USD back in focus with Fed members to hit the wires

The main theme in the currency space is the USD continues to march higher against the majors.

The dollar index is now trading around 82.55 and we feel this will be a critical week, particularly with several Fed members set to hit the wires. While most of the speakers this week are non-voters, any indications or clarity regarding the Fed’s view always deserves some attention in this market environment. NY Fed President William Dudley will speak on the labour market while Jeremy Stein speaks on monetary policy. Other Fed members on the wires will be Fischer, Lockhart, Lacker, Pianalto and Williams. While most of these speakers are non-voters this year, any further hawkish rhetoric will be an excuse for the USD to continue its run. Having cleared 82, we feel the DXY could be lining up for a run back towards May highs in the 84 region.

EUR/USD has finally started unwinding and we feel there is room for further losses as the market digests the developments in Greece. Last week the IMF said it is preparing to halt Greece payments unless a €3-€4 billion shortfall is plugged, and we suspect this will gather momentum this week. Later today we have the German Ifo business climate reading due out and after manufacturing PMI disappointed last week, traders will be looking for a strong reading otherwise it could be another round of selling. The Greek index was over 6% lower on Friday while EUR/USD has dropped to a low of $1.3089 today. Key support for EUR/USD is in the 1.30 region. The key event for the single currency this week is likely to be the ECB’s LTRO announcement on Friday.

AUD/USD is maintaining a tight range above 0.92 with the top of the trading range in the 0.925 zone. We feel the pair is now focusing on the developments in China. There are reports China might be looking to fine tune monetary policy which might stabilise interbank rates and restore confidence in markets there. China now seems to be focused on maintaining steady and appropriate growth going forward and this will likely weigh on commodity currencies like the AUD. Any further rhetoric from China could result in AUD/USD volatility and a break out of this range.

USD/JPY is hanging around the ¥98 level after having printed a high of ¥98.29 last week.  Data ramps up for Japan later this week with household spending, the jobless rate, CPI, industrial production, retail sales, housing starts and vehicle production set to hit the wires on Friday. Over the weekend, Japan’s ruling LDP won the Tokyo Metropolitan elections in a landslide victory and strengthened its position in the region. This is a clear sign that the Japanese population is on board with Abenomics.


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