USD Edges Back A Little As Strong Gains A Little Excessive Near Term.
At the end of last week we saw the USD giving back some of its gains as the recovery started to run out of steam by midweek. It has been a pretty relentless move higher led by the highly weighted EUR/USD rate which had been stalling either side of 1.2500 for a number of weeks and months before traders started to take note of the gaping rate differentials in favour of the USD.
There is however plenty of negative sentiment around the US deficits, so the longer term outlook on the greenback remains negative, so we have to expect limitations to any USD up-moves in the meantime, but with EUR/USD longs severely overcrowded a few weeks back, the reversal had a high probability of being a sharp one, and we duly trade down towards 1.1800 before demand ahead of the figure contained the sell off off. We now hear that leveraged funds have been notable buyers of the USD in the past week or so, so position squaring looks to be largely done for now, so any miss in the US data this week could see fundamentals having more of an impact.
Tomorrow sees the release of the Apr retail sales figures in the US, where a rise of 0.4% is expected. Anything shy of this is likely to see this pullback extend a little further, but for now 1.2000 and 1.3600 look to be capping EUR/USD and Cable respectively.
USD/JPY is also maintaining some buoyancy with a view to testing the 110.00 level for the third time, but there has been limited traction towards this level this morning given softness in the greenback, though selectively so as the AUD and NZD have seen little change from levels seen at the end of last week.
CAD looks to be back on the front foot after the US employment data jarred the spot move lower. USD/CAD looked to be heading for the 1.2600's before Apr jobs recorded a loss of 1.1k vs expectations of a 17.5k rise, and even though this was all in part-time jobs, we saw the pair trying to pull back to 1.2800 where offers started to cap again. This morning, there looks to be a little more leniency towards the CAD given comments from Canadian PM Trudeau that an agreement in the NAFTA talks is possible, but we suspect there is plenty more work to do as Mexico has called for a deadline for a text to be published on the negotiations and agreements so far - rules of origin on Autos said to be close to alignment.
Little movement for AUD or NZD so far today - the former having budged little from the mid 0.7500's, while price action in NZD/USD is a little heavier as 0.6900 continues to draw the pair in and in turn. This in turn has pushed AUD/NZD higher as we eye a move on 1.0900, but congestion anticipated nearer the psychological 1.1000 level. The RBA minutes are due out this evening, but we expect few surprises given the meeting statement covers the board's economic assessment comprehensively. The Australian jobs report should be significantly more influential later in the week.
Finally, GBP has stabilised since the BoE meeting last week, where MPC members had to answer for their backtracking on rates, though they had little other option in light of the weak Q1 data. Bad weather conditions are still seen as the primary factor in the poor results seen so far, so GBP looks to be moderating a little vs the USD and the commodity currencies at the start of the week, but EUR gains this morning pull the cross rate back into the offers north of 0.8800, but 0.8850-70 still seen as a major obstacle, which may need a stronger catalyst to break under the circumstances. Brexit talks are not as convivial as they seemed a month or so ago, but traders are still keeping an open-minded - more so this than empty requests from PM May on trust in delivering the deal UK Brexiteers and Remainers will both feel at ease with.