After days of turbulent trading in the FX markets and steep dollar losses, both the euro and British pound are now selling off a bit as end-of-week profit taking kicks in.
High-beta FX gave up some ground in overnight trade after hitting key resistance points in yesterday's fevered North American session. Both the euro (EUR) and British pound (GBP) were lower in early-European dealing, and profit taking appears to have kicked in after EURUSD failed to clear the 1.3400 mark and GBPUSD could not hold the 1.5700 figure.
The economic news was sparse overnight with only European CPI and the Eurozone employment change on the docket. The inflation data came in at 1.4%, matching expectations, while the employment change declined by -0.5% versus -.0.2% forecast. The news was less than inspiring for euro longs, and EURUSD dribbled towards the 1.3300 figure in morning dealing.
Much of this week's gains in EURUSD have been driven by nothing more than momentum, so it is not surprising to see the pair retreat in today's session as end-of-week profit taking weighs on the pair.
The economic calendar will not get much more exciting in North American trade with only the U of M consumer sentiment survey, industrial production, and Treasury international capital flows on the docket. The U of M survey may have the most impact on the markets as traders look for any signs of weakness in demand. The number is expected to improve slightly to 84.9 versus 85.5 the month prior, and given the uptick in retail sales, chances are good that consumer sentiment will continue to rise.
If the data does beat to the upside, it should provide further fuel to the dollar rally and push EURUSD below the 1.3300 level and GBPUSD below the 1.5600 figure, while at the same time keeping USDJPY relatively well supported at 95.00.
Earlier in today’s Asian session, USDJPY once again dipped below 94.50 as the release of the Bank of Japan (BoJ) minutes caused even more turbulence in the pair.
The BoJ’s discussion about the volatility in Japanese government bonds (JGBs) roiled the FX market, but USDJPY quickly found support and stabilized. As we have been stating for the past several days, the pair is likely to find some interest underneath the 95.00 level from longer-term investment accounts, and that's why the 93.00-95.00 range should provide some stability in the near term.
By Boris Schlossberg of BK Asset Management
I will be away on a business trip next week and will resume regular European session updates on June 24.