Data/Event Risks
- USD: Both CPI and industrial production are not major risks for the dollar, but watch the price data more closely for FX impact. Core inflation has been 1.9% or 2.0% for the past four months. For now, dollar far more sensitive to labour market data, given that’s where the Fed has pinned the conditionality of its loose policy stance.
- EUR: Some interest with CPI data, but this has been improving recently, down from 2.6% and expected to hold steady at 2.2%. Market more sensitive to levels and trends right now, with sustained break of 1.34 the upside focus.
- AUD: Jobs data tonight has potential to weigh on the Aussie – if employment fell and the unemployment rate climbed last month, then this would likely raise hopes of further rate cuts from the RBA, and drag the AUD lower.
Idea of the Day
The price action in forex on Tuesday was more indicative of a 2-way street, principally on the yen, but also elsewhere. We saw some reversal a week ago on dollar-yen, but this was undermined by the rally into the end of last week (the euro being more the catalyst of the move). The failure to break above 90 on USDJPY and to make a sustained break of 120 on EURJPY has undermined the case for continued yen gains, at least in the short-term. But there’s also the mere fact that FX markets, more than others, are subject to bouts of consolidation and reversal. The move on USDJPY over the past 3 months (around 12.5%) is stretching the extremes of moves seen historically, being the biggest up-move of the past 10 years and only surpassed on the downside in late 2008. Even so, taking on board the recent euro and Swiss moves, what we are seeing is a decisive move away from the lower volatility, but more correlated regime of before.
Latest FX News
- EUR: Euro had another couple of attempts at mounting 1.34 early yesterday without success, succumbing to some significant profit-taking in EUR/JPY. Would not surprise to see some more EUR/JPY stops going off in the short term, with Juncker’s suggestion that the euro is ‘dangerously high’ ringing in trader’s ears. The news that car registrations in the EU plunged 16% last year will not help sentiment. Near term, the single currency looks vulnerable.
- JPY: Back in favour over the last couple of days after a long time in the doghouse. USD/JPY dipped below 88 overnight and EUR/JPY fell below 117. Traders are paying attention to the politicians – Amari claiming that excessive yen depreciation is no good for the economy, and Juncker’s warning that the euro is too high have combined to trigger widespread profit-taking.
- USD: Has been something of a sideshow recently, with the main concentration of activity in the euro, the yen and the Swissie. As yesterday’s US retail sales figures confirmed, the recovery seems steady enough, but remains a work-in-progress in terms of generating sufficient jobs growth.
- AUD: Like the greenback, has faded from view somewhat recently with the focus elsewhere. Did see some more stops go off overnight in AUD/JPY.
- CHF: Touching the 1.24 level on EURCHF during Tuesday and the continuation of the rally suggest underlying momentum remains strong.
Further reading: EURUSD: Pull-back May Find A Support At 1.3300 or 1.32460 Level – Elliott Wave Analysis
