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Greenback Under Pressure As EURUSD Breaks Resistance

FOREX
  • The US Dollar has been on the backfoot from the open and the USD index is around 1% lower on Monday. US yields are higher on the day, however, markets continue to consider the lowering yield differentials last week that has halted the greenback rally for now.
  • Adding to the USD pressure, the early mover in FX was in late Asia trade, with USDCNY and USDCNH falling close to 3 big figures, after Biden said that Chinese tariffs imposed by the Trump administration were under consideration.
  • Furthermore, comments from ECB President Lagarde via a blog post provoked some very supportive price action for the single currency. Lagarde stated “we are likely to be in a position to exit negative interest rates by the end of the third quarter.” The comments have prompted some sell-side analysts to indicate the next steps for the ECB have been ‘rubber stamped’ with likely 25bp hikes in both July and September.
  • Following EURUSD clearing the 20-day EMA at 1.0570 overnight, technical conditions had suggested scope for a stronger short-term recovery which has manifested following a print above key resistance at 1.0642, the May 5 high.
  • The current bull cycle started at 1.0350, May 13 low and from the base of a bear channel, drawn from the Feb 10 high. The channel top intersects at 1.0857 and is a potential short-term objective. Initial support is at 1.0533, May 20 low.
  • In similar vein, the next upside target for Cable is at 1.2600, followed by 1.2638 High May 4 and a key resistance.
  • Focus in the euro area tomorrow remains on economic sentiment surveys with the key preliminary PMIs for May due. Highlights for the week remain Wednesday’s RNBZ meeting/decision as well as the release of the FOMC minutes.
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