Daily FX Wrap: Another down day for the USD as the JPY rate eyes 109.00, while EUR continues to press for 1.1300. GBP jitters creeping in, while AUD enjoys some near term relief.

The day has been dominated by USD weakness as US Treasury yields have been grinding lower. As we have been reporting in recent weeks, the market has been looking beyond next week’s FOMC meeting, where a 25bp hike is more or less priced in, but traders now looking for Yellen and Co to revert back to a wait and see scenario given some of the mixed data series of late.

To that end, we saw the headline non-farm payrolls falling short of expectations last Friday, but at the same time we saw the unemployment rate falling again, to 4.3%. Some were suggesting that this was down to employers struggling to find skilled staff, and today’s JOLTS number certainly backed up that view, rising to over 6 million vacancies vs 5.65 million expected. However, this is something to consider further down the line.

As such, USD/JPY traders will be considering the risk factor also, which has seen the JPY gaining across the board, but from a purely USD perspective, US data needs to show some notable improvement to stop the rot.

This is not being helped by a EUR/USD rate intent on retesting the resistance zone at 1.1280- 1.1305 ahead of the ECB meeting this week. There is room for disappointment here as an anticipated turn in policy sentiment has been drawn further in on the horizon, with Thursday’s meeting/press conference in the mix for some form of hint towards ‘tweaking’ stimulus at some stage later this year. We suspect this would be enough to spark off another buying spree, and this would explain the relentless bid tone at the present time.

A follow-through seen into EUR/GBP, with GBP also now struggling a little as we expected it would – pre-election jitters creeping in as we get closer to polling day in the UK. Reactions to the polls have been relatively muted over recent sessions, but as we and others have asserted, the risk premium has been modest going into what is a key event. Whether the result will affect the Brexit negotiations either way, is debatable, but one thing is for sure, talks will be strained whoever is sitting across the table.

For now, 1.2800-1.3000 still containing the Cable rate, while EUR/GBP bids under 0.8700 will be tempered by the strong resistance seen from 0.8800. Little sign of a break out just yet. Healthy gains seen in the AUD today, with traders somewhat surprised by the turn in sentiment. Combination of circumstances have lifted the higher yielder, starting from a temporary bounce in metals, followed by Middle East woes surrounding Qatar and the implications on Liquid Nat Gas demand. The RBA meeting overnight then delivered a neutral tone which allayed some of the dovish fears emanating from demand out of China, but coming up is the Q1 GDP report, and the indications suggest a soft number. Metals have drifted lower in the meantime, but USD weakness has been predominant.

This has also helped NZD higher, and in the last hour of London trade we saw the spot rate testing 0.7200, undeterred by the Fonterra auctions which saw WMP fall 2.9%, but this has reflected in futures pricing ahead of the results. The GDT index as a whole, rose 0.6%.

There was little benefit for the CAD spot rate, which is contained in a tight range inside 1.3400- 1.3550. Oil prices continue to languish near the recent lows, but with concerns over US shale production, it is hard to see WTI or Brent putting in a strong recovery any time soon. Domestic fundamentals are doing little to help CAD, but we have the employment report to look to Friday, which today’s Ivey PMIs were mixed and largely discarded.

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Dollar Index H4

In our last post price was at the bottom of the range though support did not hold and thus price fell and has found support at the predicted low for the week. Keep in mind that this is where traders take profit and so we don't expect price to move lower though WS2 is the aggressive target for the week. Pivot theory states that when price reaches the target for the week on a Monday or Tuesday price will return to the central pivot point by the end of the week. While profit taking would mean Dollar strength in the near term, the bottom of the previous range is now resistance and the market is bearish so we would need a reversal pattern followed by a higher high before considering going long Dollar.

US10Y H4

Price has continued moving higher off of support at the 50% fib with a target of the 138.2% fib extension. With price having broken above WM3, the target for Bulls is WM4/ WR2.

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