Dollar Turns South into Q2 Close

On Friday the dollar continued to edge its way lower in what looks like something of a cyclical move as the markets approach the end of the second quarter. On Friday the EURUSD closed at 1.1369, thus managing to end the week above both its 200DMA (Daily Moving Average) which was at 1.1351 and above its 200WMA (weekly Moving Average) which was at 1.1347.

Consequently, the dollar index closed at its lowest level for some months on Friday with the DXY ending the week at 96.22, well below its 200DMA which was at 96.63. The dollar’s weakness also showed up more generally too with the GBP and the JPY in particular, both posting solid gains for the week at 1.2737 and 107.32 respectively.

So, from a technical perspective last week’s closes for the US currency don’t look at all positive and are, as I just noted, coming right at the end of the second quarter. Now this could be down to a number of factors, but quite often this kind of relapse right on the summer solstice does portend a cyclical trend change that will further unfold in the coming quarter.

That’s also something which is clearly being indicated by the latest move higher in Gold which was pretty volatile again last Friday. The price fell back from a high of around $1411.60 during the Asian session to as low as $1382.60 before later closing just shy of $1400, at $1399.63.

This is simply because of the generally inverse correlation between the metal and the dollar. However, I think the more exact, positive correlation between the JPY and gold is perhaps a better explanation for that move right now, especially with the JPY closing last week at its best levels versus the dollar since 3rd January. Overnight, with the dollar still edging lower, gold had another look at last week’s $1411.60 high, but shied off the level at the second time of asking.

The fact that the US currency is also weakening into the upcoming G20 meeting next weekend in Osaka is probably welcome by some, but I don’t think the distance it has travelled thus far is likely to impress the US president much as we know he is at war with his own currency.

Overnight the markets have been generally pretty quiet with no fresh news of any note to report. The equity markets have been pretty mixed and range bound too ahead of the new European week with a sort of brown texture covering the spectrum. That’s what you get if you mix green with red by the way!

Looking at the pound specifically this morning the GBPUSD has traded above 1.2750, but the price is yet to breach a technical resistance level at 1.2766 (defines a 38.2% retracement of the 1.3185-1.2506 move) as at 6.30am this morning. However, if this level is clearly breached then we could be looking at a more protracted upside reversal, towards the next level of note at around 1.2845. As you can see on the chart of that below 1.2750 or thereabouts has capped the most recent attempts to move higher.

Data wise there’s not that much of note due out this week, but possibly enough to shake the tree if there are any surprises in some of the numbers. The releases likely to garner most interest are surely the latest German and Pan European CPI reports. As far as scheduled speakers are concerned we’ve got Carney and and the PMC crew at 10.15 on Wednesday and perhaps even more interesting for the markets, the Fed chair Powell at 6pm tomorrow.

The only central bank policy decision due this week is from the Reserve Bank of New Zealand. Whilst the RBNZ aren’t expected to lower rates this week, that would be the only possible direction if they do decide to move.

It is also worth remembering, particularly from a book balancing perspective, that the second quarter draws to a close this Friday just as the G20 gathering of world leaders’ gets underway in Japan. Quite what, if anything will emerge from that gathering is never something to build expectation upon and certainly not this time around by the looks of it.

Important Economic Releases Due This Week

25/06- 3.00pm US June Consumer Confidence Index

25/06- 6.00pm Fed Chair Powell Talks on Fed Policy and Economic Outlook

26/06- 3.00am RBNZ Monetary Policy Decision

 (Benchmark Rate Expected to Remain Unchanged at1.5%)

26/06- 1.30pm US May Durable Goods Orders

27/06- 1.00pm German June CPI Report

27/06- 1.30pm Final Revision to US Q1 GDP Estimate

28/06- G20 Leaders Summit gets underway in Osaka, Japan

28/06- 10.00am Eurozone June CPI Report

28/06- 1.30pm Canadian April GDP Estimate

28/06- 1.30pm US May Personal Income/Spending Report

28/06- 2.45pm Chicago June PMI Index