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Strength In Equities Feeds Into Weaker Greenback

FOREX
  • The USD index (-0.44%) snapped a two-day winning streak on Friday and looks set to finish the week broadly unchanged. Firmer risk sentiment, evidenced by the strong price action across major equity benchmarks fed through to broad greenback weakness across currency markets. A slightly softer US PCE core deflator and a weaker Chicago PMI release were additional factors that weighed on the dollar.
  • Bolstered sentiment saw the usual suspects leap to the top of the G10 leaderboard with NZD, GBP and AUD all outperforming to finish the week. The Aussie bounce comes ahead of Tuesday’s RBA meeting where surveyed analysts remain split between the RBA standing pat or hiking by 25bp again to 4.35%.
  • Despite the bounce, the overarching outlook for AUDUSD remains soft following recent weakness and the extension of the reversal that started Jun 16. The downleg has resulted in a break of the 20- and 50-day EMAs, suggesting scope for a deeper retracement. Initial firm resistance is at 0.6701, the 20-day EMA.
  • A quick note on USDJPY, which after very briefly printing above the 145.00 handle overnight, has consolidated lower, slipping back below 144.50 approaching the close. 145.00/11 marks an important pivotal resistance point. Dating back to last year and it is worth noting that USDJPY is the most overbought (as per the 14-day RSI) since mid-October.
  • Next week, US ISM Manufacturing PMI will cross Monday before the July 04 US Holiday. The focus then turns to the FOMC minutes Wednesday before Friday’s release of non-farm payrolls for June.
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