USD Rises Despite Weak Consumer Sentiment: Key Insights

The USD edged higher against its counterparts yesterday as Fed policymakers sent out hawkish signals to the markets. Characteristically Fed Board Governor Bowman stated that she is still open to the possibility of another rate hike should inflation not ease, while Fed Board Governor Cook stated that a rate cut is needed at some point, yet the timing is still unclear. On the other hand, the US consumer sentiment for the current month seems to be less optimistic, which may weigh on retail sales and overall tended to clip the greenback’s gains.

Across the pond, the EUR edged lower against the USD as ECB policymaker Olli Rehn stated that he sees the market’s expectations for two more rate cuts within the year and for the bank to bring rates down to 2.25% next year as justified. Such a scenario would widen the interest rate differential outlook of the ECB with other central banks of developed economies substantially and could weigh on the common currency. Also, we highlight the wider uncertainty surrounding the EUR, with the French elections over the weekend where a shift in power is expected in favour of Le Pen’s far-right party and the EU-China trade spat shaking the common currency fundamentally.

EUR/USD edged lower yesterday and during today’s Asian session after hitting a ceiling on the 1.0740 (R1) resistance line. We tend to see a relative stabilisation of the pair just below the 1.0740 (R1) resistance line as the downward trendline which guided the pair since the 7 of June seems to have been broken, hence we switch our bearish outlook in favour of a sideways motion bias for the time being. Yet we note that the RSI indicator remains steadily below the reading of 50, implying the presence of bearish residue in the market sentiment for the pair. Should the bears regain control over the pair’s direction ,we may see it breaking the 1.0615 (S1) support line and aiming for the 1.0450 (S2) support level. On the flip side for a bullish outlook we would require the pair to clearly break the 1.0740 (R1) resistance line and aim for the 1.0890 (R2) resistance base.

Also we note that Australia’s CPI rates for May unexpectedly accelerated which tended to provide a boost for the Aussie during today’s Asian session. We expect the acceleration to harden the hawkish stance of RBA and keep the Aussie supported on a monetary level. Fundamentally, we note the expectations for China’s exports to improve which could counter a possible easing of domestic demand and could support the Aussie fundamentally as it could increase Australian exports of raw materials for the Chinese manufacturing sector.

AUD/USD edged higher during today’s Asian session, yet overall remained within a sideways motion in the boundaries set by the 0.6575 (S1) support line and the 0.6715 (R1) resistance line. We tend to maintain our bias for the sideways motion to continue as long as the pair’s price action remains within the channel formed by the prementioned boundaries. Please note that the RSI indicator currently tends to edge higher than the reading of 50 implying the possible awakening of some bullish tendencies. Yet for a bullish outlook we would require the pair’s price action to break the 0.6715 (R1) resistance line clearly and aim for the 0.6870 (R2) resistance barrier. For a bearish outlook we would require the pair’s price action to break the 0.6575 (S1) support line and take aim of the 0.6445 (S2) support level.

Other highlights for the day

Today in the European session, we note the release of France’s consumer confidence for June and UK’s CBI distributive trades indicator also for June, while on the monetary front ECB’s Chief economist Lane is scheduled to make statements. In the American session, we get from the US the new home sales figure for May, while oil traders may be more interested in the release of the weekly EIA crude oil inventories figure. In tomorrow’s Asian session, we get China’s industrial profit rate for May.