FOREX: USD Index Set to Post Lowest Close Since February 2022
Jun-26 16:42
- The dollar index sunk to fresh cycle lows on Thursday amid President Trump’s most recent rhetoric regarding the Federal reserve remaining a key driver of the moves in G10. Downward momentum for the DXY gathered pace on a break of the June lows, with the index on track to post its lowest daily close since February 2022. A mixed set of US data on Thursday prompted a more consolidatory US session in comparison to the more directional European morning.
- The broad based greenback weakness prompted several G10 currencies to rise through significant levels, with EUR, GBP and CHF standing out.
- EURUSD pushed through the overnight highs to trade at the highest level since September 2021. 1.1744 highs fell just shy of the next resistance point of 1.1755, while 1.1783 and 1.1821 the next technical targets for the move.
- Dips for EURUSD have remained shallow, and short-term moving averages have underpinned the move well, best evidence being Monday’s test and subsequent surge off the 20-day EMA. Furthermore, analysts have continued to upgrade their forecasts for the pair, most notably Goldman Sachs who now expect it to rise to 1.25 over the next 12 months.
- Latest USDCHF weakness has extended on a break of key support at 0.8040, the Apr 21 low, confirming a resumption of the medium-term technical downtrend. Furthermore, the pair has breached the psychological 0.8000 mark, representing the lowest recorded level since the removal of the EURCHF floor in 2015. Below here, targets include 0.7927 and 0.7827, the 1.50 & 1.618 projections of the May 1 - Sep 6 2024 - Jan 13 price swing.
- While not at cycle extremes, JPY volatility continues to standout this week. USDJPY reached a low of 143.75 before stabilising today, around 425 pips below the Monday peak. The pullback will likely have been exacerbated by much cleaner short-term positioning following the pair’s short squeeze.
- Tokyo CPI kicks off the Friday data calendar before French and Spanish inflation prints. After this, May PCE highlights the US schedule alongside Canada GDP.
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SWITZERLAND: SNB Schlegel Acknwleges Easing of Recent CHF Strength
May-27 16:41
- "*SCHLEGEL: WE SEE A CERTAIN EASING IN THE FRANC'S EXCHANGE RATE" (BBG)
- A little more hawkish following prior commentary that the Franc has appreciated "really a lot"
US TSYS: Bull Flattening Slowly Extends With 2Y Auction Ahead
May-27 16:39
- Treasuries have extended their bull flattening, with upcoming 2Y supply at 1300ET helping restrict front-end gains.
- The current WI yield of 3.955% is little changed compared to our preview from close to an hour ago, offering solid outright concession to last month’s high yield of 3.795%.
- Cash yields are 1.7-10.2bp lower, with declines led by 30s.
- 5s30s have pushed back closer to earlier lows of 90.2bps seen in London hours, off last week’s Thu/Fri fresh multi-year highs of 101bps.
- TYM5 has slowly increased to highs of 110-16+, above overnight highs as it starts to eye a key near-term resistance at 110-21+ (May 16 high).
- Clearance there could open 111-22 (May 7 high) but gains are currently deemed corrective with support at 109-13 (May 22 low).
- Roll completion stands at roughly 60+% levels across benchmark futures.
SWITZERLAND: SNB's Schlegel Reiterates Focus on Medium-Term Price Stability
May-27 16:35
- "SNB CHAIRMAN: IN THE COMING MONTHS WE CANNOT RULE OUT NEGATIVE INFLATION IN SWITZERLAND"
- "OUR FOCUS IS NOT ON CURRENT RATE OF INFLATION, BUT PRICE STABILITY OVER THE MID TERM" (Reuters)
- Speaking in Basel, the SNB President's initial comments are very much in line with prior rhetoric. On May 19, Schlegel said "For this year, inflation in certain months can be negative".
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