More hawkish than expected Fed has USD blasting stronger. EUR may focus on 1.1870.
Today's ISM an event risk, but Fed rhetoric dominates as not gesture was made to recent economic weakness.
MAJOR HEADLINES – PREVIOUS SESSION
- US Chicago PMI out at 53.6 vs. 54.0 expected.
- US Weekly Natural Gas Storage with build of 92 vs. 85 expected.
- Japan's Employment data in as expected, but Workers' Household Spending declind –1.4% in May.
- Japan Q2 Tankan Survey in better than expected at 18 vs. 16 and Services Tankan also better than expected at 15 vs. 12
Australia Retail Sales out at 0.9% vs. 0.4% expected in May - Australia Building Approvals out at 4.5% in May vs. 0.0% expected.
Market Action: USD much stronger yesterday and atronger overnight vs. JPY and EUR.
THEMES TO WATCH – UPCOMING SESSION
We got it wrong with the Fed statement. The Fed's complete lack of admission that there are signs of weakness in the economy took us by surprise and is very bullish for the USD here short term as the market is now scratching its head on when the Fed will stop hiking rates. Interestingly, the long treasury market continues to thumb is nose at the Chairman and actually rallied yesterday - and EuroDollar short interest rate futures were unbelievably stable considering what this would supposedly mean for rates further out. Esssentially the market is saying, "Even though you sit there with your finger on the button, Mr. Greenspan, we know you will stop pressing it soon."
The currency market was another matter, as USD bulls found fresh reason in yesterrday's developments (for the short term at least) to put on new positions.
Looking at the anatomy of the statement - the infamous "accommodative" (for current rate level) and "measured" (for pace of hikes going forward) words were retained, while the kicker was this: the Fed interestingly dropped its observation from May 3 that growth had "slowed somewhat" and now states that "Although energy prices have risen further, the expansion remains firm.
The market was clearly caught on the wrong foot here, and with the long weekend approaching, we could see a very large move down in EUR/USD and up in USD/CHF today, barring any desperately bad ISM data at 1400 GMT. This may be the final blow-off rally in the USD before some consolidation further out.
The data from Japan overnight is JPY supportive and USD/JPY's may begin to slow a bit while EUR/JPY looks vulnerable to a reversal lower.
Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
Euro/US Dollar
| EUR/USD held in the range yesterday as EUR was consolidating impressively in the crosses. Today, the pair may not escape the USD's wrath and we could see a quick removal of 1.2020 and a blast lower to 1.1870 early next week. Resistance comes in at 1.2110 is first resistance and 1.2160 is the reversal level. |
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British Pound/US Dollar
| GBP was blasted into oblivion yestereday as more bad data from the UK suggest that the BOE may soon begin to lower rates. The opposite anticipated trajectories of US and UK rates could see GBP/USD heading lower still, if on slightly slower momentum to the big 1.7750 level, beyond which only 1.75 holds the pair back from the abyss. 1.8000 is the big resistance now, but 1.7880 is first resistance. |
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US Dollar/Japanese Yen
| USD/JPY looks like it will head higher to the major 112.00 resistance are now as 110.40 now comes in as support. The momentum may slow a bit here as JPY may begin to assert itself in the crosses again. |
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