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GBP/USD remains above 1.7000. A level that in the past has meant resistance for GBP.

Posted by Marge Maresca on Jun 20, 2014 8:59:00 AM

strongpound resized 600 


CBA FX Strategy

20 June, 2014

New York Open


Thoughts from our Strategy Team


  • GBP/USD remains above 1.7000.  A level that in the past has meant resistance for GBP.

  • GBP/AUD corrects higher but remains below the 100-day moving average (1.8175). 

  • AUD/USD remaining firm near 0.9400, but risks edging marginally lower into the weekend.

  • Canadian retail sales and CPI due today.  Risks tilted to firmer data.  If realised, this should be CAD positive intra-day.   

Yields on US swap rates have lifted from their recent FOMC-induced lows.  As we had thought in the wake of the FOMC meeting, the decline in US swap yields was an over-reaction.  This is because the downward revision to US GDP was merely an adjustment to take into account the weak weather-effected US Q1 GDP.  We anticipate US swap yields will continue to grind higher over the medium-term.  In quiet European trade, the USD index has consolidated and at the time of writing is close to 0.3% above yesterday’s low.  That said, we continue to think that persistent negative US real short-term rates will keep the USD heavy.  There are no major events in the US in today’s session. 

GBP/USD continues to track above 1.7000, a level that in the past, GBP/USD has struggled to sustain above.  The positive momentum in the UK economy and rhetoric from members of the Bank of England (BoE) Monetary Policy Committee (MPC) continue to support rate hike expectations.  UK 90-day short-sterling futures continue to price the first BoE rate hike by Q4 2014.  This continues to feed into the front-end of the UK swaps curve.  UK two-year and five-year swap rates continue to grind higher and remain near their respective multi-year highs.  While the positive momentum and front-end yield support should support GBP, the UK’s large current account deficit (equivalent to 4.4% of UK GDP) should remain a substantial structural headwind.  This is one key reason why we are not getting too optimistic GBP/AUD.  But it is increasingly possible the BoE will raise interest rates before the RBA, which should see GBP/AUD grind higher.

EUR/USD has drifted down from its recent intra-day highs, but remains higher on the week.  There has been no market moving data in today’s European session.  And there is little on the horizon, with the flash estimate of the June Eurozone PMIs (Monday) and June German IFO (Tuesday) the next major releases of note.  The respective business surveys look set to consolidate in June.  Softer data may weigh modestly on EUR/USD early next week, but over the medium-term we still think EUR/USD will grind back up towards 1.4000 on the back of the Eurozone’s large current account surplus and ongoing real interest rate advantage over the US.  On that front, the April reading of the Eurozone current account revealed another sizeable surplus.  On an annual basis, the Eurozone current account surplus is now tracking at 2.6% of GDP. 

AUD/USD has drifted back to be slightly below 0.9400.  However, as we noted yesterday the low market vol., lift in global equities and the higher risk-adjusted return on AUD denominated assets, combined with the softer USD, remain AUD/USD supportive.  Added to this is the lift in inflows into emerging markets, which is a proxy for non‑Japan Asian currencies (ADXY) and in turn the AUD.  While AUD could ease slightly into the weekend, we think AUD/USD can grind higher to test the 2014 high of 0.9461 in the next few weeks.  The flash estimate of the China HSBC manufacturing PMI is the next focus for the AUD (Sunday EST / Monday BST).  

Intra-day volatility in CAD could pick up in today’s US session.  April Canadian retail sales and May Canadian CPI are released (8:30am EST).  We think the risks are tilted slightly to a higher CPI print and a positive retail sales report.  If realised, this would be CAD positive, and could see USD/CAD ease back down to the 200-day moving average (1.0781). 

Upcoming Economic Calendar Highlights Important for Exchange Rates and Interest Rates

USD – Markit PMI (Monday).  Fed speakers: Plosser, Williams (Tuesday), Lacker, Bullard (Thursday).

AUD – China HSBC flash manufacturing PMI (Monday).  RBA Speakers: Lowe (25 June). 

GBP – BoE speakers: Carney (Thursday).

EUR –Flash PMIs (Monday).  German IFO (Tuesday).  ECB speakers: Constancio (Monday).

CAD – Retail sales, CPI (today). 

AUD & NZD Today

AUD/USD has drifted back slightly below 0.9400 as US yields made a jump higher earlier in London as the market shakes off Wednesdays dovish fomc. Earlier in Asia Aud initially came off the highs on corporate selling in the 0.9415 region. Today we watch pivot support at 0.9375/80 where first layer of bids rest,  then further buying interest 0.9360 and then the post fomc low of 0.9320. Above 0.9430/40 region continues to cap the topside with plenty of corporate supply right around there. With little on the calendar today we will watch the flash estimate of the China HSBC manufacturing PMI for release this weekend.

Nzd is tracking the Aud grinding lower as the USD makes a comeback. Market continues to look to sell into 0.8730, a trade our traders favour, placing stops at the 0.8780 2014 highs we saw back in early May. Bids today 0.8680 and then 0.8650. Looking ahead, Mondays migration data will be eyed closely given the RBNZ has mentioned it’s one of the major keys to economic growth.

Thoughts from our Trading Team

Good Morning New York- London G7 Spot Twitter

As inspiring as The England Soccer Team L. $ Strength this am


Slow grind lower as $ takes back some losses of the past 36 hours. Short term rates suggest FV 1.3550





CHF: 0.8945

$ Strength, cross subdued.









JPY: 102.03

$ Strength.





GBP: 1.7050

£ shrugs off last night’s result and remains bid.









AUD: 0.9397

Very quiet, slow drift lower as $ Strength prevails across the board.





NZD: 0.8702

As Aud






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