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Greenback Weakens Following Soft ISM, AUDUSD Breaches Resistance

FOREX
  • The greenback came under pressure on Wednesday amid US ISM Services index data coming in far weaker than expected in June at 48.8 (est. 52.7). It more than reverses the 4.4pt increase in May, leaving it at its lowest since May’20. The USD index is 0.45% lower as we approach the APAC crossover ahead of tomorrow’s US Independence Day holiday.
  • Gains for major equity indices have underpinned strong moves higher in both AUD and GBP, while the Norwegian Krona is the best performer in G10.
  • AUDUSD has made a notable breach of key resistance at 0.6714, the May 16 high. We highlighted that this was an area that could come under threat given the AU/US two-year yield differential is currently close to January levels when AUDUSD was trading above 0.68. The pair reached as high as 0.6734 before retracing roughly 20 pips as the US session winds down. We noted a breach of this level may be required to build momentum for AUD crosses, explored further here.
  • USDJPY registered an impressive 117 pip range on the day. Initially, the pair rose to a fresh cycle high at 161.95 before pulling back a touch ahead of the data. With longer-dated US yields extending as much as 8-9bps lower, USDJPY had a sharp move to the downside, briefly reaching 160.78. However, in contrast to other G10 pairs, the greenback bounced back strongly, with USDJPY rising over 75 pips off the lows before consolidating back around 161.50.
  • GBPUSD extended above initial firm resistance at 1.2740, the Jun 19 high, registering a fresh two-week high in the process as we approach tomorrow’s UK election. A sustained break of this level would highlight an early reversal signal which may target a move to 1.2860, the Jun 12 high.
  • Separately, it is also worth noting, EURGBP failed to recover back above 0.8500 earlier in the week (also 50-day EMA). This remains a key technical pivot for the cross, and while remaining below this level on a closing basis the outlook remains bearish.
  • Swiss CPI and the UK election highlight the economic calendar on Thursday. US markets will be closes for the July 04 holiday and focus remains on Friday’s NFP report.
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