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Early Greenback Weakness Reverses Course, GBP and CHF Underperform

FOREX
  • With market participants keenly awaiting the latest inflation data from the US on Tuesday, just a day before the June FOMC decision, there was a distinct lack of follow through on early currency moves on Monday. As such, initial greenback weakness swiftly reversed course with the USD index turning positive as we approach the APAC crossover after prior intra-day losses of around 0.35%.
  • In similar vein, perhaps the best performing G10 currencies late last week, GBP and CHF, were among the weakest to start this week with potential short-term positioning dynamics in play amid the considerable amount of event risk this week.
  • The pullback in GBPUSD places the pair around 90 pips off the multi-week high posted this morning at 1.2599. It’s worth noting that there was little sign of a pick-up in volumes behind the initial sell-off with only light activity noted on the slip from 1.2560 to 1.2535, however the pair did slide all the way to 1.2487 lows.
  • Resistance at 1.2545, the Jun 2 high, was cleared last week, and today’s early gains have resulted in a print above 1.2592, 50.0% of the Mar 8 - May 10 bull run. A clear break of this level would expose key resistance at 1.2680, the May 10 high. Initial firm support has been defined at 1.2369, the Jun 5 low.
  • USDCHF also extended its recovery on Monday as 0.90 appears to have put a short-term floor in the price action. As a reminder, last week’s more hawkish comments from the SNB prompted a sharp bout of CHF strength that has now completely unwound. EURCHF has notably risen to a one-month high just below the 0.98 handle.
  • A quick note that the Chilean peso has fallen a sharp 2.5% on Monday as markets provide a short-term reaction to the freshly announced program to increase their USD reserves.
  • Tuesday brings UK unemployment data and German ZEW, however, the focus for global markets remains squarely on US CPI with consensus still buying into the Fed skip narrative for now.
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