Euro rising and the Australian dollar is climbing higher after the positive GDP report
The Euro climbed to fresh 2-week highs after ECB economist Peter Prate said the central bank would debate an end to its bond-buying program at their June 14 meeting. Global yields rallied. The US 10-year bond yield approached 3.0%, which weakened the Yen. Strong bank shares listed stocks. The Aussie rose on better-than-forecast Australian Q1 GDP.
Outlook: Markets swung back to risk and policy normalisation following recent senior ECB official comments. Germany’s 10-year Bund yield was up 10 basis points while the UK 10-year gilt yielded 1.37% from 1.28%. The yield on Japan’s 10-year JGB yield ended flat at 0.04%.
Trade tensions eased as US officials sought to downplay the effects of President Trump’s tariffs. Leaders of the G7 nations will likely discuss trade at their meeting in Canada on Friday and aturday. Italian and Spanish politics took a back seat.
Trading View: The Dollar Index (USD/DXY) slipped 0.26%, mainly the result of the Euro’s rise. Which is not surprising given the rise in global yields relative to that of the US.
The ECB has expressed its desire to get back to normalisation as soon as possible. Euro area data has stabilised from its slower pace seen at the start of this year. While political risks from Italy and Spain have waned, the ECB must be hopeful that they do not re-emerge.
On the trade front, the European Union has signaled it will push ahead with its tariffs on US imports. Mexico yesterday published a list of US goods (pork, cheese, liquor) that would face import tariffs. With trade on the G7 agenda this weekend, we could be in for some fireworks and fresh volatility.
Events and economic data releases today: Australian Trade Balance, Japan Leading Economic Indicators, Swiss Unemployment Rate, German Factory Orders, UK Halifax House Price Index, Italian Retail Sales, Euro Zone Revised Q1 GDP and US Weekly Jobless Claims.
The Dollar Index (USD/DXY) slipped 0.26% to 93.635 at the NY close from 93.869 yesterday. Immediate support lies at 93.40 (93.422 overnight low). The Dollar Index touched 93.891 overnight high. Immediate resistance can be found at 93.80 and then 94.00. Further Euro strength could see the USD/DXY slip further to the 93.00/20 support level. Likely range today 93.40-93.90. Look to trade this range.
EUR/USD – Comments from more senior ECB officials ensure there will be the debate in next week’s policy meeting on whether to end its bond-buying program. ECB Council member Jens Weidman said inflation would gradually return to levels compatible with their target. This lifted the Euro which saw over 2- week highs at 1.17958 traded overnight. EUR/USD closed at 1.1775, up 0.66%. Immediate resistance lies at 1.1800 and then 1.1830. This recovery could see us back to the 1.1870/80 level. Immediate support can be found at 1.1730 and then 1.1710. Any rebound in the Euro will be limited given the current market positioning. Italian and Spanish politics have taken a back seat, for now. We can be sure of more volatile times ahead in the shared currency. Likely range today 1.1720-1.1820. Look to sell rallies.
AUD/USD – outperformed yesterday following a strong Q1 Australian GDP. Gross Domestic Product rose 1% from the previous quarter as exports rebounded. AUD/USD jumped to 0.7670 from 0.7615 after the announcement. Stronger metal prices led by a 2.5% rally in copper buoyed the Battler. AUD/USD spent most of its time trading between 0.7640-0.7670 in offshore trade. Further US weakness should see the Aussie push through to immediate resistance at 0.7700 and then 0.7720. Immediate support lies at 0.7640 and then 0.7620. Bear in mind that the speculative community is short Aussie bets. Likely range today 0.7640-0.7710. Prefer to buy dips.
USD/JPY– raced past 110.00 resistance to 110.266, near two-week highs. USD/JPY closed at 110.20, up 0.27% from yesterday. Given the current environment, expect USD/JPY to trade in a steady fashion and grind up. However, as we have seen, risk sentiment can change quickly and potentially volatile times lie ahead. USD/JPY has immediate resistance at 110.30 and then 110.50. Immediate support can be found at 110.00 and then 109.80. We saw speculative JPY shorts increase to -JPY 8,036 contracts from -JPY 2,767. Likely range today 109.70-110.30. Prefer to sell rallies from here.
GBP/USD – ended with modest gains to 1.3415 from 1.3395 yesterday. Sterling has benefited from better UK data of late. GBP/USD traded to a high of 1.3443 as UK 10-year Gilts rose in tandem with generally higher European yields. However, Brexit concerns rose on reports PM May has annoyed Secretary Davis with her latest quandary over the Irish border issue. Sterling slipped to 1.33390 before settling at 1.3415. Immediate resistance can be found at 1.3430/40 and then 1.3480. Immediate support lies at 1.3380. Likely range today 1.3370-1.3430. Prefer to sell rallies.
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