eFXplus DATA

• AUD/USD braces for test of 2018 low @ 0.7413 on rising tide of negatives
• US-China trade tariffs blows, tempers rise nL4N1TI03E nL1N1TH21A-AUD -ve
• Slowing growth in China nL1N1TH21A, US trade rift with partners also weigh
• Hurt by diverging cenbank expectations as confident Fed eclipses RBA caution
• Fall in commods & metals Fri adds to gloom; TR CRB index -5.3% in 3 weeks
• 0.7413 loss to test 0.7390, 0.7372; major support at 0.7327-29

NAB discusses AUD/USD technical outlook and flags a bearish reversal pattern in the making targeting a move towards 0.7320/30.

"AUD/USD broke its two-year uptrend in April, however multiple failures to hold below the Q4 2017 lows brought the sustainability of the decline into question. 

This week appears to be in the process of answering this question with an impulsive decline and pending close below the lowest weekly close of the past year at 0.7509. Importantly this bearish reversal comes off the back of last week’s test and rejection of the broken two-year trend line at 0.7665/85," NAB argues. 

"Weekly close below 0.7502/09 targets a multi-week to multi-month decline, initially towards 0.7320/30," NAB adds. 

• USD/JPY's post CB meets rise stalls below 111 on trade, yields
• Soft U.S. IP and CU adding to broader USD gain consolidation
• Pair trades wholly above 200-DMA at 110.21, L-T dn TL by 111.90
• Need a weekly close above 110.85 for 114.73 test nL1N1TH15K
• Draghi's Sintra appearance Monday might be risk event of week

The U.S. announcement of trade tariffs on $50bln of Chinese exports, and $100bln more if Beijing retaliates has created derisking flows, preventing USD/JPY from surmounting key resistance by 111 and clouding the outlook for now.
Despite the Fed's hawkish hike Wednesday, the ECB's dovish taper Thursday and the BOJ's trimming of already low inflation expectations today, Treasury-JGB yield spreads have fallen, causing a halving of USD/JPY's Thursday-Friday rise.
Trade fears are only part of the reason for lower Treasury yields and Treasury-JGB spreads.
JGB yields barely move any more because of the BOJ's stultifying yield curve control policy.
Thus, spreads, and USD/JPY, are driven by Treasury yields, which have been forced lower by the ECB's dovishness driving competing eurozone yields sharply lower.
Key for USD/JPY bulls is for trade war related risk-off flows to recede, as they have in the past, and Treasury yields to eventually rebound due to Fed hikes and strong U.S. data.
A weekly close above 110.85, 61.8 percent of the November-March slide, should trigger a full retracement to November's 114.73 peak.

ANZ Research discusses EUR/USD outlook and thinks that current levels provide an attractive opportunity for medium-term long exposure. ANZ's current fair value for EUR/USD is 1.17.

"A lot of negative news is priced into the euro. Some of it mirrors the sharp moderation in euro area inflation and PMIs over H1 2018, and some reflects the burst of risk aversion that followed the developments in Italian politics.

But, with both these factors turning less negative and the ECB is preparing markets for the end of quantitative easing, we believe that current levels of the euro should be seen as an appealing entry point," ANZ argues. 

Though the extraordinarily large EUR/USD fall since the yesterday's ECB meeting and nearby chart support create space for short-term EUR/USD consolidation, an eventual breakdown below support by 1.1500 and 1.1450 should force a slide to the mid-1.0800s.
There is support from the 61.8 percent retracement of the 2016-2017, 1.0340-1.2556 rise at 1.1186 along the way, but there is more than enough fuel for a deeper dive based on the still hefty $13.1bln of trapped spec long EUR/USD IMM positions.
That's far more than the $2.8bln net longs that prevailed in May 2014 right before the EUR/USD began its 1.3905-1.0340 multi-year plunge.
And based on the historically enormous drop in 10-year Bund-Treasury yield spreads to the lowest since 1989 and the reaffirmation of the post-GFC EUR/USD downtrend at the beginning of this year, a return to last year's 1.0340 low cannot be ruled out.
The broader USD index has run into the late 2017 peaks at 95.15 with today's 95.13 high.
A 95.15 breakout opens the door to a quick rise to the 61.8 percent Fibo at 97.83.

Credit Agricole CIB discusses EUR/USD outlook and thinks that the post-ECB sell-off has more to do with positioning than to the ECB's introduction of its new guidance.

"The EUR has been under pressure since yesterday’s ECB press conference. Even though the central bank explicitly announced an end to QE it was explained too that no rate hike is considered until at least summer next year. 

It has been largely about positioning to drive majors such as EUR/USD close down to recent lows. Indeed, speculative oriented investors may have added to EUR/USD short exposure after event risk related to the ECB was gone," CACIB argues.

"If so, we believe that EUR/USD downside from the current levels is limited what is also due to the view that there is limited room of further diverging central bank rate expectations. Accordingly, we advise against chasing the single currency lower from the current levels," CACIB adds. 

ING Research discuses the outlook for global markets, and thinks that they are likely to lack clear directions against a backdrop of trade war trap.

"After a lot of huffing and puffing, it looks as though the White House will follow through on Chinese tariffs today – with reports stating that the administration will unveil a new list of Chinese exports that will be subject to a 25% tariff. One would expect this to be met with retaliation by Chinese authorities.

But to truly gauge the long-run market impact, one should look to how Trump chooses to absorb the retaliation move by the Chinese (ie, either counter-retaliate or take it on the chin).

The likelihood of more protectionist threats means that global asset prices will remain stuck in a ‘Trade War trap’ and lack any clear direction," ING argues. 

With EUR/CHF down roughly 1% following Thursday's ECB meeting, the Swiss National Bank is likely to try and talk the franc down at its June 21 meeting.
So the combination of a dovish SNB and an ECB stepping towards policy tightening should fuel a big EUR/CHF rebound.
Many in the market have labelled the ECB dovish but a tapering of bond buys followed shortly after by the end of QE is anything but dovish and an H2 2019 rate rise is only slightly more dovish than economists predicting a Q2 2019 depo rate hike.
In light of the euro's drop and the surge in euro zone labours costs in data published today, economists may stick to their guns nL8N1TH1IC.
The SNB thinks the CHF, which has fallen over 6% since February 2017, is still high valued necessitating negative interest rates and a willingness to intervene, so buying the EUR/CHF seems a no brainer.
Stocks are bid, vols are low, EUR/CHF upside potential looks huge.
A similar situation saw EUR/SEK rise 12.7% between September 2017 and April 2018.

Adjusts title

With the Fed going full steam ahead with its policy normalisation, dollar buying in major FX pairs by central banks rebalancing interventions to slow the pace of USD/EM FX rallies are likely to rise, putting additional pressure on EUR/USD in particular.
For EUR/USD traders still sitting long, the emergence of central bank selling into upticks raises the risk of speculative stops being run out on the downside, adding momentum to EUR/USD falls.
Unfortunately for EM central banks, this spurs USD gains making for a vicious circle.
Before this week, several major central banks had been notable sellers of dollars but after the hawkish Fed hike, many other central bank smoothing operations will be triggered by the surge in the greenback.
The spin-off of these activities is larger demand versus liquid FX pairs like EUR/USD and USD/JPY to rebalance reserves.
With moves in the last 48 hours encompassing KRW and the proactive and big-hitting BOK and pressuring huge levels like the all-time USD/INR peak and HKMA's currency band, flows supporting the greenback may get massive.

Policy divergence between the Fed and the ECB serves as a wake up call to EUR/USD bulls who had hoped the ECB would fuel gains in the euro.
EUR/USD plummeted 222 points on Thursday, its worst one-day fall since the UK's June 26 2016 Brexit vote, after the ECB announced it would exit QE at the end of 2018 but indicated that it planned to keep interest rates at record lows into the summer of 2019 nL8N1TG0UZ.
Thursday saw the fifth largest EUR/USD trading volume of 2018 on the EBS.
EUR/USD is seeking a new downside equilibrium, further adjustments lower are likely after spot managed a daily close below the 1.1591 Fibo -- 76.4% retrace of 1.1510 to 1.1853 (May to June) gain.
There are growing expectations of a break below May's 2018's 1.1510 low, which in turn will pave the way to the major 1.1448 Fibo -- 50% retrace of the wider 1.0340-1.2556 (2017 to 2018) rise.

• Cable down to 1.3229 (17-day low) in early European trade. 1.3245 = Asia low
• EUR/USD losses on dovish ECB rate guidance catalyst for drop to 1.3229
• GBP/USD 1.3440 into ECB guidance. EUR/GBP 0.8820 to 0.8722 on ECB steer
• Key cable support 1.3200/05 (option barrier level/six-month low on May 29)
• Break below 1.3200 could spur further liquidation of GBP long positions
• IMM speculators upped gross GBP longs by over a third in fortnight to June 5

• EUR/USD registered its biggest one-day fall since June 24 2016
• Bears managed to force a daily close below the 1.1591 Fibo
• 1.1591 Fibo -- 76.4% retrace of 1.1510 to 1.1853 (May to June) gain
• Expectation for a break below May's 2018's 1.1510 low to expose 1.1448 Fibo
• 1.1448 Fibo -- 50% retrace of the wider 1.0340-1.2556 (2017 to 2018) rise
• Offer lowered to 1.1650, this market is a fade on recovery

• -0.4% in Asia, leading USD higher in a busy session, after closing -0.75%
• AUD/NZD bargain hunting dominated after opening -0.8% on week
• NZ manufacturing data slipped to 54.5 from 58.9 - modest impact
• 0.7059, 38.2% April May fall capped for 2 weeks - major resistance
• 0.6931, 61.8% May/June bounce then May 0.6883 range low initial support
• Plenty of volume, especially AUD/NZD - Click here

NAB Research discusses EUR/USD outlook in light of its aggressive sell-off post today's ECB policy decisions.

"The EUR dump really also tells us about long EUR positioning into this event following the Praet comments.

It’ll take a while for the EUR to recompose itself. As so often in FX markets a new piece of information comes along that was generally not expected and thus it jolts markets, but the impact is then compounded by events elsewhere in the same direction.

To the ECB today we can add the Fed outcome on Wednesday, which revealed a more confident FOMC and chair keen on pushing on with rate hikes. That dynamic can last a while and play out via relative yields and relative spreads, but we’d be hesitant to see a break below 1.15," NAB argues. 

• USD/JPY off a touch from 110.70 high earlier, after Tokyo fix demand sated.
• Gravitational pull from 110.50-area option expirations today.
• USD1.18 bln alone at 110.50 strike, total 1.47 bln 110.50-70.
• US yields soggy, helps cap upside alongside Japanese exporter offers.
• US Treasury 10s currently @2.925%, soggy alongside EZ yields.
• BoJ coming up but unlikely to change policy nL1N1TG040.

• When Japanese interest in AUD and NZD low, tendency for crosses to fall.
• Bias already down on USD strength, AUD/JPY and NZD/JPY both on back-foot.
• AUD/JPY 82.72 to 82.48 in Asia so far, NZD/JPY off but less, 77.17 to 76.91.
• AUD/JPY through 55-DMA now above at 82.77, daily Ichi cloud top 82.51.
• NZD/JPY back below its daily Ichi cloud, base 77.07, 55-DMA 77.07.
• Trading likely light post-Gotobi Tokyo fix, market likely quiet but choppy?

• Quiet into the Tokyo open after closing -0.8%, as EUR led USD north
• After a week of UK Brexit discussion, compromise is distant nL8N1TG4YV
• Major bearish outside day brings 1.3205 May & 2018 low into view
• Neutral momentum studies, 5, 10 & 20 DMAs edge lower net negative setup
• 1.3180, 50% 2017/18 rise pivotal support - break targets 1.3030 Oct/Nov base
• 1.3205 2018 low & 1.3330/60 5, 10 & 20 DMAs initial support/resistance

• +0.1% pre Tokyo, after slumping 1.9% as Draghi shocked markets nL8N1TG0UZ
• Major bearish outside day, with no hourly bounces offshore since ECB
• Market caught wrong footed - disparate ECB/Fed outlooks to reprice EUR/USD
• Fall leaves momentum studies, 5, 10 & 20 DMAs edging lower - negative setup
• 1.1600 1.2BLN, 1.1615 430M & 1.1650 1BLN strikes to cap in Asia
• 1.1510 May & 2018 low, then 1.1448, 50% 2017/2018 rise support

ING Research discusses the reaction to today's ECB policy decision and thinks that the meeting outcome gives something for both hawks and doves.

"This is, at least partly, an unexpected communication twist. The ECB just took another important step towards a gentle end of QE. In fact, the ECB just announced that it “anticipates” an extension of QE from September to December at 15bn euro per month, from currently 30bn, before ending the net purchases in December. This is not a decision per se but a declaration of intent," ING notes. 

"From no discussion of the policy outlook six weeks ago to an important step towards the end of QE, even though the macro environment has become anything but more solid.

Today’s decision is a truly Solomonic compromise between the hawks and the doves. The hawks finally got their end-date for QE, while the doves still have their open door for more if needed. Nicely done," ING adds.