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U.S. Dollar Trading (USD) the Dollar Index has consolidated above the key 95 level for the last few weeks and with the EUR/USD pushing to fresh lows overnight the DXY hit fresh multimonth highs at 9570. The Dollar has not had it all one way however with 'risk on' trade from the 2% rally in global stocks helping Commodity currencies to rebound. Oil has also responded positively and is striking distance of $50 a barrel where it previously failed last week.
The Euro (EUR) Support at 1.12 has failed on the major and we are slowly grinding lower with the Euro being hit in all directions. EUR/GBP and EUR/CAD were the biggest movers lower overnight and with risk appetite strong even with the FED rate hike on the table the perfect storm against the single currency continues unabated. The Sterling (GBP) Remained the strongest currency in the market with more Polls suggesting the Stay Vote is increasing its large lead in the upcoming referendum vote. More significant resistance is close near 1.4700 at the longer term downtrend trendline comes into play. On the bear case we still have the USD strength for the GBP/USD bulls to contend with and there is they get ahead of themselves and are caught long into major USD strength. In that scenario the weak longs will have to bail out and this could add to the selling pressure.
The Japanese Yen (JPY) Seemed hesitant to push higher but eventually the 200+ point gains on the Dow Jones helped lift the major back to the Y110 level. The Asian session today has seen consolidation and we will need to have further stock gains or strong US data to fully break the Y110.60 high from last week.The Australian Dollar (AUD) Support was finally found at 0.7150 and with the help of Oil and Stocks and flows from the risk sensitive pairs such as AUD/JPY longs and EUR/AUD shorts. The Outlook is still decidedly bearish however with more and more analysts suggesting we will have more RBA rate cuts in the coming months. I am of the opinion they will wait until Q2 Inflation data and even in that scenario if the FED is close to hiking they will let the US central bank do the work for them. I believe the RBA will be extremely hesistant to cut with AUD/USD under 0.7000.
Stocks Indices(DAX) Was up for grabs which way we broke next and with support at 9800 being tested relentlessly it felt lower was more likely with the backdrop of FED hikes in the background. This proved a disastrous assumption for the bears with a nearly 400 point rally in the next 24 hours leaving us at 10150 at the European Open Thursday and attention now firmly to the topside with resistance at 10080 broken resoundingly.US Stocks (DOW) Underperformed the DAX but still confounded the FED hike sellers moving sharply higher and right back into the 17500-18000 range which had held for many weeks previously.
Pairs to watch
German (DAX) Buy Dips to previous 10080 resistance?
GBP/USD getting too long into USD strength?
Economic Data Ahead
German May IFO forecast at 106.9 vs. 106.6 previously.
Bank of Canada Overnight Rate Decision and Statement
By Anthony Darvall (TonyD)