Greenback strength dominates FX

The greenback extended its gains with the US dollar index rising to a one month high.

USD
Source: Bloomberg

Data that was mostly better than expected - including new home sales, Richmond manufacturing index and the Case Shiller index - encouraged buyers. Durable goods orders were in line with expectations but the core capex component was up a better than expected 1%.

USD/JPY

All the majors lost ground to the greenback including the euro, yen and AUD. USD/JPY finally breached the ¥122.00 barrier and ran to a high of ¥123.33. The pair is still holding its ground in the ¥123.00 region and I feel the next key level to look out for will be around 124.26 which is where 2007 highs lie. The 122.00 level has now turned into near term support and I would be eyeing buying opportunities in that region. On the calendar today we have the Bank of Japan’s monetary policy meeting minutes.

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AUD/USD

It’s hard to go past the trend on this one, which can be seen defined by the 5-day moving average (blue line) on this daily chart. There is a good chance the pair goes lower from here despite a nice move back above $60/t for iron ore, although my absolute preference would be to sell rallies into $0.7770 to $0.7780.

There is a well pronounced channel here and I am keen to align my view with the trend. Rallies should be contained below the May 5 low of $0.7786 and I think the bulls would want to see a move back through yesterday’s high of $0.7839 before entering fresh longs with any conviction.

Momentum and trend oscillators are also on a weakening trend and feed into the idea that rallies should be sold. Clearly the key target is the series of lows in March/April, although a break here would be outright bearish and actually suggest adding to the short position.

Will have to hear what RBA Lowe says at 10:45am (not expecting too much here), but there could the prospect of low volatility today in Asia and the pair may creep up a touch if Lowe doesn’t provide any fresh jawboning.

Bear in mind this move lower has been predominately a USD move rather than a bearish AUD story.

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