Forex Afternoon Wrap – 18/05

Key Notes:

• UK, Rightmove HPI m/m -0.1% vs. 1.6% previously
• RBA deputy governor Lowe speech
• Japan core machinery orders m/m 2.9% vs. 1.7%
• Australia new motor vehicle sales m/m -1.5% vs. 0.7% previously
• Japan revised industrial production m/m -0.8% vs. -0.3%
• Japan tertiary industry activity m/m -1% vs. -0.5%
• Switzerland retail sales y/y -2.8% vs. -2%
• Italy trade balance 4.06bn vs. 2.47bn

British Pound eases from its highs on technical flows

The currency markets opened a new week on a quiet note with lack of any major fundamentals across the regions. Early Asian trading session saw a speech by RBA’s deputy governor, Lowe who was quoted as saying that further rate cuts was still possible, in an apparent bid to verbally talk down the Aussie. The AUD was however muted to the speech as the currency was trading off the broader themes and had already eased from its previous highs near 0.8133.

The Kiwi Dollar continued to remain under pressure this week, trading lower near 0.7418 but managed to gain some ground against other peers.

The Japanese Yen was muted as the Yen crosses were seen trading based off the general theme. The USDJPY managed to gain some ground today and was seen trading at 119.7 but a break above the previous highs at 119.928 is needed in order to see the pair push higher.

The European trading session was also light with no major news events scheduled. The only exception was Switzerland’s retail sales data which declined -2.8% for the month, below expectations. SNB officials were quoted as saying that the Central Bank was monitoring the exchange rate for the Swiss franc, not just against the Euro but also a basket of currencies. It noted that the bank was currently satisfied with the exchange rates but that the Swiss Franc was still overvalued. It wouldn’t be a surprise to hear about further currency interventions in the market from the SNB.

The Euro, in a quiet trading day was visibly weaker after the currency failed to break above 1.146. We expect a short term weakness which will send the EURUSD down to 1.3575 following which, a rally should help ensure to take the currency towards 1.1491 levels.

The British Pound was also weaker on Monday’s open after following a strong rally last week. The Cable eased from the highs above 1.57759 forming a bearish engulfing candlestick. The currency broke below the previous major support/resistance level at 1.5752 with the next support coming in at 1.552.

The US Dollar Index was seen edging higher after hitting fresh monthly lows to 93.17. A daily close above 93.8 is essential to expect any kind of further gains in the Greenback. However, as has been the recent trend, the Greenback has been steady in correcting its decline for 2 – 3 days and this could very well be the theme heading into the FOMC meeting minutes release due on the 20th of May.

The US session opened but is again a quiet trading session with no major events scheduled. Canadian markets are closed on account of a bank holiday.