More Consolidation Expected in Data Light Tuesday Trade
The recovery in the commodities markets on Monday has certainly helped to bolster the Australian Dollar over the past 24 hours with the currency rallying back above 1.0800 against the buck. The antipodean has also managed to find additional bids on a much better than expected trade balance and some solid data out of China. Negative risk sentiment themes have also abated for now, and this offers a recipe for additional Aussie strength in Tuesday trade. However, we would warn that the Australian budget is still due out at 9:30GMT and this could have some negative influence on the currency should the budget come in on the downbeat side.
Elsewhere, currencies continue to consolidate for the most part with the Euro trading closer to its multi-day range lows. The topic of Greece and its debt issues will also be in focus, but no definitive conclusions can be drawn until May 16th when the new terms are proposed by the EU on Greece’s bailout package. Meanwhile in the UK, we would expect to see the Pound confined to a fairly tight range over the next 24 hours, ahead of the anticipated Bank of England inflation report. The expectation is that the central bank will come out with downwardly revised growth and inflation forecasts, which ultimately would be Sterling negative.
Looking ahead, the economic calendar for Tuesday is rather quiet, with all data out of Europe and the US classified as secondary. The most significant releases will come out of Switzerland in the form of SECO consumer confidence and the consumer price index. On the official circuit, ECB Bini-Smaghi, Fed Duke and Fed Lacker are scheduled at some point on Tuesday. US equity futures and commodities are tracking lower, with oil standing out as the big loser on the day thus far. However, this does come after some impressive gains for the black gold on Monday.
EUR/USD: Setbacks have stalled for now ahead of critical support in the form of the higher low by 1.4155 from 18Apr. At this point, it sis difficult to determine whether the market will attempt to retain the underlying bullish momentum and look to establish a fresh higher low above 1.4155, or continue to falter below 1.4155 and force a shift in the broader structure. For now, we would use Tuesday’s range as a short-term directional gauge. A break back above Tuesday’s high at 1.4445 will be needed to encourage bulls, while back below Tuesday’s low at 1.4255 will provide more confidence for bears.
USD/JPY: Despite the latest slide, we continue to retain a constructive outlook for the market so long as it holds above the daily Ichimoku cloud on a weekly close basis. Ultimately, only a sustained break back below the cloud would negate constructive outlook. A break and close back above 81.00 would confirm outlook and accelerate gains, with daily studies turning up from oversold levels. In the interim, we remain on the sidelines.
GBP/USD: The latest pullback has now resulted in a test of some rising trend-line support off of the late March lows, and as such, we will stand aside for now to see how the market responds to the trend-line. The 50-Day SMA has managed to support additional declines for now, but a break below would confirm a trend-line break and open deeper setbacks towards 1.6000. Inability to break below the 50-Day would open the door for a resumption of gains initially back towards the 1.6600 area.
USD/CHF:The latest break to fresh record lows below 0.8600 is certainly concerning and threatens our longer-term recovery outlook. Still, we do not see setbacks extending much further and continue to favor the formation of some form of a material base over the coming weeks for an eventual break back above parity. Look for the market to hold above 0.8500 on a daily close basis, while only a break and weekly close below 0.8500 ultimately delays outlook. The bullish reversal over the past few days is encouraging for recovery outlook, though the market will need to continue to extend gains beyond 0.8800 for confidence to build.
Written by Joel Kruger, Technical Currency Strategist
If you wish to receive Joel’s reports in a more timely fashion, email email@example.com and you will be added to the distribution list.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.