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Two Stage USD Recovery Aided By Strong US PMI Data And Sell Programs

FOREX
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  • After initially fading in early Thursday trade, the USD index received a firm boost following the stronger than expected US PMI data, which indicated its sharpest growth for just over two years, driven by services.
  • The increase then saw a second leg as large equity sell programs rolled through in what appears profit taking from earlier record highs, with the DXY punching to new best levels for the week and above the 105 mark.
  • CAD sits at the bottom of the FX pack, hindered by Can-US front-end yield differentials continuing the week’s sharp push lower after subdued core CPI trends in Tuesday’s release.
  • The stronger greenback also saw the earlier Euro bid (kick-started by the stronger German PMIs) dissipate and EURUSD has edged back towards the 1.08 handle as we approach the APAC crossover.
  • Meanwhile, the risk-off nature of the second leg saw JPY recover some of its underperformance, with USDJPY dipping back below 157.00 after a high of 157.20. The 157.00 handle initially saw some noisy two-way price action on the original breach higher.
  • NZD is moderately outperforming most at near flat on the day. New Zealand retail sales for Q1 rose +0.5%, against a consensus expectation for a fall and added some bullish sentiment to the hawkish-to-expectations RBNZ meeting earlier in the week.
  • Participants remain aware of the 0.8500 handle in EURGBP marking an important support over the past 18 months. The cross has failed to close below 0.8500 since August 2022, with several tests over the past year being well respected.
  • Technically we noted that Wednesday’s move resulted in a break of short-term support at 0.8531, the Apr 30 low, confirming an extension of the reversal that started May 9. Note that the key support and bear trigger lies at 0.8493, and a sustained breach of this point would be required to enhance bearish momentum. Initial resistance moves down to 0.8566, the 20-day EMA.
  • UK and Canada retail sales highlight the data docket on Friday before the revised set of UMich sentiment and inflation expectations data.
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  • After initially fading in early Thursday trade, the USD index received a firm boost following the stronger than expected US PMI data, which indicated its sharpest growth for just over two years, driven by services.
  • The increase then saw a second leg as large equity sell programs rolled through in what appears profit taking from earlier record highs, with the DXY punching to new best levels for the week and above the 105 mark.
  • CAD sits at the bottom of the FX pack, hindered by Can-US front-end yield differentials continuing the week’s sharp push lower after subdued core CPI trends in Tuesday’s release.
  • The stronger greenback also saw the earlier Euro bid (kick-started by the stronger German PMIs) dissipate and EURUSD has edged back towards the 1.08 handle as we approach the APAC crossover.
  • Meanwhile, the risk-off nature of the second leg saw JPY recover some of its underperformance, with USDJPY dipping back below 157.00 after a high of 157.20. The 157.00 handle initially saw some noisy two-way price action on the original breach higher.
  • NZD is moderately outperforming most at near flat on the day. New Zealand retail sales for Q1 rose +0.5%, against a consensus expectation for a fall and added some bullish sentiment to the hawkish-to-expectations RBNZ meeting earlier in the week.
  • Participants remain aware of the 0.8500 handle in EURGBP marking an important support over the past 18 months. The cross has failed to close below 0.8500 since August 2022, with several tests over the past year being well respected.
  • Technically we noted that Wednesday’s move resulted in a break of short-term support at 0.8531, the Apr 30 low, confirming an extension of the reversal that started May 9. Note that the key support and bear trigger lies at 0.8493, and a sustained breach of this point would be required to enhance bearish momentum. Initial resistance moves down to 0.8566, the 20-day EMA.
  • UK and Canada retail sales highlight the data docket on Friday before the revised set of UMich sentiment and inflation expectations data.