Euro is rising after positive news about Italy and markets are preparing for NFP tomorrow
It was back to basics with markets calming down following yesterday’s reaction to Italy’s political woes. Italy’s dominant parties re-started negotiations to form a government and avoid another election. Euro area data was generally better with German inflation far exceeding expectations. The second estimate for Q1 US GDP missed forecasts. The Euro rebounded to end 1.12% higher at 1.1668 (1.1535 yesterday). Oil prices kept their gains. Global stocks and yields rose while the Dollar retreated.
Outlook: Italian politicians woke up following yesterday’s market reaction due to their display and decided to get their act together. Italian debt rallied with the 10-year treasury bond down 29 basis points to 2.84%. Geopolitics are uncertain and Italy may still see an election in July.
Economic data from Europe was supportive. German retail sales also beat forecasts. US ADP Non-Farms Employment fell short of forecasts.
Trading View: The Euro has slumped over 4% in May hence the rebound last night was fierce. Yesterday ECB Board member Lautenschlager hinted at an early exit for the central bank’s longstanding QE policies.
The improved risk environment saw global yields climb. The yield on the US Ten Year bond ended up 7 basis points to 2.85%. Germany’s ten-year Bund yield climbed a whopping 11 basis points to 0.378%. Japan’s 10-year JGB yield was unchanged at 0.02%.
It’s no surprise the Aussie rallied 1.25% while USD/CAD slumped 1.16%. We can expect more of this two-way consolidation ahead of more key data later today and tomorrow.
Events and economic data releases: China Manufacturing and non-manufacturing PMI, Australian Private Capital Expenditure, Euro Zone May Headline and Core CPI (annualised), Canadian May GDP, US Core PCE, Personal Spending, Personal Income and Chicago PMI.
The Dollar Index (USD/DXY) retreated to close at 94.07, down 0.8% from yesterday’s 94.865. The Dollar’s retreat was broad-based. Resource and Emerging Market currencies ended higher against the Greenback. The Dollar Index traded to 94.965 highs overnight. The resistance at 95.00 is strong and this level may cap the USD/DXY for now. Immediate resistance today can be found at 94.30 and then 94.60. Immediate support lies at 94.00 (94.038 overnight low). Tomorrow sees the release of US Payrolls and last night’s lower than forecast ADP Employment gain may impact. The Dollar Index could be in for more corrective moves. Likely range today 93.85-94.35.
EUR/USD – held the 1.1500 level well (10 month low at 1.1510). The 1.1500 level may well be the line in the sand for the Euro… for now. The Euro rallied initially to 1.1590 before continuing north. EUR/USD traded to 1.1676 overnight after pausing around 1.1640. Immediate resistance lies at 1.1680 and then 1.1710. Immediate support can be found at 1.1640 and then 1.1590. Euro area data has started to improve from their weak patch we’ve seen since February. Euro Zone Flash Headline and Core CPI are due out later today. Likely range today 1.1600-1.1700. Still, prefer to sell rallies but am patient. We may well see a corrective move back to 1.18/1.1900.
AUD/USD – outperformed with the overall weaker US Dollar, improved risk sentiment and a rise in resources. The Aussie looked down and out under 0.75 cents and seemed to just barely hold on to 0.7480 (overnight low 0.7476). Net total speculative Aussie shorts were at their highest since February 2016, the most bearish in over two years. In spite of a miss on Australian Building Approvals yesterday, AUD/USD jumped to 0.7584 overnight before settling at its current 0.7577. AUD/USD has immediate resistance at 0.7600 and then 0.7630. Immediate support can be found at 0.7550 and then 0.7520. Today sees Chinese Manufacturing and Non-Manufacturing PMI data as well as Australian Capital Expenditure. Likely range 0.7540-0.7590. Just trade the range shag.
USD/JPY – improved risk sentiment saw a slow grind up in the Dollar to 109.073. USD/JPY slumped yesterday to a low of 108.11 in early Asia yesterday. USD/JPY closed in NY at 108.90. USD/JPY has immediate support at 108.50 and then 108.10. Immediate resistance can be found at 109.10 and then 109.40. The seven-basis point rise in the US Ten-year bond yield to 2.85% should be supportive of USD/JPY with a likely range to 108.50-109.20.
USD/CAD – the Loonie had a strong night on the back of a weaker US Dollar, buoyant oil prices and a slightly hawkish leaning Bank of Canada. The BOC kept its overnight rate at 1.25% but laid the ground for more rate hikes in the second half of this year. The BOC gave an upbeat assessment of the Canadian economy while removing some cautious language. Ten-year Canadian bond yields rose 7 basis points to 2.26%. USD/CAD initially soared to 1.3040 on the Italian political news before sliding to just above 1.2985 in Asia yesterday. Following the BOC rate decision and statement, USD/CAD plummeted to 1.2836 overnight low before rallying to finish at 1.2885. UD /CAD has immediate support at 1.2880 and then 1.2850. Immediate resistance lies at 1.2910 and then 1.2930. Further overall USD weakness could see a stronger Loonie ahead. Likely range today 1.2850-1.2910. Prefer to sell USD rallies.
USD/ZAR – USD/ZAR, After falling almost 2% against the dollar on Tuesday, the rand gained back some ground in early trade on Wednesday morning, with analysts expecting “jittery” trade.
The local currency was trading 1% stronger against the greenback at 10:20. It opened the sessions at R12.69/$, and was changing hands at R12.56/$ by 10:20.
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