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Renewed USD Strength Picks Up Momentum, Fresh Cycle Highs For USDJPY

  • The greenback extended on Tuesday’s bounce and the USD index has comfortably breached last week’s highs, rising a half a percent on the day.
  • Despite the drop in nominal US yields, real yields sit at 69bps, up more than 10bps since early Monday levels and the highest since Mar-2019 when excluding the fervour just before and after the June FOMC, supporting the dollar in the process.
  • Greenback gains were initially most evident against the Japanese Yen as USDJPY printed fresh cycle highs and in the process printed at the best levels since 1998. Despite being 50 pips off best levels of 137.00, the overall move resumes the primary uptrend and maintains the sequence of higher highs and higher lows.
    • The focus shifts to 137.30, the 1.50 proj of the Feb 24 - Mar 28 - 31 price swing. Markets will remain on watch for any signs of overbought conditions, but with the RSI still sub-70 there's little sign the pair is running out of momentum at current levels.
  • Early inflation data from Europe saw prompted EUR/USD to erase overnight losses to trade just above the 1.05 handle once more, but stopping short of the 1.0536 Asia session highs. This bounce met firm supply, with the pair then grinding consistently lower through the rest of the trading day and remains tied to the lows around 1.0445. Moving average studies still point south and further weakness would refocus attention on 1.0350, May 13 low and the bear trigger.
  • It is also worth noting that EURCHF (-1.01%) is back below parity and has breached the YTD lows posted in March through 0.9972, the key support level. CHF strength follows the continued baking-in of rate hike expectations at the SNB, with SARON markets indicating expectations of further 50bps rate rises at both the September and December policy meetings. This would put year-end rates at +0.75%.
  • Thursday brings the French flash inflation estimates for June, and euro area unemployment and German retail sales data for May. Chinese Manufacturing and Non-manufacturing PMI data is also due overnight. Core PCE Price Index data headlines the US docket before the release of the MNI Chicago Business Barometer.

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