FX Update: Data May Not Be The Usd Driver This Week
Saxo Bank | May 18, 2015 05:27AM ET
The US dollar ended Friday on a weak note after another string of uninspiring data on Friday, particularly the huge drop in the May preliminary University of Michigan sentiment survey, which had failed to drop in April as had the Conference board Consumer Confidence number. Still, the USD reaction late Friday was partially erased in early trading to start this week, though EURUSD still remains near the cycle highs, suggesting that it is increasingly lonely in strengthening versus the USD.
The US data flow this week is relatively modest with housing related data points the most interesting after the February and March housing starts numbers plunged sharply. Mid-week we have the Federal Open Market Committee meeting minutes of the last meeting, which could prove a bit more balanced, and therefore hawkish, relative to the market’s expectations/assessment, though we’re not looking for any fireworks.
Perhaps the key driver this week will be whether the recent blowup in government bond yields and risk off, particularly in European equities, is behind us, which may drive action far more than any identifiable event risk for the week.
Chart: NZDUSD
NZDUSD gapped weaker overnight after its recent comeback attempt, driven lower by news of a capital gains tax on residential real estate that is held for less than 2 years as the government aims to avoid the risk of a worsening property bubble. The move in turn allows the Reserve Bank of New Zealand to continue its dovish guidance. Looking at the local technical situation, the overnight action and action this morning sees us pushing on the 61.8% retracement of the rally off the recent lows – if these lows are taken out, it will sharpen arguments for a test of the cycle lows below 0.7200.
The G-10 rundown:
USD: Friday’s move was erased in spots today, but it’s hard to call this a rally and the greenback could remain vulnerable this week if US housing related data disappoints, though a balanced set of FOMC minutes on Wednesday could provide a boost, particularly if bond and equity markets are calming this week.
EUR: Somewhere between here and 1.2000 we’re going to get the European Central Bank making loud protests, so looking for increasing headwinds for any further euro upside, even if it’s too early to call a top in EURUSD.
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JPY: Market seems to have given up on taking a view on USDJPY, meaning that the JPY defaults to weakly correlating with USD moves in the crosses. Not sure where the next catalyst lies for the pair – we have a Bank of Japan meeting on Friday, but there are no expectations and Governor Kuroda last week came out rather loudly proclaiming that he didn’t want to shift guidance just yet.
GBP: upside last week got overdone, so may be seeking out local support in GBPUSD, but EURGBP may be another matter, as the consolidation there looks sufficient and where the preference is to focus on fresh downside and follow-through from the UK election result.
CHF: An interesting move on Friday, as EURCHF popped up to the 1.0500 area, though there were no definable drivers of the move. Still interesting to watch from a technical angle and the timeline is getting very short for some kind of resolution in Greece, for better or worse.
AUD: Weakened slightly on comments from deputy governor Lowe overnight and we have the Reserve Bank of Australia minutes up tonight – has the market been too quick to shift RBA expectations into neutral? If AUDUSD closes significantly below 0.8000 and the RBA minutes are inflicting further damage on AUD, the bearish case will pick up considerably.
CAD: USDCAD refuses to break lower, but rallies have not inspired – not sure where the catalyst will be, but preferring to look higher, and significantly so if the pair can take out the 1.2100/1.2200 zone in the weeks ahead.
NZD: Government announced new capital gains tax on residential property – a macro-prudential effort from the government (as opposed to the RBNZ) aimed at cooling the housing market and helps the RBNZ to keep its guidance dovish without having to worry about the effect on house prices.
SEK: Another false break in EURSEK, this one to the upside, keeps everyone guessing. Waiting for next Riksbank signals.
NOK: Prefer to look for ways to express downside risk for NOK, due to risk that the market is misreading the potential for further dovishness from the unpredictable Norges Bank – perhaps USDNOK upside preferable to EURNOK upside?
Economic Data Highlights
- New Zealand Apr. Performance of Services Index out at 56.5 vs. 57.6 in Mar.
- Japan Mar. Machine Orders out at +2.9% MoM and +2.6% YoY vs. +1.5%/-6.0% expected, respectively and vs. +5.9% YoY in Feb.
Upcoming Economic Calendar Highlights (all times GMT)
- US May NAHB Housing Market Index (1400)
- Australia RBA Meeting Minutes (0130)
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