Euro rallies as interest in Italy fades

The G-10 rundown

USD – the greenback should prove the weakest of the lot if risk appetite improves and global growth concerns are sidelined and especially if the FOMC minutes continue to underline the “symmetry” theme and the desire to steer the Fed away from a preset course for more rate hikes, as this could allow the policy convergence theme to re-emerge for a time.

EUR – the euro is bouncing smartly from the lows very near the structurally pivotal 1.1500 area in EURUSD. Remaining uncertainties could certainly provide another nasty dip in the euro in coming sessions, but headline risk may have peaked for now, even if the EU existential showdown will be with us for years to come until we settle the question of whether there will ever be a true European Union.

JPY – the yen may outperform the USD slightly in the least favourable scenario for the US dollar we outline above, but could prove weak in the other crosses if risk appetite and yields can engineer a sustained recovery here.

GBP – sterling is looking isolated again if Italian spreads continue to tighten and EURGBP avoiding a chunkier sell-off during this recent episode of EU existential pain, which speaks volumes on sterling vulnerability without more Brexit progress.

CHF – the safe-haven bid for CHF is fading rapidly as EURCHF has bounced back above the prior 2018 lows around 1.1450. It will take considerable improvement to point the needles back higher for the pair after this latest damage, as a lasting “existential discount” may plague the euro from here.

AUD – the Aussie rebounded smartly yesterday with the recovery in global risk sentiment. Stronger than expected official Chinese PMI data are also providing a bit of wind in the Aussie’s sails. The technical implication of the reversal pick up further if AUDUSD can take out the 0.7600-50 zone to the upside.

CAD – as discussed above, the CAD reversal to the upside took place in a critical area and we’ll take it at face value, particularly if energy prices remain bid and today’s Canada GDP figures don’t throw up any hurdles.

NZD – the kiwi is rallying in sympathy with risky assets everywhere, but we’re most interested in the relative value situation versus the Aussie, as AUDNZD is having a look at the important support/pivot zone back at 1.0800-50 that has been in play as far back as last summer. Locally, arguably, the pair can slip as far as 1.0750 without fully reversing the rally.

SEK – we prefer SEK to the euro, even with the euro in recovery mode as the recent high energy sell-off suggests that we may have reached the end of the crowded short SEK trade. Resistance is 10.30 and then not until perhaps 10.50 – but we look for a test of 10.00. USDSEK shorts look compelling after yesterday’s sell-off if the highs yesterday hold.

NOK - the Norwegian krone has been a difficult one of late – waiting for a solid break of the cycle lows in EURNOK again to pick up interest in NOK upside.

Upcoming Economic Calendar Highlights (all times GMT)

0830 – UK Apr. Mortgage Approvals
0900 – Eurozone Apr. Unemployment Rate
0900 – Eurozone May Flash CPI estimate
1230 – US Apr. PCE Inflation
1230 – Canada Mar. GDP, Q1 GDP
1230 – US Initial Weekly Jobless Claims
1345 – US May Chicago PMI
1500 – US Weekly Crude Oil and Product Inventories
1620 – Canada Bank of Canada’s Leduc to speak
1630 – US Fed’s Bostic (Voter) to speak
1700 – US Fed’s Brainard (Voter) to speak