The yen traded against other major currencies yesterday and today in Asia, with the yen weakening and gaining the most. The other risk-related currencies, and , also rose somewhat, confirming the improvement in general market sentiment.
In the absence of a clear catalyst, this could be down to Friday’s options expiration and the absence of central bank decisions this week, but also reassuring words from ECB President Lagarde. Today we received the RBA minutes, along with a speech from Governor Lowe, both of which added credence to overly hawkish expectations about the RBA’s future course of action.
Market Sentiment Improves, RBA’s Lowe Supports More Rate Hikes
The US Dollar traded mixed against other major currencies on Monday and in the Asian session on Tuesday. It gained against , while it underperformed against CAD, , AUD and NZD, in that order. The greenback was found almost unchanged against and .
Performance in USD main currencies.
Despite the mixed performance of the US Dollar, the weakness of the Yen and the strengthening of risk-related currencies suggest that the financial community may have been trading risky yesterday and today in Asia.
Turning our gaze to the world of equities, we see that major European stocks traded in the green, with France gaining the least after Emmanuel Macron’s centrist coalition Ensemble won the most seats in the National Assembly. over the weekend, but failed to secure an absolute majority.
Wall Street remained closed to celebrate June 19, as relatively bullish appetite spilled over into today’s Asian session. Only China is trading in the red.
Performance of major global stock indices.
With no clear catalyst behind the rebound this week, we could say it could have been Friday’s option expiration and no major central bank decisions this week. Remarks from ECB President Lagarde later in the day may also have helped.
For sure, they didn’t cause any damage. Lagarde reiterated the ECB’s commitment to raising interest rates next month, possibly by a larger size in September. Yet she also said they would do so while fighting widening gaps in the borrowing costs of different members of the euro zone.
Although she has never denied addressing ‘fragmentation’, last week she said the ECB’s aim was to tame, not help budgets, which did not please the public. investors. Saying they would fight the situation might have been nice, and that’s why participants continued to add to their exhibits for the rest of the day.
However, Lagarde’s speech was not the only event we had related to central banking and monetary policy. During the Asian session, the RBA released the report confirming that the Board agreed that further rate hikes would be needed.
We also received remarks from Governor Lowe, who said that Australia should prepare for further interest rate increases and that the current level is still very low. This added more validity to market expectations of multiple rate hikes by the RBA over the coming months.
That said, while this is positive for the Aussie in the near term, expectations of a faster tightening across the rest of the world could hurt overall sentiment. Therefore, due to its risk-related status, the Aussie may soon see renewed interest in selling.
EUR/USD – Technical Outlook
EUR/USD has been trading in a consolidating fashion recently, remaining capped by the 1.0545 area. Overall, the rate remains below the downside resistance line drawn from the February 10 high, but more importantly, below the key area of 1.0625/50, which has acted as support or a area of necessary resistance in the recent past. In our view, all of this paints a negative picture in the short term.
We expect the bears to regain their charge soon and aim for a test near the 1.0445 barrier, marked by the June 17th low, or near the 1.0400 territory, defined as support by the most low of June 13 and 14. If neither can halt the slide, we could see a test around 1.0350, marked by the May 12-13 lows, the break of which could take the rate into tested territories for the last seen in 2002. Next support may be around 1.0235 near the July 2002 inside high.
On the upside, we would like a clear break above the 1.0765/88 area, which acted as key resistance between May 24th and June 9th. The pair will already be well above the aforementioned falling line, and the bulls may initially challenge the 1.0845 zone. A break up could lead to extensions to the April 21 high, the break of which could lead to extensions to the April 1 inner low around 1.1025.
AUD/USD – Technical Outlook
AUD/USD was trading slightly higher yesterday, but the recovery remained short-lived around 0.7000. In the slightly larger picture, the pair remains below the downside resistance line drawn from the June 3 high, which keeps the short-term outlook still negative.
Therefore, while we see further advances, we expect the bears to re-charge soon and perhaps target the 0.6900 territory marked by the June 17th low. A break down could target the 0.6830 area marked by the 12th May low. , which is also surrendering, then we could see deeper declines towards the 0.6690 area, defined as support by the May 29th domestic swing high.
On the upside, we would like to see a clean break above 0.7150 before looking at the bullish scenario. The pair will already be above the aforementioned falling line; thus, the bulls could climb towards the 0.7270 area or even the 0.7345 territory, marked by the April 18th inner low. A break higher could extend advances towards the 0.7458 area marked by the April 20-21 highs. .