FX Daily Strategy: N America, Jun 12th
Market dares to dream as oil breaks lower into w/e on deal hopes
FX more cautious in terms of paring back the haven support, held at pair/resistance areas
Geopolitics will continue to dominate USD flows in the near-term although the FX market is so far hesitating to fully commit to the latest positive noises given the frequency with which Trump has suggested a deal is imminent.
All that given, this time there does seem to be diplomatic substance beneath the hype and a lot of work done to push through the concrete snagging issues. The market is now waiting to hear if Iran makes a final decision with Trump seemingly already on board the current version. Much of that may come own to the details of how much and when any funds are unfrozen because that has become a key practical consideration for both sides and where there is less room to fudge.
In the European morning after some hesitation, oil has made the potential break, taking out the band floor of recent weeks with Brent stretching towards the April spike low.
FX has been a little more circumspect, with key bounce resistance areas tested yesterday so far holding. EUR/USD for instance has 1.1575/1.16 as the current key level, the recent break area.. While this has held so far, there is room heading into NY for the market to catch up with oil and take this area out, potentially stemming the recent downtrend. As always though, any Friday action could be confirmed or quickly proved false the other side of the weekend depending on fairly binary outcomes.
In other news, UK GDP saw the minor April monthly correction expected, albeit after a period of more resilience than assumed. Data still leaves in place the recently reinforced market belief in an ongoing pause from the BoE through the summer. As elsewhere, this is largely secondary to the wider backdrop and outlook influence coming from geopolitics as we reach a key decision point.
While there's a busy week ahead and also some other event risk over the weekend - the Swiss referendum - headlines on Iran will remain the critical and only real focus through Friday and heading into the weekend. At the risk of being caught out yet again, market skew is likely to be towards more position covering action, which at present means paring the long dollar bias.