Dollar Hit By Profit Taking

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Market Drivers June 01, 2015

USD/JPY takes out 125.00 and reverses
RBA Holds still
Nikkei -.13% Europe -0.63%
Oil $61/bbl
Gold $1187/oz.

Europe and Asia:
AUD RBA Holds still
GBP UK Construction PMI 55.9 vs. 55.1
EUR Flash CPI 0.3% vs. 0.2%

North America:
USD Factory Orders 10:00

The dollar rally took a pause in Asian and early European trade today as USD/JPY popped but failed to hold the 125.00 level and EUR/USD and GBP/USD and AUD/USD all advanced on slightly better economic news.

USD/JPY took out the stops at 125.00 in early Asian trade reaching multi year highs, but then quickly lost air and faded back to 124.50 as profit taking kicked in. The pair continues to benefit from rising US yields which in turn are moving positive US data. The rest of the week however could be the telling point as to whether USD/JPY retakes 125.00 or not. With ADP and NFP numbers on tap the pair could hover around these levels until the market gets a better read on the labor conditions in the US economy.

Elsewhere the EUR/USD popped a little higher in the wake of hotter than expected CPI data from the EZ which came in at 0.3% vs. 0.2% eyed. However, the rally stopped short of the key 1.1000 level as markets still remain on edge over the negotiations with Greece. The talks still appear to be at an impasse and time is quickly running out.

Greek PM Alexis Tsipras stated that Greece has specific and realistic proposals for a compromise and added that Greece trusts that EU leaders will be realistic. So far though the parties have not reached any tentative deal, but the market remains relatively certain that some compromise will be reached.

In UK the Construction PMI came in a bit better at 55.9 versus 55.1 and the mortgage applications rose to 68K versus 64K indicating that the UK housing market remains robust. Cable has been under enormous pressure over the past few weeks and today appears to be the first day that the pair has found a semblance of support at the 1.5200 level. Tomorrow the market will get a glimpse of the UK Services PMI and if the news is better than projected it will likely provide further fuel for a short covering rally taking the pair through 1.5300.

Lastly in Australia the RBA stood pat and kept the rates at 2.00% level. Although the economy remains sluggish, policy makers are loathe to cut rates further now for fear of stoking a housing bubble and are likely looking for macro prudential rules to take effect before easing monetary policy anymore. The Aussie popped on the news taking out the 7800 figure but retreated a bit off that level and focus will now turn to tomorrow’s GDP data to see just how weak the AU economy really is.

In North America the calendar is empty and FX markets will likely follow fixed income, but for now it looks like a profit taking day in the dollar.

Boris Schlossberg
Managing Director

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