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Greenback Trades On Surer Footing As Equities Head South

FOREX
  • Renewed pressure on major equity benchmarks bolstered the US Dollar on Tuesday with the USD Index rising 0.45%, eliminating the downtick seen over the past two trading sessions.
  • JPY weakness was the early story on Tuesday throughout European hours with USD/JPY (+0.55%) touching the week's best levels and continuing to work its way through the pullback from last week's highs. This keeps the cycle best at Y136.71 in view over the medium-term, with the RSI fading back below the technically overbought levels seen early June.
  • The EURJPY cross delivered a fresh cycle high of 144.28 today, above the resistance and recent high of 144.25. This print has cancelled a 3-day candle pattern highlighted in recent updates - evening star reversal. Despite the supportive price action, the pair saw a swift reversal and resides close to unchanged approaching the APAC crossover. Key short-term support is at 141.18, the 20-day EMA. A break of this level is required to again highlight a potential top.
  • The key reason for the swift reversal was gradual and consistent selling in EURUSD. Today’s high print at 106.06 represents the fourth daily test above the 1.06 mark in the past nine sessions.
    • With momentum consistently waning at the highs, the pair gravitated lower amid the weakness in equities. Furthermore, an added tailwind for the greenback may have manifested in the form of value-date month-end dynamics with rebalancing models pointing to strong USD-buying.
  • Moving average studies point south and a break lower would open 1.0350, May 13 low and the bear trigger. A clear break of 1.0627 however would alter the picture.
  • With risk under pressure, NZD was the key underperformer, falling over 1% with cable also sliding back below the 1.22 mark, narrowing the gap with last week’s lows at 1.2161.
  • Wednesday will bring flash estimates of German and Spanish inflation and the Commission's economic sentiment indices, all for June, while Lagarde, Powell and Bailey will all speak on a panel at the Sintra policy forum.

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