Daily FX Wrap: Strong ADP number countered by ISM non manufacturing PMI drop off. USD stays bid however, heading into FOMC minutes. Focus on balance sheet talk. GBP bolstered by UK services PMI, but struggles for upside traction. CAD hit late on on DoE report of Crude build.

Ahead of the FOMC minutes tonight, which is/was not necessarily the major event today, was the ADP jobs report which came out as another strong rise – this time of by 263k. Last month’s 298k rise was revised back to 245k, but on balance, private sector payrolls looks strong. However, this was at odds with the ISM non manufacturing index, where the employment index dropped from 55.2 to 51.6. The headline number also contracted, but lower than expected – from 57.0 to 55.2, and this took the shine off the greenback by a modest degree.

The key mover was USD/JPY which moved up through 111.00 after twice rejecting 110.00 over the past week, fuelled by risk off sentiment which has since abated. Upward traction from here will now depend on how the Treasury curve reacts to tonight’s Fed proceedings. Focus is on any commentary on balance sheet reduction, so we look to the key 10yr rate – and USD/JPY to reflect any realignment in sentiment.

Less progress seen against the EUR however, which continues to struggle in the low 1.0600’s. Yesterday’s dip under 1.0650 met with strong demand, but at the time of writing we are seeing continued tests lower, with a move on 1.0700 swiftly rebuffed. We saw a very brief upturn on comments from the ECB’s Weidmann that it is time to ease up on bond purchases, but countered by fellow member Vasiliauskas who said that summer is the earliest to start discussions on tapering. Divisions within the ECB will continue to weigh on the single unit, as will the upcoming French elections, with talk in the market that hedge funds are loading up on downside strikes, both ahead of and after the latter event risk.

Adding to the downward pressure is a EUR/GBP rate on the back foot again, largely based on the strong UK services PMI number this morning. Ahead of this morning’s release we saw the cross rate attempting another break through the band of resistance ahead of 0.8600, but at 55.0 vs 53.5, economic resilience ahead of the Brexit negotiations ahead are cause for GBP shorts to be trimmed from (reportedly) excessive levels. Cable continues to find support ahead of 1.2400, we are still running into sellers from 1.2500 (and just ahead) as the USD perspective contains any runaway moves.

In the afternoon, the DoE reported a surprise build in Crude, against the previous day’s API, with WTI pulling back modestly, but maintaining a USD51 handle. This pushed USD/CAD through 1.3400 again, but there looks to be limited momentum to retest 1.3450 ahead of tonight’s minutes. CAD also loses out against the crosses, and in recent sessions, we have seen AUD/CAD struggling to make headway towards 1.0100 despite decent selling interest here of late. Resilience in copper prices have aided AUD/USD support in the mid 0.7500’s in this respect, with AUD/NZD rejecting sub 1.0800 to revert its attentions on 1.0900+ levels. Price action remains tight however, as the focus is very much on the USD and rates at present.

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Dollar Index Daily

Market is sideways. Price is bullish though currently at overbought levels. Price continues its current range between the 21 and 55 at MPP sitting in the fib zone of last month's bearish move. Further resistance eyed at the 61.8% fib and higher up at MM3. Support eyed at MM2 which is the fib zone of the recent bullish move.

Dollar Index H4

Market is bullish though we are not making significant higher highs. Price is sideways. Price action actually indicates the the Dollar is currently range bound in a very tight range. As per last night's analysis the Dollar found support at the 21 EMA. Price action resistance eyed in the highlighted red zone above price, WR1 and then WM4/ MM3. Support eyed at the 55, WPP and at the 61.8% fib just below WM2.

US10Y Daily

Market is sideways due to the current range though our 21 and 55 are converging. Price is bullish based on the 5 and 8 though stochs is bearish. Resistance eyed at the top of the range/ MR1. Price found support at MM3 with the bottom of the range at MM2.

US10Y H4

Market is sideways. Price is bearish. Stoch is at oversold levels. As per our analysis yesterday price came off resistance and moved lower resulting in Gold and Yen weakness. Price still have some support to get through and has not yet made a lower low. Direction will be decided based on the market's reaction to the Fed minutes later. Should price move higher resistance is eyed in the fib zone, WM4 and WR2. Support is eyed at WPP and further down at WS1.

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