Risk Sentiment On The Wane; GBP Finally Relents

Weekly FX wrap: Risk sentiment on the wane, JPY and CHF benefit. USD trade mixed as a result, but FOMC next week. GBP finally relents.

It has been a mixed week of trading, with some early weakness in the USD emanating from the shock US payrolls release this time last week, and followed up by an unavoidably more cautious Fed Chair Yellen on Monday.

Since then, risk sentiment has taken over the FX market, hitting USD/JPY lower to test 106.00 on Monday, and retested later in the week, but holding as of yet. Next week’s BoJ meeting is not expected to produce any fresh stimulus, but the threat of some kind of action escalates every time the JPY strengthens. CHF has also ‘enjoyed’ strong safe haven buying, with EUR/CHF testing the mid 1.0800s.

GBP trade has been erratic, with the mix of EU polls showing the reported swing in sentiment, but the uncertainty over what now looks to be a close call on 23 June has won over in the end, and weakness has finally led to cable sales back towards the lower end of the range, while EUR/GBP is back eyeing the .7900 level again.

Oil continues to dominate CAD trade, and this was highlighted by the strong support seen ahead of 1.2650, which managed to see off a CAD buying spree in response to the strong Canadian employment report today.

EUR/USD has found some resistance ahead around 1.1400 for now, but the USD perspective will continue to dominate from here.

To this end, next week’s FOMC will override all other events, and even though there is virtually no expectations of a Fed rate hike this time around, July still carries a small probability. Fed projections will be scrutinized, as will the rhetoric at the accompanying conference.

BoE also due to meet, but all focus in the UK is on the EU referendum the week after. Data-wise, US, UK, Australian and Canadian inflation numbers will all garner interest through the week, with NZ GDP also of interest after the on-hold RBNZ yesterday. NZD is at long-term highs, but for how long?

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