FX

Welcome to another edition of Forex Friday. The EUR/USD was unable to close above the key 1.0950 short-term resistance level on Thursday, despite the US dollar weakening against most other currencies on the day on the back of mixed data. Consequently, the single currency was on the backfoot again with the greenback rebounding from earlier weakness at the time of writing on Friday. Investors were looking forward to the release of more inflation data from the US, with PPI and UoM Inflation Expectations both coming up.

Unless the RBA is surprisingly more dovish than expected at its meeting on Tuesday, Aussie CPI comes in well below expectations on Wednesday, or we see a sharp reversal in risk appetite, the path of least resistance will remain to the upside, in line with our continued bullish AUD/USD forecast.

USD/JPY is on a collision course with key support, plunging for a fourth consecutive day as carry trades involving the Japanese yen are unwound. It’s the kind of move you’d normally expect to see in a crisis, although we’re not in a crisis. Yet.

After a rare reversal in USD/JPY to start July, traders should be on the lookout for any follow through selling as expectations for Fed rate cuts this year swell. Considering higher US yields helped to propel the dollar higher, if you take that away, can the prevailing trend realty be maintained?

One big risk event is taking place next Sunday, on June 30. This will mark the first round of the French parliamentary election. But it is likely that the extent of Marine Le Pen party's progress will only be known after the run-offs on July 7.

The sizeable reversal in USD/JPY following the BOJ interest rate decision may be the start of a far larger move, unless you think the Federal Reserve may be forced to abandon the prospect of rate cuts this year. Given asymmetrical risks for the US rate outlook and increasingly tepid US economic data, selling USD/JPY rallies is preferred.

GBP/USD looks set to remain in the trading range it’s been stuck in for weeks despite the arrival of wages and unemployment data from the UK later Tuesday, with traders likely to fade any significant moves ahead of the Fed interest rate decision and US inflation report on Wednesday.

The Federal Reserve June FOMC meeting and US consumer price inflation for May look set to dictate directional risks for GBP/USD this week, overriding anything on the UK calendar including Britain’s unemployment report. Risks look skewed to the downside.

With Nvidia’s first quarter earnings report helping to boost investor sentiment and interest rate differentials between the US and Japan remaining at historically elevated levels thanks to continued delays to rate cuts from the Fed, USD/JPY continues to drift higher for the moment.

The RBNZ is intent on defeating inflation even if it means sacrificing the economy, delivering a major surprise at its latest monetary policy meeting by flagging the likelihood that rates may need to increase again. The Zealand dollar surged on the unexpected hawkish pivot.

The RBNZ is highly likely to leave its overnight cash rate at 5.5% on Wednesday. However, with updated economic forecasts, along with a press conference from Governor Adrian Orr, the bank has been given plenty of clear air to shake these sleepy FX markets up, if it chooses to do so.

With no new information for the Fed to consider this week, it’s difficult to see their narrative shifting from it still being far too soon to consider rate cuts. That points to upside risks for USD/JPY in the days ahead.

US jobless claims data will garner far more interest than usual later Thursday as traders assess whether last week’s unusually large increase was an anomaly or start of a new trend. Testing a key level on the charts, two-way risk created by the data makes GBP/USD a pair to keep on the radar.

With US economic data delivering negative surprises at rates not seen over a year, with signs disinflationary forces are growing, it’s time for a rethink on the outlook for the US dollar. The era of selling rips rather than buying dips may be upon us.

Australian wage pressures undershot expectation in the March quarter, denting the prospect of another rate hike from the RBA. AUD/USD managed to shake off the news within seconds, underlining that US CPI mains the only game in town for traders on Wednesday.

Japan’s Nikkei 225 faces an important technical test today, pushing back to towards a resistance zone it’s been unable to break for weeks. With risk appetite rampant and softer yen helping to juice the earnings outlook for exporters, if bulls can’t reclaim the ascendancy today, when will they ever?

it’s now up to incoming data and news flow to continue fuelling the bullish USD narrative, otherwise it risks sparking a reversal. We may be seeing the inception of such a move in EUR/USD right now.