The US Dollar Index (DXY) climbed to a 12-session high overnight, helped by weaker commodities, softer Euro and hawkish comments from the Fed. Kaplan thinks the Fed could trim their balance sheet this year without it affecting his anticipated three hikes. DXY came close to breaking the 2014 bullish trendline following Macron’s victory on Monday, yet subsequent price action suggests a low could now be in place.
The Euro finished lower for the second consecutive session following Macron’s victory, looking past strong data from Germany and instead focusing on the enormous task the newly appointed French president has ahead of him. With Dollar hinting at a low and Euro bulls waking up to reality, we see the risks skewed for to the downside for Euro over the coming weeks.
USDJPY extended its bullish streak beyond the 114 handle and appears on track for a 4th consecutive bullish week. Early Asia trading has given back some of these gains as profit taking takes hold – every good run needs a pause and we see today’s early losses as just that. The near-term trend remains bullish so USDPY remains in our buy-the-dip watch list.
The Australian Dollar extended losses to a 4-month low as several combined forces weighed upon it. Weak commodities, a June hike and a higher Greenback all played their part in sending AUDUSD down to 0.735 and a test of 73c appears imminent.
With iron ore, their chief export, having shed an astonishing 47.3% over 36 sessions then AUD has done well to remain above 73c until now. Whilst the June hike is practically a given we firmly believe a 3rdhike will materialize, which traders are yet to fully price in. Two more hikes this year will cancel out the positive yield RA currently has over the Fed and send AUD below 70c.
AUD has found support at the monthly S2 at 0.7332, with key resistance being yesterday’s high just beneath 74c. Whilst beneath it, we expect traders to fade into rallies to target 73c this week.