Dollar Trying to Break Containment, GBP Could Bounce Back

Sterling – marching towards monthly highs against USD

Last week, GBP/USD rose modestly, but overall the price action in the pair leaves much to be desired. It highlights the lack of clear, powerful catalyst in the FX space at the moment. There was broad dollar weakness in recent trade, which may push GBP back above 1.25. From a relative perspective this is not hugely encouraging. GBP/EUR has been sinking over the past few weeks as a result, however; it remains stuck in a multi-year range and figuring out which way that range wants to eventually resolve has been an exercise in futility. In the long-term 1.05 and 1.21 remain the key thresholds to pay attention to.

The month doesn’t start off with too much high impact data, so we will need to wait and see how figures for major releases roll off the presses as the month progresses. We could be in for another week of ho-hum price fluctuations, but let’s not fall asleep at the wheel as volatility has dipped sharply since the March spike and likely to bounce back in some capacity soon.

Euro – Last week’s rally viewed with a skeptical eye

The euro sprung to life last week on the development of fiscal stimulus hopefully providing some type of lifeline. From a technical standpoint the rally is coming from a massive long-term line of support extending back to the mid-1980s, when reconstructing the euro from its pre-euro constituents. The line-in-the-sand we have been watching, 10635, never broke, keeping the balance of power neutral. The EUR/USD rise to 2+ month highs is viewed with a bit of skepticism. Rallies have been unable to hold since the top back in early 2018 and until we see evidence that strength can maintain we see it fit to continue being wary of rallies.

German unemployment change is expected to improve on Wednesday by showing “only” 195k jobs were lost in May vs 373k in April. The unemployment rate is expected to rise to 6.2% from 5.8%. The big headline of the week will be the ECB decision on Thursday, and whiles rates are expected to stay on hold the press conference could provide some guidance that sparks near-term volatility.

US dollar – Trying to break out of range

The dollar via the DXY index started to pick up momentum as it assaulted the bottom of the trading range over the past two months but hasn’t quite broke free yet. Getting outside the range will be important for further freedom in the DM currency space. This index is largely driven by the euro, so if it fails here, a distinct possibility, then expect more directionless trading in the near-term. The big data headline of this week will be Non-farm Payrolls for May, expected to show 8.25 million jobs lost during the month and the unemployment rate spiking to 19.7%.

DXY trying to break free from the range

Canadian dollar – BoC and Jobs data due out

The Canadian dollar has been showing some life lately, as USD/CAD trades to its worst levels since the early part of March. It has erased most of the gains posted on the heels of the Saudi oil shock. Weakness may continue in the short-term, but we haven’t given up on the idea that a broader trend higher has begun on the long-term impact of generally low oil prices on the Canadian economy. This week we have the BoC rate decision on Wednesday, with the market expecting rates to stay at 0.25%. Friday’s employment figures are expected to show a change in jobs of -500k, but a much slower pace than the -1.99mm jobs lost the month before. The employment rate is expected to climb 2% to 15%.

Australian dollar – End of the rally may be near

This week the RBA is anticipated to keep rates at a record low 0.25% as the central bank continues to navigate its first recession in nearly three decades. The Aussie has been pressing higher in-line with our near-term expectations of further strength, but keep an eye on it around 0.6700 as this is a big spot of resistance from 2019 and the 200-day moving average. If AUD/USD is to turn down from an intermediate to long-term standpoint, this is certainly an important pressure point to do so from; 0.7000 would be the next big hurdle to cross if Aussie can keep on pressing.

Japanese yen – Very low volatility provides little clues

The Japanese yen has been a difficult currency to get any kind of confident handle on as it has pretty much done nothing the past couple of months on very few headlines. Making heads or tails of what will drive it and how it will react to various market factors has been a challenge to say the least. For now, we will let it do its thing and observe from a distance until something meaningful happens.