Currency Updates:
AUD/USD Numerous attempts to rally AUD/USD above the 21-DMA (0.9401) in European and NY hours failed. Bulls were reluctant to push the pair too far ahead of the RBA minutes for fear the content will hold some dovish comments that reflect recent Stevens rhetoric. NY walked in with the pair sitting just above the 21-DMA and steadily applied pressure throughout the session. Lifts in US bond yields had the USD generally firm. AUD/USD was pressed to a NY low of 0.9387 and the pair sat just above that low late in the day. Traders now look to the RBA minutes for their next cue. Should rhetoric over AUD strength be ramped up, AUD/USD should stay heavy in Asia & Europe. Traders then look to Yellen’s testimony to see if she gives any hawkish hints. It’s unlikely she will but if they should get dropped further pressure on
AUD/USD will be applied. We may then see a test of key s-t support near 0.9320. A break there should accelerate the slide from June’s high and put the 0.9200 support zone in play.
EUR/USD Short squeezes in EUR vs. JPY & GBP spiked EUR/USD to 1.3640 in Europe’s morning. Solid offering interest into 1.3650 prevented further gains and the pair slid towards 1.3625 as NY got going. The USD was firm for the most part in NY as US bond yields continued their bounce from last week’s lows. Early NY saw a push towards 1.3615 before a bounce had it back near 1.3630. Yield spreads edged further in USD’s favor and the bounce faltered. The drift lower resumed and pressure was added by the IMF. The organization stated the ECB should use QE if inflation stays low. Further pressure came from Draghi himself as he echoed recent dovish comments. He noted appreciated FX rate is a risk to a sustained recovery as well as stating accommodation will remain high. EUR/USD dipped near 1.3805 before lifting back near 1.3620 late in the day. Trades now await Yellen’s testimony tomorrow. She’s unlikely to give any hawkish tips in her prepared remarks. The Q&A might be tougher for her as she’s likely to be pressed on rates due to recently improved US econ data. Hawkish tips during the Q&A may see 1.3475/00 break
USD/JPY The general rebound in risk from overnight carried through to NY, pushing USD/JPY toward last Thur’s breakdown session high & the daily Tenkan at 101.66. A modest rebound in Tsy yields & the Nikkei were not enough to knock to clear 101.66 the day before Yellen’s Capital Hill testimony and the BOJ meeting ends with revisions to their economic forecasts. There was talk of a Japanese paper having a story about the BOJ potentially raising their growth outlook, which would be in contrast to most forecasts for no change or perhaps a slight reduction. In any event, no major policy changes are expected Tuesday, though the mkts will watch for further arm-twisting by the Econ Min for the BOJ to do QQE2 later this year. With JGB yields back down at pre QQE levels and the Nikkei’s 10% recovery from May lows doing little to lift USD/JPY prices, one has to wonder what would trigger a major yen slide, short of QQE2 or a serious uptick in core, domestic inflation. Cloud base & 200-DMA near 102 are major hurdles this week. PKO-related bids are touted either side of 101. Prior past Japanese buying of OATs failed to lift EUR/JPY. It’s up to ECB. Mid 139.00s rsst
Looking Ahead – Economic Data (GMT)
• 01:30 AU New Motor Veh Sales m/m Jun 0.30%-prev
• 02:00 CN FDI (YTD) Jun 2.80%-prev
Looking Ahead – Events, Other Releases (GMT)
• 00:00 JP Bank of Japan Monetary Policy Statement
• 01:30 AU RBA releases the Minutes of its July Monetary Policy Meeting
