• Flat after jumping 0.9%, as the ECB delivered solid stimulus nL8N2DH0PH

• U.S. moves to tighten sanctions on Russia-Germany gas pipeline nL1N2DG22G

• Germany rebuffs gasoline car lobby with radical electric plan nL8N2DH3X3

• Charts - momentum studies, 5, 10 & 21 DMAs head north - positive setup

• Eight days of higher lows and highs sustains the trending market

• Next stop for uptrend is a test of 1.1495 March and 2020 high

• Rising 1.1325 21 day Bollinger suggests buying dips not breaks

• London 1.1195 low & NY 1.1362 high initial support-resistance

• AUD/USD opens +0.3%, more range trading likely after 2nd failure near 0.7000

• Profit taking on risk positions ahead of Fri U.S. jobs report limits gains

• Consolidation in 0.6850-0.7000 range sets platform for eventual break higher

• Gains likely to slow after 4.7% rally this week; Australia market closed Mon

• Weekly close above 100-Week MA at 0.6926 will be technically positive

• Support 0.6910-15, 0.6885-90, 0.6860; resistance 0.6985-0.7000, 0.7032

Nordea Research discusses its expectations for next week's FOMC policy meeting.

"There will be no rate changes at next week’s FOMC meeting. The Fed has clearly dismissed the idea of going to negative (NIRP) while also stating that the target range will remain unchanged “until the economy has weathered recent events and is on track to achieve maximum employment and price stability”  These goals are Fed miles off from achieving at the moment," Nordea notes. 

"Overall, we think there are many tough questions to be answered at next week’s meeting. Whether the Fed wants to answer them all is doubtful. The state of the economy is so fragile that the Fed probably sees the risks/uncertainty of introducing (unconventional) forward guidance now as too big. Instead, Powell will likely reiterate his words from last time that the Fed is ready to do more if needed and that this “more” may for now be linked to the liquidity and credit facilities," Nordea adds. 

The dollar and yen fell sharply against the euro after the ECB increased its PEPP program nAPN0E8YT4 more than expected, while modest disappointment in U.S. jobless claims data nAPN0E90KG failed to derail the broader risk recovery that has left the two safe-haven currencies in the dumps.

EUR/USD’s parabolic rise nL1N2DH1MW is quickly closing the gap on the 1.1495 March and 2020 EBS high, driving daily RSIs to their most overbought since March’s pandemic peak in the process.

The PEPP increase and Germany’s additional 130 bln euro fiscal stimulus nL8N2DH1XY were seen as euro-positive by supporting euro zone economic recovery.

But, with the euro no longer seen as a cheap currency, European stock markets were kept in check.

Also hindering were the ECB’s downwardly revised 2020-22 inflation forecasts nJUNEFCAST and ECB President Christine Lagarde’s sober assessment of the region’s economic challenges.
Lack of ECB discussion about buying junk bonds didn't help either, while markets are also awaiting the EU fiscal package to provide support.

Ten-year BTP-Bund yield spreads tumbled to their lowest since late March, with BTP yields down 17bp at one stage, a green light for EUR/JPY to get well beyond this year’s prior peak at 122.88 nL1N2DH140.

The dollar index extended its plunge toward a measured ABC objective at 96.20, disregarding oversold readings close to March’s extremes, instead focusing on the stimulus and reopening-driven global recovery.

U.S.
Senate approval of a bill on Wednesday extending the Paycheck Protection Program to 24 weeks from 8, with greater leeway for how the money can be spent nL1N2DG2ZJ also helped, even though legislation to vastly expand relief efforts remains on hold.

USD/JPY’s rally so far was capped by a pending ABC corrective objective at 109.16, but also fresh dollar losses, with a close above 109.16 opening the door to retesting April’s high and the 61.8% of the March-May slide at 109.38/53 on EBS.

Cable limped in with modest gains nL1N2DH17Z as trading becomes more two-way the closer prices get to April’s 1.2648 high and the 200-DMA at 1.2675, and ahead of Friday’s end to this week’s EU-UK trade talks.

Lower oil prices on doubts about OPEC+ production cuts left related currencies weaker, as EEM, the EM ETF, fell away from yesterday’s test of 200-DMA resistance.

Next up, Friday’s U.S. employment report is expected to show a jobless rate of 19.8% and an 8 mln drop in nonfarm payrolls, the make-up of which will be closely scrutinized by markets.

Credit Agricole Research maintains a structural bearish bias on CHF, expressing that via holding a long EUR/CHF position targeting a move towards 1.15.

"While easing lockdown restrictions around the globe should help to trigger further stabilising fundamentals, overall risk sentiment may well continue to improve for now. However, some caution in FX may be warranted with increased speculative long positioning in the likes of the EUR having increased position squaring-related downside risks.

"Nevertheless, we expect crosses such as EUR/CHF to continue to remain well supported as we believe the SNB will remainaggressive on currency intervention," CACIB adds. 

• GBP/USD firm into NY close +0.26% at 1.2604; Thurs range 1.2628-1.2500

• Bulls got early boost from enhanced EU accommodation nAPN0E8YT4

• Accommodative ECB fails to produce new GBP/USD trend high nL1N2DH11C

• Resistance by trend highs just below 1.2650 & 200-DMA 1.2675 tempers bulls

• Current rd of UK-EU trade talks end Friday; talk of extension aids GBP lift

• EUR/GBP +0.66% to 0.8994, Thurs range 0.9007-0.8933; large EU aid package boosts EUR, Brexit fears hit GBP

Credit Suisse discusses USD/CAD outlook and looks to sell rallies into 1.37 targeting 1.3320 ahead of the BoC July-15 meeting. 

"We expect USDCAD to continue to track the broader USD, which we think is consistent with a test of the H219 highs around 1.3320-1.3340 ahead of the 15 July BoC meeting," CS notes. 

"With spot USDCAD close to pre-Covid levels, we see asymmetrical risk of a tactical correction above 1.37 – a move we would look to fade," CS adds. 

EUR/USD bulls cheered the ECB's policy move to increase the PEPP by a larger-than-expected EUR600 bln and extend purchases at least until end-June 2021 nL8N2DH0PH by rallying it toward the 76.4% Fibo of 1.1495-1.0636 nL1N2DH0OL.
They now await the May U.S. employment report, hoping the data won't alter the level of Fed support for the economy.
Today's jobless claims and the May ADP data sent conflicting signals, leaving tomorrow's payrolls to decide.
Nevertheless, 10-year U.S. Treasury yields US10YT=RR have extended the rise that followed ADP's upside surprise, and fed funds futures prices FFZ1 are lower.
The futures market has now priced out expectations for negative Fed rates.
Should Friday's jobs report come out less dour than expected the U.S. rate ascent could persist as investors consider the possibility of the Fed holding back on further stimulus.
An extension of the rate rally could underpin the dollar -- an impediment to EUR/USD bulls.
Selling due to profit taking could then kick in, with CFTC data 1099741NNET showing net-long euro positions elevated.
A pull-back to the 200-DMA or even 1.1010/20 support would then be possible.

• ECB extends PEPP to at least June 2021, increase amt by EUR 600bln

• Move by ECB nAPN0E8YT4 rallies euro across the board

• EUR/USD hits 1.12725 (EBS), EUR/JPY hits 122.77 (EBS), EUR/GBP 0.8968

• EUR/USD rally nears 76.4% Fibo of 1.1495-1.0636 but gains erode a bit

• CFTC stats show market is net-long euro 1099741NNET, likely tempers rally

• US weekly cliam today, May employment report Friday likely tempers bulls

• EUR/USD might consolidate below the Fib until jobs data risk passes

• EUR/USD -0.28%, USD/JPY 0%, GBP/USD -0.33%, AUD/USD -0.35%

• S&P E-minis -0.49%, DAX -0.67%, Nikkei 0.36%, FTSE -0.31%

• It is make or break for the dollar nL1N2DH0CT

• It's likely EUR/USD goes down today and up tomorrow nL1N2DH0CP

• FX traders have been buying USD/JPY all week, EBS data shows nL1N2DH0CG

• Pound boosted by Hauser steer about negative BoE rate risk nL1N2DH0FS

• Last time this happened AUD/USD dropped almost 9% nL1N2DH0EC

• FX option expiries nL1N2DH07T. U.S. Open nL4N2DH2OU

• Tuesday saw USD/JPY break through the top of 6-week range highs at 108.08

• That woke options from a long term slumber and implied volatility picked up

• Implied volatility had been approaching crisis lows, so good potential value

• However, 1-month vol already back at 5.7 from 5.95 highs (5.4 prior)

• Option holders need volatility to benefit from long implied vol positions

• Renewed implied vol sales suggest actual volatility perception still low

• USD 1-bln 109.00 option expiry Friday helps contain spot

  
  

EUR/USD bulls should look at FX option market risk reversals as a barometer of upside potential for the spot rate.
Risk reversals show the implied volatility premium option traders must pay for option strikes in one direction versus those in the other.
Sub-one-month expiries are the ones to watch as they are more closely correlated with near-term spot sentiment and positioning.
Last week, one-week and one-month expiry risk reversals lost their EUR put (downside) volatility premium, which had been present throughout the crisis.
They flipped to a small EUR call (topside) volatility premium, which wasn't unusual with EUR/USD extending its recovery toward pre-crisis highs.
However, those risk reversals struggled to add to that premium this week, despite EUR/USD extending gains by another cent to 1.1258, and are off highs now.
If FX options thought there was a danger of more significant EUR/USD gains, into territory where they were short of option coverage, the risk reversals would still typically be adding EUR call volatility premium.
Related comment nL1N2DH0BW

• CAD trades marginally easier following a Wed run to 3-mth highs

• BoC held policy steady at 0.25% and CAD bond yields climbed nL1N2DG17I

• Investors still betting on economic recoveries but CAD due a setback

• Not a major rebound early Thurs but USD/CAD is lifting away from the 200DMA

• The average, at 1.3463, has been below market since Mar 2, closing basis

• Price looks set to regain ground inside the 30DMA Bolli envelope, 1.3547

• Broader dollar gains at play too: DXY currently up 0.24%

  
  

• Overnight (next day) expiry EUR/USD options get both ECB and NFP

• Implied volatility gauges actual volatility expectations - it's much higher

• For context - before ECB capture on Tuesday, it was 10.0 implied vols

• On Wednesday when it captured ECB, it was 13.0 vols - its now 16.0 with NFP

• Premium/break-even 16.0 vol is 75 USD pips, versus 47 USD pips at 10.0 vol

• Shows how much holders must capture, in either direction, before profit

• EUR/USD's break above 1.1250 late Wed's aids implied volatility support

• However, beware pull of huge option expiries low 1.12's nL1N2DH07T

  
  

Bank of America Global Research summarizes the technical setups for GBP/USD, AUD/USD, and USD/CHF.

"GBP/USD: Consider a short at resistance of 1.2671-1.2711; however, buy the breakout through this resistance pocket for 1.30+. 

AUD/USD looks like a decent short in the +/- .70 resistance area

USD/CHF: Sell a rally as a hedge? It's in a range and has to break the low .98s to move meaningfully higher or .9590 to move lower," BofA notes. 

• -0.2%, as the base of a 0.6931-0.6892 Asian range, with lighter flow

• Very different flow and price action today - profit taking into US payrolls?

• Broadly as expected retail sales & trade data nL4N2DH0GF had little impact

• Government launched an AUD680 million construction package nL4N2DH029

• Charts; momentum studies, 5, 10 & 21 DMAs track north - positive setup

• Uptrend targets a test of 0.7020-32, 2020 high and Dec 31 top

• Upper Bollinger band at 0.6902 suggests AUD overbought short term

• London 0.6857 low and earlier 0.6931 high initial support-resistance

• -0.25%, as markets saw a little profit taking in a quiet 1.2526-1.2579 range

• Price action and volumes very different to earlier in the hectic week

• E-Mini S&P gave up early 0.2% gains to trade -0.3%, Nikkei & AsiaxJP +0.1%

• POLL - GBP to slide if UK doesn't seek a Brexit talks extension nL8N2DG35Q

• Recent sterling strength is all about USD weakness and the risk rebound

• Charts; momentum studies, 5, 10 & 21 DMAs head north, positive setup

• 1.2581 upper 21 day Bollinger suggests overbought - buy dips not breaks

• Trend targets a test of the 1.2648-75 area April high and the 200 DMA

  
  

  
  

• Trade balance 8,800M poll 7,500M, retail sales -17.7% poll -17.9%

• Muted knee jerk response to data that came in close to expectations

• Government launched an AUD680 million construction package nL4N2DH029

• Charts; momentum studies, 5, 10 & 21 DMAs track north - positive setup

• Upper Bollinger band at 0.6906 suggests AUD overbought short term

• Uptrend targets a test of 0.7020-32, 2020 high and Dec 31 top

• London 0.6857 low and earlier 0.6931 high initial support-resistance

• Early gains on E-Mini S&P's evaporated and AUD profit taking kicked in

• Trades -0.25% after initially up 0.15% - trade and retail sales in 30 mins

• Government launched an AUD680 million construction package nL4N2DH029

• Coronavirus appears under control, with no deaths in over a week

• Charts; momentum studies, 5, 10 & 21 DMAs track north - positive setup

• Uptrend targets a test of 0.7020-32, 2020 high and Dec 31 top

• Upper Bollinger band at 0.6911 suggests AUD overbought short term

• London 0.6857 low and earlier 0.6931 high initial support-resistance

  
  

Citi maintains a structural bullish bias on AUD but flags a scope for a correction in the near-term.

"AUD has earned a lot of attention given choppy moves on Wednesday characterised by the race to 0.7000 and subsequent capitulation. Our Sydney trader warns to stay liquid and patient: “in terms of price action yesterday, it looked exhaustive (if not the whole week). It felt like the final capitulations of legacy short risk and underweight AUD positions. The rally has been impressive in the local unit matched only by the market's disdain for the USD. Recent unrest across America only heightens the risk of another wave of contagion which can lead to further lockdown measures which will hinder the economic recovery process," Citi notes. 

 "Data wise, AUD April Retail Sales printed marginally better than expectations (-17.7%MoM vs -17.9%e, 8.4% prior). The deep negative print is unsurprising as it captures peak lockdown and there was little to draw from the details. In line with our Sydney trader, we may see some retracement lower continue but maintain our bullish thesis overall and think there could be upside risks to May retail sales with the economy recovering ahead of schedule," Citi adds. 

• Touch softer after closing up 0.55% on economic recovery hopes nL8N2DG1PB

• German coalition parties agree 130 bln euro stimulus package nL8N2DG3XU

• ECB prepares more financial aid for virus-stricken euro zone nL8N2DG4AJ

• Authorities in Europe are getting their act together to spark growth

• Charts - momentum studies, 5, 10 & 21 DMAs head north - positive setup

• Rising 1.2429 21 day Bolli suggests buying dips not breaks at these levels

• Next stop for uptrend is a test of 1.1292, 76.4% March fall

• London 1.1184 low & NY 1.1258 high initial support-resistance

  
  

  
  

• AUD/USD opens +0.3% after volatile trading day; gains slow ahead of 0.7000

• Dips to 0.6857 in NYK from 0.6982 Asia high on p/taking, fresh buying ensues

• Supported by elevated risk appetite on signs of global economic rebound

• Commodities rally boosts; copper touches Mar high, iron ore @ 10-mth highs

• AU Apr rtl sales, trade bal due Thur; watched for economic recovery signs

• Volatility here to stay, weekly close key for bulls nL1N2DG0ERnL4N2DF2UY

• Resistance 0.6960, 0.6980, 0.7000; support 0.6895-0.6900, 0.6860, 0.6840

• NY opens near 1.1215, pair trades heavy early as US$ & yen are bid

• 1.1184 trades on EBS, bids emerge then ADP sees big upside beat nL1N2DG0R7

• Risk-on sentiment intensifies, US$ & yen sold, EUR/JPY hits to 122.51 on EBS

• EUR/USD trades to 1.1252 on EBS, little pull back seen, near 1.1240 late

• Techs are bullish, RSIs rise, pair closes above 61.8 Fib of 1.1495-1.0636

• EUR/USD longs have the advantage but do face some risks nL1N2DG178