in places.
The US dollar is tilting lower again, with GBPUSD and especially EURUSD the major pairs driving the impression of a weak US dollar here, as we have commented recently on the breakout higher in EU yields, particularly the Bund yield. With the ECB having already promised to front-run its asset purchases (a built in taper, dare one say?) and with the services sectors set for a bounceback and the economy ready to receive a tardy stimulus cherry on top, the ECB will have a hard time cobbling together a coherent message on the need for further support for the economy at the June meeting, although if EURUSD is above 1.2350, they would likely.
It all looks pretty straightforward for USD bears at the moment, with wind at the back in terms of Fed expectations (the Fed priced near the lows of the cycle in terms of the lift-off timing for their first rate hike despite the extremely hot April CPI print of last week and rising breakevens that are driving US real yields back to the recent lows), but we continue to keep a nervous eye on the longer end of the US yield curve – any new volatility there combined with the positive correlation we have noted recently in US treasury and equity prices could suddenly turn the tables on the situation. As I noted on Friday as well, the ugly chop-fest in many of the USD crosses has made life difficult for both trend and pattern traders in recent days, particularly in the likes of AUDUSD.
Speaking of AUDUSD (and especially egregious chop-fests), the RBA minutes out overnight remind us that the commodities market and investors flows are going to have to do all of the heavy lifting for supporting any new AUD rally as the RBA is clearly looking at employment and equally wages in judging its policy shifts. On that note, we have Q1 wage data up tonight (with 1.4% YoY expected, a significant explainer of the RBA's reluctance to turn guidance more hawkish) and the April jobs report is up on Thursday.
GBPUSD has traded today above its highest daily close and just below the intraday high just shy of 1.4250 reached back in late February. This after a near perfect test of the 1.4000 support just a couple of sessions ago, the critical support line in the sand, although bulls will want this move to hold above perhaps 1.4150 for a follow on rally to perhaps the post-Brexit vote high of 1.4375 initially, even if the first significant psychological level higher is more like 1.5000 – which looks a bit of a stretch for me to call just yet – we’ll start with 1.4500 for starters if this trend holds.