Daily FX Wrap: USD sinks further as the Friday data hangover continues. USD/JPY fighting against the tide, as EUR/USD eyes 1.1000 again. CAD gains on Oil price recovery as extension in sight, but 1.3600 foils.

Monday’s trading session was a little more active than we have become accustomed to, largely on the back of the news that Saudi/Russia have agreed in principle to extend the current output deal by 9 months. This naturally gave Oil prices a lift, and given recent losses were a significant factor in the USD/CAD push up to levels just shy of 1.3800, we saw the spot rate back testing the 1.3600’s after some 2 way flow either side of 1.3700. Recent CAD weakness has come off the back of the Moody’s downgrade of 6 leading banks in Canada, which came hot off the heels of the HCG scandal. Oil will continue to dictate through Tuesday’s session as the data focus lies in the UK, but 1.3600 is proving a tough obstacle for now.

April inflation data is the first part of a major week for UK data, with the yearly rate expected to rise from 2.3% to 2.6%. Anything short of this will prove modestly negative for GBP in light of the revisions made in the QIR last week, but also in a market loath to give up on the positive outlook over Brexit. As such, a beat on the figures may well see us testing 1.3000 again as the early USD based move ran out of steam at 1.2940, while EUR/GBP demand has also contributed.

This has been largely down to the EUR/USD move higher, but what seems to have been from the USD perspective, as Treasury yields have dipped lower again. Expectations of a change in ECB policy stance later this year has the market in buying-dips mode, but in a now familiar impulsive manner, the 1.0850-1.0750 support area has barely been tested. In the pm session, all it took were some comments from ECB Praet that risk balances would be assessed in Jun to reinforce this view, with the steady spot grind higher working through option related offers to eye a fresh move on 1.1000.

We have the second reading of EU Q1 GDP tomorrow morning, but no revision expected. Trade data also due, as are the EU and German ZEW sentiment surveys. Building permits and housing starts due out in the US on Tuesday, but last Friday’s disappointment over inflation and retail sales gathered momentum today, so it will be down to the industrial and manufacturing production date later in the day to redress some of the balance which has seen Treasuries rally. USD/JPY has been resilient in the meantime, but after trying to push back to 114.00 on the back of risk sentiment, we are back in a range above 113.00, which represents the first point of support for those still positioning for a resurgence in the USD.

Overnight, we get the RBA minutes from the start of the month, though much of this is already out after the SOMP a little over a week ago. The main takeaway was/is that rates are on hold on the near-mid term horizon, with this helping to stabilise the AUD along with the upturn in Copper prices. Employment data later in the week will keep traders on hold to a larger degree, with today’s spot gains all down to the USD.

AUD/NZD has been extremely tight as a result, with NZD/USD tentatively through 0.6900 as a result. Nb, we have the Fonterra dairy auctions out tomorrow afternoon.

Norway also releases its Q1 GDP numbers tomorrow, and with NOK/SEK pushing higher off the mid 1.0100’s, a healthy number could generate some momentum as the cross rate eyes a retest towards 1.0500. Technically, we need a push through 1.0625-50 to confirm a longer term base, but NOK seems to have ‘lagged’ improvement in the growth stats which recorded 1.1% in Q4 last year. Sweden is not far behind in this respect, but inflation is a touch lower, with unemployment at 6.8% vs 4.3% in Norway.

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Dollar Index Daily

Price has continued moving lower after profit taking on Friday though has found support and is currently at MPP. As mentioned in yesterday's post, price has moved to an overbought level without making a higher high. The stoch has now crossed over and indicates further bearishness.

Dollar Index H4

In yesterday's post we observed price being at the 55 at market close on Friday and expected to see some Dollar strength at market open on Sunday with a double top forming before moving lower down. Instead price continued moving lower as profit taking continued into today's session. Price has found support at WM2 and our H4 stoch is very oversold. We have resistance at WPP/ the red zone which marks the role reversal of the previous low. The target for WM2 is WM4.

US10Y Daily

After forming a double bottom last week and with price at resistance the analysis showed a move lower, formation of higher low and then continued bullishness. Similar to the Dxy, price continued in the direction it from Friday. Price is at resistance and at the top of the previous range. As mentioned in yesterday's post MS1 has a target of MR1. What's interesting is that despite the 10Y moving higher (and therefore yields moving lower) we still saw indices move higher.

US10Y H4

Price has failed to break above WM3 and our stoch is rolling over. Support eyed in the fib zone drawn off the double bottom from last week.

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