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Intermarket:
• SP Futures 4175 (-0.25%)
• EUSTXX 3959 (+0.48%)
• Crude Oil 64.38 (-0.19%)
• US 10YR 1.61% (-1.47%)
• EurUsd 1.2034 (-0.24%)
• UsdJpy 109.29 (+0.22%)
• DAX 15216 (+0.32%)
Risk appetite remained relatively buoyant yesterday, although majors US indices have failed to post strong gains in the past few sessions, and the VIX is holding near 20.00. European futures are softening going into the open. Crude was higher yesterday on USD weakness; Gold and Copper were also higher yesterday. After a strong performance on Friday, USD pulled back on Monday but strength is returning this morning.
Powell and Williams reiterated the need for continued stimulus, saying the recovery is “patchy”. ISM Manufacturing missed the mark, due to bottlenecks, but prices paid and employment indicate underlying strength.
The RBA stood pat overnight, preparing markets for an important meeting in July, saying “the Board will also consider future bond purchases following the completion of the second $100B of purchases under the government bond purchase program in September.”
Looking ahead: Another quiet day awaits. Fed’s Kaplan and Daly will be on the wires later in the day.
Matters that Matter:
• US Apr ISM Manufacturing PMI, 60.7, 65.0 f’cast; Employment 55.1, 61.5 f’cast; Prices Paid, 89.6, 86.1 f’cast. Bottlenecks cited.
• Fed’s Powell says economic recovery clouded by racial, education gaps
• ECB’s DE Guindos: ECB can taper when vaccinations reach critical level and economy accelerates.
• Ethereum breaks past $3,000 to quadruple in value in 2021.
• Mohamed El-Erian in AFR: FED’s stance on inflation poses risks to investors this year.
Majors 1-Day View:
USDJPY
- Prices posted initial gains of ½ Big Fig on Monday, but sellers returned to the market, prices falling ¾ Big Fig from the highs. While this is negative, the trend of higher daily lows remains intact and with buyers returning to market in Asia trade, signals are hence mixed for Tuesday.
- Options market suggests consolidation between 108.50-110.00.
- 107.00-111.00 DNT reported.
- Correlation between USDJPY and yields increasing.
EURUSD
• Prices posted an “inside day” on Monday, with a shallow pullback which barely reached the 50% retracement of Friday’s decline. Sellers returned to market in Asia trade, with signals returning to a marginal bearish bias for Tuesday.
• Yields still a key driver of USD.
• FX may consolidate ahead of key event risk Thur-Fri.
• Large expiry today at 1.2035.
AUDUSD
• Prices have remained contained between the .7700 and .7800 handles for the past 2 ½ weeks. As such, we continue to suggest selling into rallies at .7800 and buying into dips at .7700 until there is a daily close beyond the range.
• RBA stands pat, hints at influential July meeting.
• Offers reported .7780, bids at .7700.
• USD dynamics main key driver.
GBPUSD
• Despite Friday’s sizeable decline, prices posted gains of over 1 Big Fig on Monday, with signals consequently more mixed for today. On balance we prefer to buy dips towards 1.3830.
• Scottish elections and BOE key this week. Markets expecting upgraded forecasts and perhaps taper talk from BOE; SNP victory but without majority.
• Volumes were light on Monday due to holiday.
FX Relative ATR Grid
Comment: Volatility remained elevated on Monday, especially in GBP and USD, which is where trading conditions remain most favourable into Tuesday.
FX Relative Strength Grid
Comment: the strongest trends are currently, CAD (bullish), CHF (bullish). The strongest momentum was seen yesterday in NZD (bearish), CHF (bullish), CHF (bullish), EUR (bearish).