Friday's USD sell off after the US GDP figures sent the EUR pair back into the mid 1.1700's, but traders lacked the momentum to push higher, though we have seen this before, so will refrain from making any distinct observations as yet.
It is a busy week ahead for the lead USD rate, but for today, the market will be focusing on the EU wide CPI data this morning, and looking for similar pick up to inflation as we saw in the German numbers at the end of last week.
EUR/CHF maintains its elevated levels in what looks to be a firm shift in investor demand for European assets. This may be somewhat of a simplistic view for some, but stands up to better reason than anything else, with the German economy forging ahead again and the likes of Spain and Italy also putting out some healthy numbers of late.
It is also worth noting that it is month-end, so USD flow will impact here to some degree, though likely modestly, but summer months and illiquid markets may exacerbate this.
Back in the mid 110.00's, a deeper spot test into 110.50-30 now looks inevitable, but this is part of a broader JPY move which has seen some retrenchment in all the cross rates but to varying degrees as yet.
Over the weekend, reports that president Trump ordered US bombers to fly over the Korean peninsula in response to the latest missile launch from North Korea will unnerve the markets, and although not overtly apparent as yet, will prove unsettling with his Twitter comments on his disappointment over China's lack of action.
Under the circumstances, we have to expect a greater propensity towards the downside, so from a technical perspective, we cannot rule out a move to and through 110.00 before the next tranche of support is more likely to have a greater bearing going into the US data releases through the week.
Signs of exhaustion seen in EUR/JPY, which is struggling for traction through 130.00, as is GBP/JPY, while the positive CAD/JPY perspective is also looking a little vulnerable as the respective spot rate runs out of steam on the downside. AUD and NZD versus the JPY will be the ultimate targets if risk sentiment turns, but both pairs are trading 65-70 ticks off levels which would signal a potential turnaround.
GBPUSD and EUR/GBP
BoE week this week, and we continue with the 'will they, won't they' scenario on rates, as the MPC look to tame inflation levels, which based on the latest data, looks to have tailed off a little. We note some outside calls for a hike this time around, but the pricing looks for a move further out, so all eyes on the vote split which is moving towards the hawks.
Domestic data is holding up, and as we saw last week, investment hopes and prospects remain positive for now, and this will be used as justification to reverse the 25bp rate cut last August.
The EU talks have faltered however, and delays to the next round of talks are a worrying signal as the chasm of expectations as well reports that UK policy is somewhat vague risk prompting fresh Brexit discounting into an already undervalued pound.
No surprise then that cable lacks the drive to test beyond the 1.3150 mark, with some USD resilience also thrown into the equation, but shallow dips in EUR/GBP are an ominous sign despite the heavy weight of offers sitting in front of 0.9000.
AUDUSD and AUD/NZD
The RBA meet this week in what will be another unchanged call on rates for sure. Higher exchange rate levels will fade any tightening bias in the current climate, and on that note alone, any rhetoric on levels could be enough to set a top in place, as 0.8000+ looks spent for now.
Earlier on in Asia today, both private and housing credit saw stable, anticipated growth, but the central bank continues to keep a watchful eye on outright levels, and this has also been one of their caveats amid the more positive aspects to growth, including the labour market.
China manufacturing PMIs overnight were a touch off expectations, but in the great scheme of things, holding up well enough to keep metals well supported. Copper is through $2.90 this morning, but the correlation with AUD has diminished in recent weeks.
AUD/NZD continues to hold the mid 1.0600's, so again, this points to broader focus on the USD and/or the risk mood in general. This week's RBA focus and mix of data could see the downside tested however, so we point to pre 1.0500 as the first notable level of support if this breaks down.
Friday's 0.6% GDP rise in May was a strong prompt for CAD buying, but as we saw down in the low 1.2400's, demand held firm, and this in spite of the familiar Friday surge which North American traders can unleash on the market.
As such, this signals a near term base is coming, if not set already, and irrespective of ones view on the USD relationship, market dynamics seem to be crying out for a correction after what has been a 10% appreciation in a little over 10 weeks.
Oil prices are looking strong though, so this fends off any meaningful upturn, prompting a stalemate for now, but if we do push lower, there is plenty more demand to note in the mid 1.2300's to contend with. On the upside, 1.2575 is clearly the level to beat for a more 'comfortable' period of consolidation.
Canadian payrolls also due out at the end of the week, so this may also deter another aggressive push higher. WTI is now pushing on the $50.0 mark though, so correlation traders could have their say.
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