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FX

USD In Limbo

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USD sidelined but holding critical support levels in the face of mixed political developments and economic data

 

USD & JPY

  • US Q1 GDP of 0.7% matched expectations of Citi analysts, who  expects to see a strong rebound to 2.8% in Q2. The rise in Q1 employment cost index to 0.8% raises risk of a strong average hourly earnings outcome (+0.3% MoM) in this Friday’s US April jobs report.

  • April Chicago PMI came in at a higher than expected 58.3 versus 56.2 consensus. This was offset by fall in ISM manufacturing from 57.2 to 54.8 and led by decline in new orders and jobs.

 

Strategy: USD Index holds 99.10 – 24 support despite mixed US political developments and data. 

  • USD: USD holds critical support (99.10 in the USD Index) even as US political developments remain mixed. Even so, USDJPY continues to climb steadily as we approach the US April jobs report on Friday. Citi analysts forecast 180K jobs to be created and strong average hourly earnings growth of 0.3% from the previous month.  

 

EURO BLOC

  • Euro zone flash headline April inflation surprised on the upside. Headline inflation rose 2.0% vs 1.6% expected and core inflation rose 1.2% vs 1.0% expected. However, ECB President Draghi downplayed the inflation readings. Likewise, Citi analysts do not expect the inflation uptick to last. 

 

Strategy: Still favoring sterling over euro as the cross continues to trend lower. 

  • EUR & GBP: EUR’s recent gains are largely led by short term leveraged players while banks, real money and corporates remain on the sidelines. GBPUSD reached fresh highs this year near 1.2965 ahead of the 1.2990 resistance as the market shrugged off the soft UK Q1 GDP. The unit is on target to test 1.3200, while solid support is seen around 1.2606-1.2615.

 

COMMODITY BLOC

  • Commodity bloc sentiment remains heavy versus USD and the euro bloc.

 

Strategy: Commodity currencies heading lower

  • AUD: AUD’s gains (albeit modest) over the past 24 hours suggests that the market may be expecting the Reserve Bank of Australia (RBA) to turn more hawkish at its board meeting. Such expectations follow strength in the most recent local jobs report and last quarter’s in-line inflation reading. However, Citi analysts expect the RBA to maintain a watch and hold stance. This could potentially disappoint investors and renew AUD underperformance against NZD and GBP. Initial support for AUDUSD is at 0.7473 followed by 0.7280-0.7311.

  • NZD: NZD appears better supported than the AUD. The topside in NZDUSD is seen between 0.7000 to 0.7061, ahead of this week’s release of NZ unemployment data on Tuesday (18:45 EDT) and inflation expectations on Thursday.

  • CAD: With the North America Free Trade Agreement on the radar of President Trump, investors are warming up to the idea of
    adding to long USDCAD above 1.3600. Initial resistance is seen at 1.3670/72 followed by 1.3700/ 50 and ultimately targeting 1.3850 - 1.3900.

 

This is an extract from the Daily Currency Update dated 2 May 2017. Please approach a Citigold Relationship Manager if you would like a copy.

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