• NY opens below day's 1.10315 EBS high, EC proposal buoys nL1N2D90QO

• EUR/USD begins falling as risk sours a bit & safe-haven buyers emerge

• Equities erode gains, EUR/JPY trades from 118.90 to 118.15 on EBS

• EUR/USD longs take some profit, pair trades down to 1.0955 on EBS

• Risk rebounds though, stocks rally & US$ is sold, EUR/USD near 1.0990 late

• Daily doji candle forms, suggests the market is indecisive for now

• Longs to remain cautious on US-Sino tensions, EC proposal nL1N2D910Y

TD Research maintains a structural bullish bias on the USD through Q2.

"Global equity benchmarks, like MSCI World and the US, hold hefty premiums to growth drivers, leaving risk assets vulnerable to a shift in sentiment. That's also the reflection of the currency market where the BDXY has lost about 5% off the highs," TD notes. 

"Excessive valuations are not a reason to sell. Still, they should be monitored in case of a narrative shift, given the drawdown potential if the news cycle goes sour. The other side of this is the weaker USD, which has mirrored the moves in risk assets. This backdrop leaves us expecting further consolidation in the buck as we progress through Q2, especially against European currencies like EUR and GBP," TD adds.

• GBP/USD rises off NorAm low 1.2201 ends NY 1.2245, NorAm range 1.2341-1.2201

• Brexit fears weigh into fix despite rise on EU enhanced aid pgm nL8N2D91X6

• Sterling bulls turn tail near Fib resistance in mid-1.23s again nL1N2D90YL

• GBP res Tues/Wed by 1.2359, 50% Fib of 1.2644-1.2075; supt 1.2161 May 22 low

• EUR/GBP ends NY +0.67% at 0.8969, Wed range 0.8993-0.8889; EU aid boosts EUR, UK won't qualify for aid

Bank of America Global Research argues that Fed's program focus may have to shift with worsening economic outlook.

"Fed large-scale market intervention has successfully achieved its primary objective: to restore market functioning and keep credit flowing. Fed programs are primarily designed as "backstop" facilities with punitive rates. The Fed seems to judge their success not by total usage but by activity in the underlying markets they target. Reflecting this, we estimate Fed credit and muni program use will see ~15% of potential," BofA notes.

"We believe several of these programs may have to shift from their "backstop" design to more explicitly easing financial conditions, given the expected depth and length of the current recession. Specifically, we expect (1) UST and agency MBS purchases to shift from focus primarily on market functioning to easing macro conditions and (2) increased political pressure to revise Main Street Lending and muni terms to increase credit and lending activity. We may also see the Fed allocating more funds to secondary market credit purchases. Such shifts would support lower real rates and risky assets," BofA adds.

EUR/USD longs remain cautious even after risk sentiment improved after the EU Commission announced its recovery proposal nL1N2D90GA.
Initially, German 10-year Bund yields extended their rally, DE-IT yield spreads tightened to levels not seen since March 27 and EUR/USD rallied above the 200-DMA to hit a 1.10315 high on EBS nL1N2D90QO.
But, risk sentiment is deteriorating a bit as U.S.-Sino tensions nL1N2D81TJ show no signs of abating [ Click here ].
Those tensions have weakened China's yuan significantly.
USD/CNH CNH= broke 7.1650/75 resistance while USD/CNY CNY= rallied above 7.1500.
Both pairs are nearing their September 2019 highs.
Should risk sentiment worsen the September highs are likely to break, which could drive investors into traditional safe havens like the dollar and yen.
Those risks combined with the EU Commission's plan still needing ratification nL8N2D91X6 helped drive EUR/USD close to flat on the day.
EUR/USD longs will need U.S.-China tensions to ease and negotiations for the EU recovery proposal to go smoothly if they expect EUR/USD to close above the 200-DMA and break key 1.1055/65 resistance where the March 31 daily high, daily cloud top and 50% Fibo of 1.1495-1.0636 sit.

• Follow up to Tues's rally and a brief breach of 1.1012 200DMA, now key

• Price pulls swiftly away from 1.1031 high: risks dropping back under 100DMA

• 14-day momentum with the bulls but a sub-1.0982, Tues close, could damage

• Price heading back to mid-cloud: cloud extremes seen as key trigger points

• Cloud levels are 1.0895 and 1.1065 and doesn't narrow until July

• Weekly action remains heavily bullish and targets the weekly cloud

  
  

EUR/USD traders reacted to massive U.S. stimulus and bought.
Traders have reacted to massive European stimulus plans by buying.
One of these reactions is wrong.
If stimulus is good, which markets obviously assume given some big stock and commodity gains, then U.S. stimulus, which is the largest of all, is good for the dollar, not bad.
If stimulus undermines a currency, then recent euro gains after a European Union recovery fund was proposed are flawed, which means that a lot of buying has is occurring at the high end of current ranges nL1N2D90H5.
Stimulus usually undermines currencies with low rates.
Eurozone rates are lower than U.S. rates.
The difference is slight, so the long-term EUR/USD outlook may now be determined by which economy is stronger.
The United States was stronger going into this crisis.
Both economies have been deeply hurt but the U.S. economy is larger and with greater stimulus should see a faster recovery.

• EUR/USD boosted by big EC proposed EU rescue package nL1N2D90GC

• From mid 1.09's it breached 21 May 1.1008, stops above May 1 hi 1.1019

• 1.1031 new high since Apr 1, setback met buyers by 1.1010 since

• Close above 200-dma 1.1012 would open late March double top 1.1148-44

• EUR/USD FX Options opened with a bullish lean Wednesday nL1N2D90GC

  
  

• AUD/USD peaked 0.6675 Tues, but unable to close above 200-dma 0.6659

• Setback to 0.6631 Wed and back by 200-dma since

• Close above 0.6659 and 76.4% Fibo of 0.7032-0.5510 at 0.6673 opens 0.7032

• AUD correlation with stocks remains a key driver

• S&P e-mini also above 200-dma 2,997.68, but also yet to close above

• Option markets have seen implied volatility drop to crisis lows

• Premium for AUD puts (downside) options falls to new crisis lows too

  
  

  
  

  
  

• Healthy cable rally Tues on improved risk sentiment: 1.4% gain from Mon low

• Hard to see any home grown rallying pointers as virus fallout depresses

• Slight back track early Wed and dollar demand could creep into equation

• Market could look for dollars today as spot value runs into month-end

• GBP slips back inside a thin daily cloud: 1.2239-1.2307 and base now key

• EUR also taking back ground above 0.8900 from 0.8880 Tues low

  
  

• Pivoting around its daily cloud as bulls struggle to hold advantage

• Tuesday rally was sharp and warrants an adjustment

• Cloud is thin, 1.2239-1.2307, and might not provide much support

• Tuesday 1.2188 low and May 18 1.2075 low the stronger supports

• We are short from 1.2310 and bears are not done with this market yet

• Tues 1.2363 high key topside: just edges out 1.2360 50% Fibo 1.2644-1.2075

  
  

Citi likes NZD in G10 space and prefers shorts in AUD/NZD in the long-term.

"Kiwi is an outperformer in G10 as the country starts to grind back into gear. The outlook v AUD is very favourable and the debate in Australia “now is that’s its more likely that I can fly (from my Darling Point office in Sydney) to Queenstown before I can fly to Queensland or Western Australia (wouldn’t want to anyway)”. Citi notes. 

"Longer term AUDNZD downside remains attractive," Citi adds. 

• AUD/USD opened 0.6656 after soaring 1.73% Tuesday as AUD outperformed

• It eased to 0.6631 when Asian equity markets dipped on Hong Kong tensions nL4N2D90QX

• S&P futures rallied later in the morning (+0.70%) and helped AUD/USD rally

• AUD/USD is trading around 0.6650 heading into the afternoon

• Resistance is at the 200-day MA at 0.6658 and 76.4 of 0.7032/0.5510 @ 0.6672

• A close above 0.6675 targets a full retracement above 0.7000

• Market hesitant to buy aggressively due to US-China tensions

• Key will be S&P as a Clear break above 3,000 will encourage fresh AUD buying

• Support is at former resistance at 0.6616 and break eases upward pressure

• EUR/USD opened 0.80% higher at 1.0882 after failing to reclaim 1.100

• After trading 1.0985 early, the EUR/USD slipped lower during the morning

• It traded as low as 1.0955 before settling around 1.0960

• Asia had a risk-off feel early, as China-Hong Kong tension weigher nL4N2D908D

• Hang Seng moved lower, but other Asian markets and S&P futures edged higher

• Key event today will be EU summit on the Franco-German relief plan

• EUR/USD resistance at the 200-day MA at 1.1011 and break targets 1.1148

• Support is found at the 10-day MA around 1.0915 and 21-day MA at 1.0887

• Aus Q1 constructio0n work done -1.0% vs expectations of -1.5% nAZN04P100

• AUD/USD not reacting to the GDP partial as data not influencing sentiment

• AUD/USD traded as low as 0.6632 earlier when S&P futures were down 0.3%

• S&P futures have reversed higher and are up 0.21% and over 3,000

• AUD/USD steady around 0.6645/50 with resistance at the 200-day MA at 0.6658

• More resistance at 76.4 of 0.7032/0.5510 move at 0.6672

• A close above 0.6675 could see AUD/USD fully retrace back above 0.7000

• It appears both the AUD/USD and S&P futures are retreating from 200-day MAs

• S&P futures down 0.30% at 2,986 with 200-day MA at 2,998

• AUD/USD also down 0.30% at 0.6635 with the w00-day MA at 0.6658

• There has been a strong correlation between both since start of pandemic nL4N2D80X5

• AUD/USD support at former resistance @ 0.6616 and beak eases upward pressure

Danske Research adopts a bearish GBP bias and prefers to express that via an options structure.

"Near-term, we expect a repricing of the Brexit risk premium ahead of the 1 July deadline to send EUR/GBP higher again. We believe this will mirror similar events in late 2018 and summer 2019," Danske notes. 

"We like to express our tactical bearish GBP view via options, which we believe allows for attractive risk-reward. Specifically, we recommend entering a 2M EUR/GBP 1x2 ATMS call spread with strikes of 0.8910 and 0.9070, respectively," Danske adds. 

• USD/JPY remains mired in 107.30-108.00 range as disparate factors hold sway

• Tuesday rally halted by simmering U.S-China tensions over HK; high of 107.92

• U.S. weighs sanctions on China officials, firms over HK- Bloomberg News

• News curbs risk rally, weighs on USD : link Click here

• Optimism on global economic recovery, vaccine hopes limit USD downside

• Resistance 107.75-80, 108.00-08, support 107.30-35, 107.00-10

• AUD was the best performing currency Tuesday as investors embrace risk nL8N2D843P

• The AUD/USD traded to 0.6675 when the S&P broke above 3,000 resistance

• S&P eased from the highs late in the session and AUD/USD followed

• S&P and AUD/USD came off highs on report Trump considering China sanctions nL1N2D82B8

• AUD/USD still gained a healthy 1.73% on the day and tested major resistance

• The 200-day MA comes in at 0.6658 and the 76.4 of 0.7032/0.5510 is at 0.6672

• A close above 0.6675 could see a complete retracement back to 0.7032 nL4N2D80X5

• Move higher a bit over-stretched and AUD/USD may need to consolidate

• Former resistance at 0.6616 now support and break eases upward pressure

UOB Research discusses EUR/USD technical outlook and flags the importance of a daily close above 1.1020 to signal further gains in the near-term.

"EUR continues to trade in a choppy manner as it surged and recouped most of last week’s decline. While the bias is tilted to the upside, EUR has to close above 1.1020 before a more sustained advance can be expected," UOB notes. 

"In the meanwhile, the outlook for EUR is deemed as mildly positive as long as it does move below 1.0900 within these few days," UOB adds. 

• Equity, commodity gains drive risk-on sentiment overnight, AUD/USD lifts

• Risk-on persists in NY nL1N2D80L6; AUD/JPY rises while USD/CNH sinks

• AUD/USD rally extends, pierces the 200-DMA, nears 0.6665 before dipping

• 0.6640 neared but US$ weakness persists, pair near 0.6655 late

• Techs are bullish; RSIs imply upside momentum remains, 10-DMA gives support

• AUD/USD shorts could get squeezed if key resistance breaks nL1N2D80L6

MUFG Research maintains a short GBP/JPY exposure and doesn't expect further GBP rally from current levels.

"After yesterday’s price action we can certainly see this trade view hasn’t got off to the greatest of starts. While the pound was buoyant at the start of the day, the comments from BoE Chief Economist Andy Haldane certainly helped fuel further buying. The risk of short GBP here is that it does look a crowded trade – momentum has been negative for some time – the IMM leveraged speculative data has dropped from the largest long position since 2018 to a net short position. But we don’t read too much into Haldane’s comments. By stating “reviewing is not the same as doing” is not surprising to us. An imminent move to negative rates was never likely," MUFG notes. 

"However, the door has been opened to the prospect of negative rates given the BoE clearly before has explicitly ruled out negative rates. The Dec 2020 3mth future has rallied around 10bps in part on negative rates speculation – that to us is reasonable and we do not see Haldane’s comments yesterday as a signal of a reversal of the negative rate speculation. So we would be surprised to see a notable further rally for GBP from current levels," MUFG adds. 

Upbeat risk sentiment, driven by hopes for economic recovery and vaccine progress nL4N2D837T, is drowning-out increased U.S.-Sino tensions nW1N2BP00J and has rallied AUD/USD towards key resistance, a break of which could squeeze shorts hard.
Risk-on is driving equities ESv1 higher and emerging market currencies nL4N2D80VN gains versus the U.S. dollar as investors flee safe havens for riskier plays.
As a result AUD/USD is testing resistance in the 0.6659-0.6685 zone where the 200-DMA, 76.4% Fibo of 0.7032-0.5510 and March monthly high sit.
A break of that zone should accelerate AUD/USD's rally and signs suggest a break is due.
Daily and monthly RSIs imply upside momentum remains while AUD/USD risk reversal show vol premiums for puts over calls is quickly eroding.
Positioning could factor in as well.
CFTC stats show net-short AUD positions have grown since the period ending March 17 but AUD/USD has rallied significantly in that time.
Should risk remain upbeat a break above 0.6685 is likely, possibly triggering stops and short covering that could lead to tests of the December and July monthly highs at 0.7032 and 0.7082 respectively.