FX Update: USD teases break higher yet again

The G-10 rundown

USD – the dollar firming up as risk sentiment sours – so far nothing broken, but we continue to watch for volatility and momentum to pick up  - most notably in EURUSD, the key piece for a broader USD surge.

EUR – as noted above, this 1.0800 level is the key activation level for EURUSD volatility, but we also note that EURJPY is looking heavy once again. EU existential risks not finding major expression in the market, though yesterday’s objection from the German Constitutional Court’s Huber, telling the ECB that it isn’t the “master of the universe”, has registered as we continue to watch that issue as well as the MFF process (EU Budget for next 7 years) and how it will be funded.

JPY – the yen is somewhat quietly stronger than even a strong US dollar and playing its role to the hilt as safe haven – noting the heavy EURJPY pair, but also other JPY crosses as potential proxies for broader risk sentiment, if we are tilting toward a more significant setback. Even USDJPY itself could be at risk of a new breakdown as retracements levels on the latest rally impulse are falling like dominos.

GBP – sterling not the go to currency with a backdrop of weak risk sentiment. With EU political strife over budget issues likely here to stay, how much bandwidth will the EU have for dealing with the post-Brexit transition period UK relationship. In the meantime, we have highlighted our concerns on the UK’s external imbalances. In GBPUSD, 1.2000 is the next focus if this break lower holds.

CHF – we watch the success or failure of the SNB’s defense of the 1.0500 area for now as the chief input on whether paying attention to CHF is worth the effort.

AUD – employment data isn’t very useful, especially the 6.2% unemployment rate, when many people who haven’t worked a single hour recently are classified as employed on Australia’s “JobKeeper” programme, while their pay comes from the state. Still, the RBA seen as the least radical central bank in the neighborhood at the moment, providing support in some crosses.

CAD – important to watch today’s Bank of Canada Financial System Review for clues on whether the bank is considering more radical unconventional policy options to deal with the crisis. The Canadian mortgage and corporate debt markets are the next place to look for possible new measures.

NZD – this latest RBNZ meeting seals the deal for NZD bears as the central bank clearly wants to go to negative rates and keeps us looking lower for NZD versus AUD and the USD and even JPY for variety.

SEK - after the full circle sell-off that has created what looks a major top on the EURSEK chart, we are aware of “throwback rally” risks if broader risk sentiment is tilting lower again, but watch for signs of relative SEK resilience as the currency is extremely cheap. Bears may look to set up shop near the 200-day moving average at 10.69.

NOK – the threat of weaker risk sentiment and/or a fresh sell-off in crude oil is a near term risk, but the massive stimulus announced by Norway’s government will likely drive relative NOK resilience, so we prefer fading EURNOK rallies.

Upcoming Economic Calendar Highlights (all times GMT)

• 1030 – UK BoE Governor Bailey to Speak
• 1230 – US Weekly Initial Jobless Claims and Continuing Claims
• 1230 – Canada Mar. Manufacturing Sales
• 1400 – Canada Bank of Canada to release Canada Financial System Review
• 1430 – Canada BoC Governor Poloz Press Conference
• 1430 – US Weekly Natural Gas Storage
• 1700 – US Fed’s Kashkari (Voter) to Speak at the Economic Club of Minneapolis
• 1800 – Mexico Central Bank Rate Announcement
• 0200 – China Apr. Industrial Production and Apr. Retail Sales