Sterling in focus on Brexit vote, USDJPY breaking higher

The G-10 rundown

USD – the CPI data point up today provides another test of what “symmetry” means from the Fed – does it mean no need to adjust the rate expectations higher until core PCE is above 2.0%? Or above the two-decade high of around 2.4%? 

EUR – tough to discern how the market is pricing the ECB, as the euro recovery of late is more of a function of the attempt to return to calm after the Italian debt storm. The combination of the Fed’s and ECB’s respective guidance shifts to tell us whether we revisit 1.1500 or rise back to 1.2000. Without a more aggressive Fed or a new ugly bout of risk off, we are looking for the eventual return of the USD bear in EURUSD.

JPY – yen struggling across the board; the outcomes of the FOMC and ECB meetings are the next step for assessing whether the yen weakness can continue apace here – the pivotal inputs are risk appetite (notable pivot in S&P 500 in view here around 2,800 and the 2.95-3.05% yield area in the US 10-year benchmark.

GBP – a possibly pivotal vote on the post-Brexit customs union proposal today, which provides sterling relief if passed. Meanwhile, April UK earnings data is released today as rising wages and a tight job market (in part due to Brexit-induced migrant labor supply shortage) is one of the areas showing promise for BoE leaning toward an eventual hike. Less sterling supportive was yesterday’s near record trade deficit number. EURGBP hovering near key resistance. 

CHF – Italian yields pushed sharply back lower, but EURCHF has yet to break up through the 200-day moving average again – something the may require a more full normalisation in EU peripheral spreads.

AUD – the Aussie getting a fundamental boost from stable to rising industrial commodity prices, but AUDUSD caught in a no-man’s land between perhaps 0.7550 and 0.7650 as we await a strong signal on the USD post-FOMC.

CAD – USDCAD can’t get any separation from the pivotal 1.3000 area and refusing to make a move until we have a look at Bank of Canada guidance. The US-Canada rate spread is at highs for the cycle and near the highs of May 2017 when USDCAD was trading above 1.3500. If the Fed tempers medium term rate expectations while we await incoming inflation data, this could allow a window for the BaoC to play some catchup if it can look through the risks from trade tensions, etc. We’ll look higher on a weekly close above 1.3000 and lower on one below 1.2900.

NZD – little to differentiate NZD from AUD at the moment, as the dovish broadside from Orr at the RBNZ meeting has failed to further takeaways on NZ yields. NZDUSD resistance zone stretched from 0.7060 to 0.7180

SEK – SEK buoyed by the easing of EU existential pain and there may be room for a run to 10.00 in EURSEK on further improvement here and a fairly dovish ECB, but we’re not on the lookout for a sustained trend so risk/reward is fair at best.

NOK – EURNOK continues to look heavy at the bottom of the range and has potential toward 10.20-25 on a break if the EU peripheral backdrop is supportive. 

Upcoming Economic Calendar Highlights (all times GMT)

   • UK Brexit Bill vote
   • 0800 – Norway May Region Survey
   • 0830 – UK May Jobless Claims Change
   • 0830 – UK Apr. Unemployment Rate / Employment Change
   • 0830 – UK Apr. Average Weekly Earnings
   • 0900 – Germany Jun. ZEW Survey
   • 1230 – US May CPI
   • 1700 – US Treasury Auction – 30 Year T-Bonds