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US durable goods impressed (3.6% versus 3% consensus), capital goods (1.1% versus 0.5%), new home sales (476,000 versus 460,000) and consumer confidence all came in convincingly ahead of estimates. The Case Shiller home price index showed home prices increased by 12.1% (versus a consensus of 10.6%) and added to positive sentiment around the US economy and the USD. The dollar index has started to march higher again and is slowly making its way back up towards 83.
USD/JPY seems to be positioned for a break higher after the USD came back to life following on the back of the data. The pair printed highs in the ¥98.70 region and we feel these highs will be retested in the near term. Should the pair manage to break through those highs then we could be in for a move back to ¥100 in the near term.
Risk currencies also got a lift from positive news out of China but gains in FX pairs were limited due to USD strength. Chinese officials finally decided to step in and made comments regarding easing the current liquidity problems. With the PBOC moving to calm markets, we feel there will be a broad recovery in the risk space today.
Being a major commodity currency, AUD/USD will be one of the interesting FX pairs to watch in the near term. The pair just looks like it is eyeing a break through its recent range and this could see it trade towards 0.9310 in the short term. If China rallies by as much as expected today, then it could be a very good day for the AUD. There isn’t much data at all on the local front this week and therefore most of the moves in the AUD are likely to be China macro driven.
The pound has been subdued for a while now and GBP/USD remains relatively sidelined just above $1.54. Perhaps the imminent change at the helm is seeing investors exercise caution on the pound. Later today we have BoE Gov King on the wires, the BoE financial stability report along with a government spending review. These releases might have some bearing on the pair. Near term resistance is at $1.548 and support at $1.534.
EUR/USD hasn’t done much at all this week and continues to struggle to reclaim the $1.31 level. While European equities bounced yesterday, the single currency remained subdued presumably on the back of Mario Draghi’s comments that he will keep monetary policy accommodative. Support in the near term is in the $1.30 region. Data is limited in Europe today but the German consumer climate might deserve some attention.