Last week put a strong argument in place for a local top in the EUR/USD, and now the question is whether the sell-off continues or apace or loses steam, as the market assesses the justication of recent Euro strength more broadly.
USD/CAD hits 1.0500
The USD/CAD has traded above 1.0500 this morning, after bursting through resistance on Friday in the wake of unexpectedly low CPI data (the core year-on-year CPI measures 1.1% versus 1.2% expected and that reading is getting close to the lowest readings in the history of the data set back to the 1980’s. Zooming out on the monthly charts helps remind us how quiet – too quiet – the USD/CAD has been, and how far the range expansion might take us if we continue higher from here, as it is likely if crude prices continue to correct lower and if markets remain nervous. 1.07-1.08 could be in the cards if the 1.0400 break holds.
BIS weighs in on the Fed tapering theme
Over the weekend, the Bank of International Settlements informed central banks they need to lay off on the excessive easing, and not to let the market volatility steer them from administering the needed medicine.
Is the Scandie mayhem overdone? Not so sure…
The move in the Norwegian krone last week was by far the largest since the days of the global financial crisis, as the Norges bank reversed itself and surprised the market in a very bad way. 2-year swaps have taken back about half of the territory lost after last Thursday’s Norges bank announcement, suggesting some potential for NOK to consolidate. Last week's very weak crude markets are an additional worry, so it still looks like a market for finding out where to sell the NOK on rallies until proven otherwise. The pause at the 8.00 level in the EUR/NOK may be merely symbolic beyond the nearest term. The violent comeback in the USD/SEK is very interesting as well, as a move above 6.75 could point toward 7.00 and even 7.50 eventually.
Chart: USDNOK
The USD/NOK was the biggest mover in the G-10 last week, on the combination of the FOMC/Norges Bank surprises. This doesn’t look like a move to be faded, as traders may look to pick up the pair again on any weakness back toward 6.00 for a go at new multi-year highs (the 2012 high was just above 6.20).
USD/NOK" width="455" height="346">
Looking ahead
With the EUR/USD diving back so deeply through the previous 1.3240 highs from May 1st, our focus should be back lower again as we look for a now mangled head and shoulders formation to complete with the neckline in the 1.2800 area. The euro weakness could come more pronounced against the U.S. dollar and the pound sterling, if the tremendous rally in the single currency versus the commodity currencies eases. We’ll probably need a bit of EU systemic risk to creep back into the picture (more likely with the recent spike in government bond yields), and/or for risk appetite to stage a bit of a comeback, as the Euro was acting as a bit of a safe haven currency until the FOMC meeting finally put a strong bid under the U.S. dollar. Today’s IFO was somewhat surprisingly in-line with expectations, but one wonders how much of the survey data was gathered well before the mayhem of last week (most of it!).
Stay careful out there.
Economic Data Highlights
- New Zealand May Credit Card Spending fell -0.6% MoM and rose +2.4% YoY vs. +4.0% YoY in Apr.
- Germany June IFO Business Climate out at 105.9 as expected and vs. 105.7 in May
- U.S. May Chicago Fed National Activity Index (1230)
- U.S. Jun. Dallas Fed Manufacturing Activity (1430)
- U.S. Fed’s Fisher to Speak (1700)
- Japan May Corporate Service Price Index (2350)
- Japan June Small Business Confidence (0500)