Today's market commentary
US PCE Core Deflator came in strong at 3.1% YoY vs 2.9% exp on Friday. Another data that tends to support the US inflation hawks. Nevertheless, any breakout seems to quickly reverse in this choppy FX market.
USDJPY is pulling back despite breaking the key 110 level last week. But we expect dips to continue to be bought going forward and for USDJPY to eventually continue higher as the US economy marches ahead.
NZDUSD firmly back in the range as well, following a breakout above 0.7315. EURUSD chopping around in a range.
The US Dollar on Friday was likely driven by month-end adjustments. We have plenty of data this week to add to narratives but overall, it seems wise to keep trading ranges for now.
Lean towards fading EURUSD strength, 1.2240 is resistance. Given the dovish tones from Lagarde and Panetta, we do not expect the ECB to taper PEPP purchases at the June 10th meeting which may trigger further declines in German yields and pull EURUSD back towards 1.2040 100-day MA and 1.2025 50-day MA.
The break is lower in USDCNH likely to be driving USD selling in G10. With PBOC supporting the downside they are likely to recycle those USDs in the afternoon when London comes in which could weigh on USD short-term.
BOE’s Vlieghe’s hawkish comments last week and the hawkish RBNZ had GBPUSD and NZDUSD bid before month-end USD demand dragged both lower into the end of the week. Given these two seem to be front runners in the hiking cycle expect GBPUSD and NZDUSD to continue to be bought on dips.
Lower USDCNH now weighing on USD and GBPUSD is back up to the top of the range. Next resistance at 1.4240 which is the February high. Short EURGBP and EURNZD also make sense to us given that we expect ECB to remain dovish, and that the yield divergence to continue to drive outperformance of GBP and NZD against EUR.
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