Top Tier Economic Data: RBA, ECB and U.S. Non-Farm Payrolls

Talking Points:

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  Australian Dollar at Risk to Correct Lower on Eroding Yield Advantage
  


• 
  Euro Eyes 1.37 if ECB Sits Tight
  


• 
  US NFP’s to spark volatility ahead of US Holiday
  

The preliminary set of June’s Eurozone CPI figures was largely uneventful for the Euro as the headline year-on-year inflation rate recorded at 0.5 percent, unchanged from the prior month. Notably, Core CPI surprised to the upside at 0.8 percent, beating expectations calling for a print of 0.7 percent. According to DailyFX Strategist Ilya Spivak, the upside surprise in inflation data may reduce traders bets on a near-term expansion of ECB stimulus efforts. Although technical positioning underscores the possibility of further EUR/USD gains ahead, Spivak will take a EUR/USD recovery as an opportunity to short.

[Story: Don’t Rule out $1.3700 for EUR/USD if ECB Sits Tight]

The Canadian Dollar has appreciated markedly against the US Dollar over the past couple of months, and may find further support on economic output data. The Canadian economy is economy is expected to grow 2.3 percent year-on-year in April, notably higher from prior month’s growth. Technical analysis shows USD/CAD support clusters range from 1.0634 to 1.0673.

Story: USD/CAD Technical Analysis – Two-Year Uptrend Broken

The Reserve Bank of Australia (RBA) has maintained its neutral monetary policy stance for the past 10 months, and are likely to keep the current course at this week’s RBA meeting. The RBA is expected to keep its key lending rate unchanged at 2.50 percent, with that said spotlight will turn to the policy statement and traders may look for any comments regarding the strong exchange rate. Year-to-date the Australian Dollar has appreciated 5.14 percent against the US Dollar. Unless RBA verbally intervenes against the single-currency, it is possible that the policy event may largely be a non-event. The central bank may decide to maintain its policy stance as the labor market is showing signs of improvement and after the Australian economy recorded a strong 1.1 percent first quarter GDP. Minutes from RBA’s May meeting revealed the central bank forecasts below-trend economic growth in the coming quarters and expects monetary policy to remain accommodative for some time. With the RBA’s tone unlikely to change undermining speculation on future interest rate hikes. The Australian dollar may look to US data for directional cues.

At the June ECB meeting, the central bank made good on its promise for substantive policy action prompting the Euro to dip as the initial reaction. According to DailyFX Analyst Christopher Vecchio, the breadth of ECB action was plentiful, but raises the question of whether the ECB did enough. This month’s ECB meeting may attract enough attention to spur volatility in the Euro, but following last month’s reaction, the ECB may keep borrowing costs the same as market participants are not expecting President Draghi to introduce new policy measures. The spotlight will undoubtedly turn to the press announcement where Draghi may attempt to strengthen the ECB’s forward guidance.

[Story: EURGBP, EURJPY, and EURUSD are at important technical crossroads ahead of the ECB meeting]

The DJ FXCM US Dollar index has slowly drifted lower over the past couple of days to end last week just above a multi-year rising trend support. The technical positioning puts US NFP’s in the limelight as a weak print may hurt the US Dollar, leading to a break of the trend line and exposing the May low. However, DailyFX Chief Strategist John Kicklighter, says the June NFP figure – barring an extreme surprise – is unlikely to spark a meaningful reaction as traders may be shutting down early in the NY session to leave for the extended weekend. Absent a downside surprise, the jobs report is unlike to prompt the FOMC to waver on its monetary policy stance.

[Story: USDOLLAR 10406 in Focus as Support with Trendline]

David Maycotte, DailyFX Research Team email me at dmaycotte@fxcm.com

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Top Tier Economic Data: RBA, ECB and U.S. Non-Farm Payrolls