Home Daily Commentaries US futures point to a soft open

US futures point to a soft open

Daily Currency Update

The US dollar index finished the day slightly weaker yesterday. Risk sentiment was generally positive throughout the day despite the increasing US trade tensions, with the greenback most obviously losing ground versus commodity currencies such as the AUD. The release of weaker than expected US Factory Orders on Monday didn’t help the situation, although it wasn’t a particularly important set of data.

Today’s ISM Non-Manufacturing PMI will be watched more closely. Moreover, while better than expected US jobs data last week underlined the strength of the US economy and the near certainty of a Fed interest rate rise this month the lingering trade disputes will continue to contribute to a challenging backdrop for the USD in the coming weeks.

With markets brushing off increased US trade tensions to begin the week with positive risk sentiment, the USD exhibited broad-based weakness on Monday especially against commodity currencies such as the AUD and NZD. While equity and bond markets remained upbeat, in currency land the USD index was down 0.1% on the day bailed out by JPY weakness.

Key Movers

Quiet on Canadian economic data today, therefore market participants will have to wait for tomorrow when Trade Balance figures and the Ivey PMI m/m for May Numbers are released at 8:30 and 10:00 am respectively.

Crude oil inventories are also released tomorrow at 10:30 the report will show the number of barrels being stockpiled by commercial firms over the past week. WTI crude continues to move lower trading at 64.34 at writing. WTI is down $3.58 over the past week, which represents negative 6% over the month. The Canadian dollar has found its correlation with oil over the first, and the trend continues, the loonie is down against the euro, pound, and the US dollar, the Canadian dollar currently trades just under the 1.30 handle.

Near-term resistance sits at the 1.2987 - 1.3000 level any significant break above this level would target 1.3050-1.3071.

It was a mostly subdued session for the euro yesterday. As far as data went both Eurozone producer price data and Sentix investor confidence printed weaker than expected, but the relatively lower tier data was ignored by markets. 

The EURUSD rose as much as 0.7% in the intraday, where it met an important short-term resistance level of 1.1745, its highest level since May 24th, but couldn’t hold on into the gains and receded back below 1.17. 

Support for the EURUSD is brought by the May 31 low of 1.1641, resistance would still come at 1.1750 and then 1.1769

The pound fell on Monday. UK Construction PMI, released first thing, was better than expectations printing at 52.5 vs. 52.0 and GBP/USD came close to breaking 1.34 on the news. Alas, it couldn’t quite make it, and then duly broke down through various support levels, losing close to 100 points on the day.

The war of words on US trade tariffs rumbled on too with Theresa May calling US tariffs “unjustified and deeply disappointing”. In other news, May is also set to delay the release of a Brexit white paper until after the EU summit at the end of June. Reports also revealed that the House of Commons will vote on the Brexit bill on 12th June, which gives them the opportunity to discuss 15 separate amendments made by the House of Lords. These headlines are hardly positive for the pound, and GBP/USD has struggled to recapture any gains since the sell-off yesterday.

Attention now turns to UK Services PMI. Based on yesterday’s performance we can’t be sure that a beat will be necessarily good for the pound, albeit we could see an initial reaction. Also based on yesterday’s performance, expect any gains to be capped at 1.34, or at least just under the big figure.

The AUD has started the week strongly, surging more than 1% against its US counterpart on the back of some robust domestic data on Monday and an improvement in broader global risk sentiment. The story was mostly retail sales driven however the commodity-linked currency also found support on the back of rising copper and gold prices. The AUD/USD rallied to intraday highs of 0.7668 before consolidating around the 0.7645 handle as the USD seemed to trim losses. The AUD/NZD pair also preserved the day’s earlier gains, ranging sideways between 1.0860 and 1.0890

Attentions now turn to today’s RBA statement with Australia’s central bank expected to maintain it’s monetary policy stance, keeping rates on hold at 1.5%. While this continuation will be of no surprise to markets, traders will be looking for any hawkish surprises in the tone that could provide the local currency with further upside. From a technical perspective, resistance is seen near-daily highs of 0.7668 followed by the psychological 0.7700 handle with downside risks appearing to be well supported at levels nearer to 0.7605.

Taking a closer look at yesterday’s impressive retail sales numbers, the seasonally adjusted 0.4% read comfortably surpassed market expectations which were pricing an increase of just 0.3%. The bulk of the gains appear to be linked to abnormally warm weather in April, with spending in restaurants, cafes and fast food outlets outweighing sharp declines in apparel and department store sales. Although many economists are still bearish on whether the recovery can be sustained when underlying conditions such as low wage growth continue to stretch household budgets, the sharp rebound is a supportive indicator leading into tomorrow’s GDP release

The NZD opens this morning stronger against all majors except the AUD. Performing strongly on Monday against the worlds base currency, the NZD/USD pair rose 50 pips to new monthly highs of 0.7050 in the morning's session before consolidating at levels closer to 0.7030. This resembles a 0.7% advance on the day which seemed to be ignited by broad-based USD weakness with the USD index plunging to 10-day lows as global risk sentiment improved.

The NZD also opens about 0.5% higher against the EUR and the CAD, flat against the GBP and over 1% higher against the JPY. It did suffer at the hands of a surging AUD and opened this morning 0.7% softer against its rival across the pond.

On the technical front, first levels of resistance are at the 50 day moving average level of 0.7060 followed by the 200 day level of 0.7110. On the downside, the pair remains supported in the short term at psychological levels closer to 0.7000 and June’s lows of 0.6960.

Expected Ranges

  • USD/CAD: 1.2950 - 1.3055 ▲
  • EUR/USD: 1.1648 - 1.1724 ▼
  • GBP/USD: 1.3300 - 1.3390 ▲
  • AUD/USD: 0.7608 - 0.7656 ▼
  • NZD/USD: 0.7012 - 0.7048 ▼