Weekly FX Outlook: Plenty of key events next week as the UK general election stands out. ECB meeting risk as taper talk bustles once again. More key US data on Monday after Friday’s NFP miss; Comey to testify on Thursday.

After the weak non-farm payrolls data put another dent in the USD on Friday, we saw notable losses across the G10 spectrum, with the exception of the CAD which is trading tight with Oil at the moment. Focus on USD/JPY continues to home in on the 110.50-00 area, below which we expect will see some significant stops being triggered, but demand must be considerable, having weathered the geopolitical tensions across the world as well as softening US data.

Next week’s US schedule is front loaded as Monday sees the ISM non-manufacturing PMI, as well as factory orders, but in light of Friday’s jobs report, US productivity will also be under scrutiny. Later in the week however, ex FBI director Comey’s testimony has been confirmed for Thursday morning (in the US), so pressure on the USD looks set to continue despite the odds for a Jun hike still priced above the 90% mark. As such, we can see the market is looking past the 14 Jun FOMC decision, though we have other factors impacting on the greenback’s major counterparts.

Standout is the general election in the UK, and for all the media hype over the various polls, the relative levels of the Pound – against the USD – suggest that on balance, the consensus is still looking for a Tory win. 1.2770 to 1.3050 look to define the near-term range in Cable, but EUR/GBP is still grinding higher and this brings us on to the other major event next week – the June ECB meeting.

Over recent weeks and months, the fervour surrounding an eventual change in policy communication has been gathering momentum, to the point where some are looking for comments in the press conference alluding to as much. President Draghi however, will be all too aware of what the impact this will have on the rates market in particular, and given the fragility of the economic recovery – the world over – his communication will be as guarded as ever. Not that this is holding back EUR/USD, which is – in late London trade – still pushing for the 1.1280-1.1305 resistance zone. Through here, the ultimate target zone is 1.1400-1.1500, but after the latest US data, traders are not fearful of the downside to any material degree. 1.1000- 50, pre-1.1100 and pre-1.1200 are all established buy zones, but this all depends on how far the market pushes up from current levels.

Data wise, there is little other than the German trade and factory orders either side of the ECB meeting, with the Sentix investor index and services PMIs on the Monday. In the UK however, the ever-topical services PMI will be under the spot light, serving as a strong gauge on the health of London as we look ‘forward’ to the EU talks ahead. UK industrial and manufacturing production numbers and trade due out on Friday.

It is also a big week ahead for Australia, with the Q1 GDP stats on the same day as the RBA meeting. Given the weak inputs from construction work done and CapEx, some of the leading domestic banks have revised their projections lower, so with the mix of concern over China demand and the impact on metals thereon, we would argue the AUD is holding up well against some of the majors – notably the USD and JPY.

Against the NZD, pressure has seen the cross rate nearing some notable support levels, and based off the rising trend line on the weekly charts, we point to a back of support seen just below 1.0400. We pushed into this area late Friday, and with such a divergence seen in the respective outlooks over Australia and NZ, we have to assume the market will keep pressing for extended levels below this technical base.

It is still hard to see the RBA calling for a rate cut at this juncture, but any significant weakness in Q1 growth will turn heads, if the Caixin manufacturing PMI dip into contractionary territory has not already done so. The AIG construction index is also on RBA day (Tuesday) with Australian trade the day after.

In NZ, we have the latest Fonterra dairy auctions to look to, but barring any notable weakness, the healthy prospects from the stimulatory impact of the budget surpluses announced last month should continue to bolster the NZD, albeit selectively. NZD/USD in the mid 0.7100’s may raise a few eyebrows, but the fundamental backdrop supports further (modest) upside.

In contrast, the CAD continues to suffer, but this is largely down to the Oil price. Despite the BoC noting that Canada has largely adjusted to lower levels, traders continue to buy dips as rate differentials dictate also, but looking forward, the recent GDP stats along with a relatively healthy labour market should contain excessive USD/CAD gains. The Canadian employment report is next Friday, ahead of which we get housing starts and building permits (which are in focus given the elevated prices), and Ivey PMIs.

In Scandinavia, industrial and manufacturing production levels are in focus next week, but with Brent back under USD50.00, NOK/SEK is in retreat, and heading back to the 1.0100-50 zone.

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Dollar Index Daily

We now from last week's posts that Dxy has been range bound and most of last week's posts we focused on H4 analysis. I would like to refer to the Daily chart due to the new monthly pivots received last week. Note that MM2 is holding as support - a break of this support gives us a target of MS2 with price coming off MPP. Note the 21 EMA holding as dynamic resistance.

Dollar Index H4

We marked WS1 as the our level of support due to it marking the bottom of the range. Two things are likely to happen with the Dollar going into this week. Support holds and price moves back to the top of the range or price breaks support and the downtrend continues. A range trader would pay careful attention to oversold markets at the bottom of the range, take note of the H4 stoch indicating further bearishness.

US10Y Daily

As far as monthly pivots are concerned, price has not come off a buy zone so we don't have MM4/ MR2 as a target though we know it is the projected top for the month. Note the role reversal just below MR3 - according to price action this is our next level of resistance with the next red zone highlighting the price the US10Y was at last November before Trump won the election. Price has broken slightly above the top of the range so we are paying careful attention to this level. Similar to the Dollar Index, we are either going to see price move lower at this resistance and return to the bottom of the range highlighted by the green zone at MM2 OR price is going to breakout. H4 provides a little more info.

US10Y H4

A couple of things to note. Bullish trend, higher high and price is above the weekly target. Technically speaking we expect a couple of things. 1 - Until we have a reversal pattern we expect to see further HH's and HL's. 2. Our fib and the previous resistance mark our next level of support. 3. Price is going to move down to our new WPP and then continue mission (due to price being above the weekly target). As all my readers know, a move higher in price of the US10Y = a move to safety and therefore strong Yen and strong Gold. One would therefore incorporate such analysis when trading Yen or Gold.

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