NZD: NZD/USD - Extends Rebound, Challenging The 0.5800 Area

The BBDXY has had a range today of 1209.85 - 1211.08 in the Asia-Pac session; it is currently trading around 1210, -0.05%. The USD is looking to consolidate and then build on its break back above 1205 last week. The market is much more comfortable selling US dollars, but with a rate hike now being priced in and red flags appearing in the stock market the Bears are being forced to reduce exposure. On the day, the break above 1205 looks meaningful and could keep the USD supported on dips in the short-term. The first support is back toward 1205-1207 and then the 1200 area, should this break higher be sustained then I would look for momentum to build for a test back toward the 1220-1230 area at some point.

• EUR/USD -  Asian range 1.1533-1.1552, Asia is currently trading 1.1550. The pair has broken the support seen just below the 1.1600 area as the USD breaks its trend lower. The market continues to be more comfortable selling US dollars, but this break lower in the Euro will not be sitting comfortably with them for the moment. The USD continues to trade well supported as risk remains under pressure from the escalation in the Middle-east, while this continues to play out it should keep the headwinds for the EUR in place. On the day, the first resistance remains back toward the 1.1570-1.1600 area, while the price holds below 1.1650-1.1700 I would be skewed toward another test of the 1.1400-1.1500 support area. Though with what looks to be quite a lot of optionality around here not sure how likely it is to give way in the short-term. 
• GBP/USD - Asian range 1.3368-1.3391, Asia is currently dealing around 1.3385. The pair has rejected the 1.3500 area again and is looking to test the previous lows toward 1.3300. On the day, I would continue to be skewed toward fading rallies. The first resistance is right here between 1.3390-1.3420 and then the 1.3500 area. Sterling Bears will be looking for this to top out again somewhere up here and have another test of the 1.3300 support. A sustained break below here implies a move back toward the 1.3000-1.3150 area.
• Data/Events: US MBA Mortgage Applications, US May CPI

Fig 1: GBP/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

The NZD/USD had a range today of 0.5805-0.5823 in the Asia-Pac session; it is currently trading around 0.5820, +0.05%. The NZD has held up pretty well in Asia considering the escalation seen in the Middle-East. The NZD moved sharply lower last week after being rejected once more toward the 0.6000 area, moving very quickly back to the lows of its recent 0.5800-0.6000 range. The resurgence in the US Dollar has turned its fortunes around and the CFTC data showed the leveraged community did very well to use the bounce to reload shorts. It's still not clear that we should be piling into USD longs but I suspect that the market will be skewed toward that side in the short-term. On the day, while risk remains on the backfoot I suspect the 0.5845-0.5875 area could continue to see sellers with the bears aiming to have a look below 0.5800 and then ultimately challenge the uptrend around 0.5700-0.5730 at some point. 

• MNI - Increasing Global Supply Pressures Point To Rising Inflation. Global supply chain pressures rose to their highest in April since July 2022, according to the NY Fed’s index. Rising supply shortages are likely to continue putting upward pressure on global inflation. 
• Options : Closest significant option expiries for NY cut, based on DTCC data:   0.5775(NZD460m), 0.5800(NZD475m). Upcoming Close Strikes : 0.5820(NZD340m June 12), 0.5830(NZD526m June 15) - BBG
• The NZD/USD Average True Range for the last 10 Trading days: 50 Points

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P

• As China brings a CNY90bn 10-Yr auction to market today, yields are steady at 1.73% whilst the 10-Yr bond future is down -.085 to 108.935.
• The move lower sees the 10-Yr future break below the 20-day EMA for the first time since the beginning of May.  
• Looking ahead to the auction schedule for June, there is a ramp up from here expected and could see further downward pressure on the future, upward pressure on yields.  
• The 10-yr yields bottomed out last week at 1.7% and has edged higher since.  
• Look for a controlled, steady ascent for the 10-Yr throughout June
• Data out earlier showed that whilst CPI was steady at +1.2%, PPI is accelerating.  Over the last year the relationship between PPI and CPI has broken down.  The risks are - given oil's impact across every part of the economy - that the rise in PPI is a warning for potential pick up in CPI.