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Intermarket:
• SP Futures 4205 (+0.07%)
• EUSTXX 4046 (+0.27%)
• Crude Oil 67.60 (+1.92%)
• US 10YR 1.62% (+1.58%)
• EurUsd 1.2220 (-0.03%)
• UsdJpy 109.49 (-0.03%)
• DAX 15468 (+0.35%)
Risk appetite remains robust into Tuesday’s European open after a strong session in Asia. US Dollar is lower as inflation and supply chain disruptions remain top of mind. Gold is close to five-month highs. Oil is up ahead of today’s Opec+ meeting.
Strength in risk appetite comes despite worsening COVID conditions in AsiaPac: Malaysia reported record-high daily infection cases and deaths, government advising the broader public to prepare for the worst; Melbourne and Victoria State have entered a seven-day lockdown; Taiwan continues to report a rise in daily infections and deaths despite the Level 3 restrictions; Thailand has tightened border controls amid discovery of COVID-19 variants; Japan is mulling extending the state of emergency, with lingering uncertainty over the upcoming Summer Olympics.
Looking ahead: today we get EU CPI and US’ manufacturing. Fed’s Quarles and Brainard, and BOE’s Bailey are also speaking.
Matters that Matter:
• RBA leaves current policy settings including record low 0.1% OCR, QE, as expected
• China factory growth picks up but inflation pressures build; Caixin May PMI 52.0, 51.9 f’cast & prev
• ECB Visco – Main drivers of euro zone inflation are energy, one-off factors
• OPEC+ likely to stick with current supply plan, sees orderly Iran return
Majors 1-Day View:
USDJPY
After posting fresh May highs at 110.23 on Friday, sellers returned to the market from close to the April 9th high, prices closing the day little changed. Prices interrupted the sequence of higher daily lows on Monday, declining to Thursday’s Marabuzo line at 109.49. we view this decline as corrective until 108.60 is broken, but it may extend. Selling into 109.70s/Friday’s low would be our initial stance, and further resistance is possible near 110.00/Friday High zone. Support is expected at 109.17/last Wednesday’s top, and 108.86/last Tuesday’s Open. A close above Monday’s top/April 9th high would re-establish the upwards move.
EURUSD
After posting a corrective low at 1.2132 on Friday, buyers returned to the market, prices recovering to close little changed and post a bullish doji at the daily level. Prices rallied further ½ Big Fig on Monday in a low liquidity environment. As such, signals for Tuesday remain slightly bullish, within the broad 1.2178/1.2242 range. Buying into support at 1.2200/Friday’s high remains the favoured bias, with initial resistance expected at 1.2242/Feb 25 top. Further support is expected at 1.2157/Friday’s low zone. Only a break of Friday’s low would switch our bias for this week.
AUDUSD
AUDUSD remains in a rangebound market type between .7674 and .7890. Inner boundaries are .7700/.7800. Attention should be paid to the contraction in ranges over the past 6 sessions, which suggests a potential range expansion in the coming sessions. As such, signals for Tuesday are mixed. Short-term resistance is expected at .7772, with short-term support expected at .7710. A Daily close beyond the range boundaries will establish directionality.
GBPUSD
After trading within the broad 1.4100/1.4200 range for 2 weeks, prices posted the highest close in May on Monday at 1.4227 via the 2nd higher daily low in a row, suggesting an end to the range trade and continuation of bullish signals. Prices triggered stops above the Feb 24th high in Asia trade. As such, signal remain bullish for Tuesday and buying into support towards 1.4210 or 1.4183 is preferred.
USDCAD
Prices have formed a range between 1.2030 and 1.2140, and downwards momentum has been stalling. After the 2-day recovery, prices attracted resistance near prior highs at 1.2142 on Thursday, prices declining almost 1 Big Fig. Monday posted the 2nd lower daily high in a row in a low liquidity environment. As such, caution is advised and only a cautions bearish stance is advocated for today, with a preference to sell into rallies towards 1.2070 or 1.2116. Support is found near the May 2015 lows at 1.1952 and 1.1919.
FX Weekly ATR Grid
Comment: volatility levels are broadly dropping in FX, with outright volatility contractions seen in many pairs last week. Only NZD pairs and selected JPY pairs were able to post volatility expansions. Continuation would be expected in JPY and NZD pairs, while volatility expansion would be expected on CHF, CAD and AUD pairs.
FX Relative Strength Grid
Comment: the strongest trends are currently GBP (bullish), JPY (bearish).