Softer US Economic Data Results in Short-Term Setback for Buck
The softer round of economic data in the US on Thursday has been the catalyst for the latest round of mild US Dollar selling, with the Greenback coming under some more pressure on the expectation that the Fed will continue to leave monetary policy ultra accommodative for an extended period of time. The results of the latest Philly Fed and leading indicators data has been driving this latest consensus, while reserved comments from the normally hawkish Fed Fisher have not helped the buck’s cause. Fisher was on the wires saying that recent softer economic data suggested a pause for policy reflection.
However, at the same time, the selling in the Dollar has not been as intense as we have seen in the past on such news, with problems in the rest of the world not necessarily justifying an aggressive move away from US Dollars despite the softer economic data. Economic data outside of the US has also been discouraging on the whole in recent weeks, and this coupled with never ending Eurozone peripheral debt concerns and the fear of contagion, should mitigate Dollar declines for the time being.
Moving on, the Bank of Japan left monetary policy and its outlook on the economy unchanged as was expected and the reaction in the Yen has reflected this decision. Meanwhile, the New Zealand Dollar remains well bid despite some softer commodities prices on Thursday, with the latest governmental budget being very well received and encouraging prospects for the local economy. The latest data out of New Zealand which shows the second straight monthly migration loss does not seem to be having any negative impact on the currency thus far.
Finally, the Swiss Franc has been showing some relative weakness following Thursday’s terrible ZEW print, and official comments about concerns over the strength of the Franc have also played a role in the relative underperformance. SNB Danthine is slated to speak later today, and the central banker’s comments will be watched closely. Any indication of additional concern over Franc strength could very well inspire another round of Franc selling.
Looking ahead, the economic calendar is rather quiet in European trade, with only German PPI and the Eurozone current account worth mention. Things pick up just a bit into North America, with key Canadian data taking center stage in the form of CPI and retail sales. The US economic calendar is empty. On the official circuit, German FinMin Schaeuble, ECB Mersch, Fed Dudley and SNB Danthine are scheduled to speak throughout the day. US equity futures are mildly offered while commodities are slightly bid.
EUR/USD: The corrective rally out from 1.4050 continues with the market breaking back above 1.4300 thus far. However, any additional gains from here should limited to the 1.4400-1.4500 area, and we would be looking for the formation of a fresh lower top in favor of the next major downside back below 1.4050. Ultimately, only a daily close back above 1.4500 would delay.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming days.
GBP/USD: The market is starting to give way, with the price now dropping back below the 50-Day SMA to warn of additional declines over the coming sessions. Look for deeper setbacks below 1.6000, with any rallies now expected to be well capped ahead of 1.6400. Ultimately, only back above 1.6520 gives reason for concern.
USD/CHF: Starting to show signs of basing off of the recently established record lows by 0.8550, with the market putting in a solid bullish close for two consecutive weeks and breaking back above the previous weekly high. Next key resistance comes in by 0.9000 and a break above will further confirm recovery structure and open the door for a move back towards a medium-term lower top at 0.9340. Look for any intraday setbacks to be well supported above 0.8700 on a daily close basis. Ultimately, only a daily close back below 0.8700 delays and gives reason for concern.
Written by Joel Kruger, Technical Currency Strategist
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