U.S. Dollar Trading (USD) Chances of a FED rate hike were lowered even further Friday as the April NFP came in below forecasts at 160k vs. 200k expected. The initial knee jerk sell off was reversed as Stock markets enjoyed a nice rally into the weekend and USD/JPY buying helped the USD against most pairs. With stocks under pressure for most of the past two weeks this rally will be tested this week and help determine the direction of EUR/USD and USD/JPY. Risk sensitive pairs such as the AUD and CAD will also be in play based on the ability of the uptrend in stocks to resume. The FED is unlikely to raise now till after the elections if at all this year and this should help underpin stocks unless the UK Vote/China concerns start to make a bigger impact.
The Euro (EUR) Unable to hold gains from weak US Data the EUR/USD is now likely to test lower for support with Daily and Weekly candles giving sell signals. The size and scope of the correction will be interesting for the longer term Euro bears who at one stage were adamant 1.05 would be on the cards this year. Solid support between 1.12 and 1.10 would suggest the next bigger leg would still be higher for the single currency longer term.The Sterling (GBP) remained under pressure to the resurgent USD and is under pressure on major crosses. Financial media is beginning to focus more on the Brexit vote as we begin the final approach to the June Vote. The no camp seems to be in control but if sentiment changes then downside momentum in the GBP would be hard to stop above 1.4000.
The Japanese Yen (JPY) Some more aggressive jawbowning and strong USD has helped the USD/JPY higher in the Asian session Monday. Japanese Finance Minister Aso has suggested over the weekend that the US has no problem with the Japanese FX stance of entering markets to stabilize movements. Such measures may be introduced towards Y105 and this has weakened the bear case at these rather low UJ levels.The Australian Dollar (AUD) Continues to be under pressure as Iron Ore extended its crash and the aftershocks of the RBA rate cut and subsequent SOMP release suggesting further cuts adds fuel to the selling pressure. That being said the downside targets have been hit in the lower 0.7300 levels and further selling here is dangerous on a risk reward footing especially if Global stock markets return to uptrend. The Canadian and NZD are in similar positions albeit with their own internals. Focus on the Canadian Fires and Oil production may help CAD have a stronger attempt at 1.3000 if the economic outlook is threatened.
Stocks Indices(DAX) Had a sharp bounce with US stocks Friday and should attempt 10000 in a critical test for the index this week. A resumption of heavy selling would endanger the larger uptrend seen on the longer term charts. US Stocks (DOW) Bounced as the FED rate hike fears fell and bargain hunters took advantage of the lower levels. This week will be critical for the bulls and gains on Monday will likely indicate further moves higher. The generally Weak Chinese trade Balance numbers released over the weekend should be ignored as usual in the US session.
Pairs to watch
EUR/USD Downside tests likely
USD/CAD watch the big round number 1.3000 for resistance
Economic Data Ahead
Chinese April Inflation forecast at 2.3% vs. 2.3% previously y/y.
By Anthony Darvall (TonyD)