BoJ appears to have intervened last Friday too, but market sells Yen anyway

Overview: The US dollar is consolidating in narrow ranges against most of the G10 currencies. The Australian and New Zealand dollars, along with the Japanese yen are off by about 0.25%, but the others are +/- 0.10. The latest BOJ data appears to imply that officials intervened not only last Thursday, but Friday as well. Emerging market currencies are mixed but mostly quiet. The Turkish lira is the weakest, off about 0.25%, while the South African rand stabilizes (~+0.45%) after sliding 1.4% yesterday. 

Returning from yesterday's holiday, Japanese equities enjoyed a firmer today. Mainland shares that trade in Hong Kong remain under strong selling pressure today. After yesterday's 1.7% tumble, they fell another 1.6% today. The index was up almost 2.4% last week. Europe's Stoxx 600 fell 1% yesterday to snap a three-day advance and is off 0.4% today. US index futures are little changed. Bonds are rallying. Australia and New Zealand 10-year bond yields fell 7.5 bp and the 10-year JGB yield was off almost four basis points. European benchmark yields are 3-4 bp lower today, while the 10-year US Treasury yield is off five basis points after rising a little more than four yesterday. Gold is firm and edging toward May's recorded high $2450. September WTI was turned back from above $82 a barrel at the end of last week and is testing the July low near $80. 

US Dollar: A disappointing US retail sales report today could challenge our idea of consolidation for the greenback. Headline rates sales will likely have been dragged lower by weak auto sales. The Dollar Index has successfully tested the 104.00 level, which marked the lows early last month today. In fact, DXY has not settled below 104.00 since March 20. In the consolidative phase, there may be scope for the Dollar Index to test the 104.75 area. 

Canadian Dollar: The swaps market is pricing in a little more than an 80% chance that the Bank of Canada cuts rates next week ahead of today's June CPI report. May's CPI surprised on the upside, rising by 0.6% (instead the 0.3% projected by the median forecast in Bloomberg's survey). The underling core rates were also firmer than expected. Another upside surprise would dash the speculation and could help cap the greenback, which has bounced smartly from the false break of CAD1.36 last week. It rose to almost CAD1.3690 yesterday and has edged a little higher today. The CAD1.3700-20 area may offer resistance. 

Euro: Sentiment among German investors (ZEW survey) remains poor. Expectations fell (41.8 vs. 47.5) and the assessment of current remains depressed (-68.9 vs. 73.8). France's current account deficit narrowed to 3.1 bln euros in May from only because April's shortfall was revised to -3.5 bln euros from -1.8 bln initially (-2.55 bln euros in May 2023). French President Macron is expected to announce a caretake government, as early as tomorrow. It would likely be led by Attal, the current prime minister, until a resolution is found. A caretaker government is a short-term fix. It cannot hold cabinet meetings, bring new bills, including budget measures. The euro stalled yesterday slightly above $1.0920, its best level since March 21. Consolidation still seems to be the most likely near-term scenario. This is consistent with the US 2-year premium over Germany have reached a low near 160 bp and is also consolidating. The euro found support near $1.0885 in late Asia Pacific turnover. 

Japanese Yen:  The market traded the dollar in a range of about JPY157.20 to JPY158.40 yesterday when Tokyo was on holiday. A review of the BOJ's accounts suggests that it not only intervened last Thursday (~$22 bln), but it also intervened again the following day (~$13.5 bln). The five-day moving average cross below the 20-day moving average yesterday, when the dollar reached its lowest in nearly a month. It is a marginal new low below last Thursday and Friday's lows and meets the (61.8%) retracement of the rally from the May 4 low (~JPY154.55). The dollar rose to almost JPY158.80 in the Tokyo afternoon today, even though the 10-year US yield has unwound yesterday's increase in full. Nearby resistance is seen near JPY159.00. 

British Pound: Sterling edged slightly closer to $1.3000 but reversed lower and settled near session lows below $1.2960. It edged slightly lower today but found support ahead of $1.2950. It settled slightly inside the upper Bollinger Band ($1.2965) that is found near $1.29 to95 today. Technically, sterling appeared to be in need on some consolidation after the sharp run-up. A break of $1.2950 would see push toward $1.29. UK's big data week begins tomorrow with the June CPI. The swaps market sees a rate cut at the August 1 BOE meeting as a 50/50 proposition ahead of the inflation, jobs, and retail sales data. 

Australian Dollar: The Australian dollar stalled last week near $0.6800. It has rallied nearly two-cent in the past month and looks tired. The $0.6730 area, which it has approached today, offers initial support. A move back above $0.6755 may suggest that the 1% pullback is sufficient. Note that New Zealand report Q2 CPI first thing Wednesday. Inflation is slowing and the central bank seems more cognizant of it. The New Zealand dollar settled below its 200-day moving average (~$0.6080) yesterday for the first time in two months. It found support slightly below $0.6050 today.

Mexican Peso: After falling by about 5.3% since end of last month against the peso, the dollar looked in need of consolidation. Investors were already wary after the Mexican election. Now, in light of stronger speculation of a second term for Trump, the narrative that US-Mexico tensions will rise is seen as another reason to suspect near-term peso weakness. The exchange rate is quiet today; in a narrow range around MXN17.76. The dollar's first hurdle is the MXN17.95-MXN18.05 area. Above there and the dollar can see MXN18.15-MXN18.20.

Chinese Yuan: Last Thursday's range for the dollar against the offshore yuan is still operative:  CNH7.2580-CNH7.2925. Apparently, with the help of Japanese authorities, the yuan's downside momentum was broken last week, but not decisively. The dollar is holdings below yesterday's high in the offshore market but onshore, the greenback has held above yesterday's high (~CNY7.2640). The PBOC set the dollar's reference rate at CNY7.1328, which snapped a streak of three lower fixes (CNY7.1313 yesterday).