USD Suddenly On Back Foot On Defensive Risk Appetite

The USD traded sharply weaker yesterday in a news vacuum, suggesting the lack of catalysts had fresh and weak USD longs running for the exits. Another likely driver was the weak tone in risk appetite. This sudden pause in the USD upside may have room a bit of room to run and we may be victim to a bout of range trading, testing USD supports ahead of next Wednesday’s Federal Open Market Committee meeting. The most significant of those will be the 1.1000 level in EURUSD, which is suddenly very close by. Elsewhere, the Ichimoku Cloud in USDJPY will be the focus on further consolidation (runs from 123.25 to 122.17 at present). The 0.7500/35 level is the key for keeping a bearish outlook on AUDUSD, and the 1.2850/1.2900 zone in USDCAD is likewise the bull-trend support.

The slightly weaker-than-expected Q2 CPI overnight out of Australia and the speech from the Reserve Bank of Australia’s governor Glenn Stevens saw no reaction in rate expectations, so AUD bounced back after a short selloff, raising the risk of a further squeeze toward the ultimate 0.7500/50 zone if the USD weakness persists.

Tonight’s key focus will be on the Reserve Bank of New Zealand meeting. The tables have turned a bit on NZDUSD traders with the sudden introduction of USD weakness, so if the RBNZ under-delivers on the dovishness of its guidance amid further USD weakness, the risk grows dramatically of a sharp squeeze through resistance and even through the descending trend-line.

Today’s main focus is on the Bank of England minutes, as EURGBP has consolidated back above 0.7000 (the 0.7050/60 area looks critical for maintaining the downtrend). The focus will be on the degree to which more members are clamouring to raise rates. Sufficiently strong signals could also trigger a further rally in GBPUSD, where the focus is on the recent range high near 1.5675.

Chart: EURUSD

What’s at stake for the EURUSD here if 1.1000 comes into play is whether this fresh downtrend is rejected and we have to revert to focusing on the big range, or arguably, channel, that extends back toward 1.1300+.

EUR/USD

The G-10 rundown

USD: Suddenly on the defensive and with few catalysts on the horizon the greenback could continue to consolidate within the bigger ranges in key pairs ahead of next Wednesday’s FOMC meeting.

EUR: 1.1000 in EURUSD is the focus as the slow momentum lower yielded to a quick squeeze higher – at stake is whether we keep an organised downtrend here or risk slipping back in the big channel back toward 1.1300+.

JPY: Plenty of room for consolidation lower in USDJPY if risk appetite continues to trade weakly, with the support of note the Ichimoku Cloud levels, as noted in the chart above.

GBP: BoE minutes today important for whether we keep below the important 0.7000/50 zone in EURGBP and therefore keep the downtrend alive in the short term.

CHF: Suddenly a bit weaker, though we need to progress above 1.0500 in EURCHF for the pair to merit any technical attention. In USDCHF, the 0.9500/25 area is important structural support.

AUD: Looks stuck in the range for now as the potential catalysts overnight failed to provide a signal. For AUDUSD, the focus is on whether the 0.7500/50 resistance zone remains intact.

CAD: Some room to consolidate toward 1.2900 and perhaps even 1.2800 if the USD weakness extends here.

NZD: Squeeze risk appears much higher today after the bout of weakness, as positioning is heavy in the NZD and it will be easy for the RBNZ to under deliver on guidance (even as they cut rate 25 bps as expected), even if longer term outlook is lower for the kiwi.

SEK: No interest as long as we are in 9.20-9.40 range.

NOK: EURNOK pushing back toward that key 8.85 area even as oil remains relatively low – a sign of NOK strength, but we need a solid close below that level to call it a signal.

Economic calendar highlights

  • Australia Q2 CPI out at +0.7% QoQ and +1.5% YoY vs. +0.8%/+1.7% expected, respectively and vs. +1.3% YoY in Q1
  • Australia Q2 CPI Trimmed Mean out at +0.6% QoQ and +2.2% YoY vs. +0.6%/+2.1% expected, respectively and vs. +2.3% YoY in Q1

Upcoming economic calendar highlights (all times GMT)

  • UK BoE Publishes Meeting Minutes (0830)
  • US Jun. Existing Home Sales (1230)
  • New Zealand RBNZ Official Cash Rate (2100)
  • Japan Jun. Trade Balance (2350)
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