FX Daily Strategy: N America, June 13th

The initial reaction to Israel surprise attack on Iran's nuclear facilities has been the traditional oil up, USD up, Treasury yields down and equity market dips.  Iran retailation has been moderate so far, but traders are nervous that Iran could restrict oil tanker flow through the Gulf as a tool to leverage the U.S. to pressure Israel.  This could then draw the U.S. in.  Some are not certain that the USD rally will last, given the underlying negative sentiment.  Additionally, Trump threats over the July 9 receproical tariff deadline produce downside risks for the USD as well.  For now the USD will likely get safe haven demand through the weekend. 

We also will having the Michigan consumer surverys for U.S. on Friday. While in the past two months, the consumer sentiment has beaten estimates, it remains in a solid downtrend. It suggest consumers are getting wary of more consumption, likely due to higher cost and household balance sheet restraint. Unless we see a big beat, the greenback is unlikely to be supported by this data point.

On the chart, the consolidation around 99.00 has given way to fresh selling interest, with prices currently pressuring support at the 98.35 weekly low of 5 June. Oversold intraday studies could prompt short-term reactions around here, before bearish daily readings and mixed/negative weekly charts prompt further losses. A break beneath here will open up congestion around 98.00 and the 97.70 weekly low of early-March 2022. A close beneath here will turn sentiment negative and confirm continuation of September 2022 losses, initially towards 96.50. Meanwhile, resistance is lowered to 99.00. A close above here, if seen, will turn sentiment neutral and prompt consolidation beneath congestion around 99.50.

The EUR/USD is quickly challenging yearly higher at 1.1573, if there is a successful further breakout, it will be a level last seen in 2022. While the dominator here remains in USD as Trump stole all the spotlight, there is a slate of European CPI on Friday. Germany CPI is leading the pack on y/y terms and could persuade the ECB to turn more hawkish if France and Spain CPI also tilted higher.

On the chart, there is cautious trading above congestion support at 1.1400 has given way to a bounce, with prices currently trading just above congestion resistance at 1.1500. Overbought intraday studies are unwinding, highlighting room for a minor pullback. But improving daily readings are expected to limit any immediate losses in renewed consolidation/ buying interest above 1.1500. Meanwhile, resistance is up to the 1.1573 current year high. Mixed weekly charts should limit any immediate tests in consolidation. But a close above here would turn sentiment positive and extend September 2022 gains, initially towards congestion around 1.1600 and the 1.1615 monthly high of November 2021.

USD/JPY remains in the consolidation zone as there has been little news in the trade front. There has been little headlines between the U.S. and Japan trade negotiation as they are unlikely to begin anything formal before the G7 summit is done. For the JPY to be further supported, we must hear some clarity from the U.S.-Japan trade negotiations because until then BoJ's hands are tied. There has been little hawkish rhetoric from BoJ as they know no one will believe them until the trade conflict is solved. Given the current inflationary pressure, one can expect more hawkish remark coming out after the fog of trade war clears.

On the chart, the pair turned lower after failing to sustain gains above the 145.00 level to extend rejection from the 145.46 high. Pullback see support starting at 144.00 level then 143.50 congestion. Daily studies have turned mixed and threatens break here to expose strong support at the 142.10/00 area to retest. Meanwhile, resistance is lowered to the 145.00 level. Closed above here will open up the 145.46 high to retest and see room to extend correction to strong resistance at 146.00/146.55 area which is expected to cap.