The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors are up to date in the FX space for the day ahead.

Good morning.

FX Summary

Safe haven currencies took a hit on Wednesday; USD/JPY outperformed across the majors, gaining nearly +1.0%. Sterling was unchanged against the dollar, though it is around -0.2% lower this morning.

Additionally, procyclical currencies were largely bid yesterday, with the New Zealand dollar, the Aussie dollar, and the Canadian dollar displaying modest gains against the buck. The Dollar Index continues to pursue higher ground, recording a second consecutive session in the green. At the same time, Europe’s single currency registered a second successive day in the red and refreshed lows of $1.0810, levels not seen since the beginning of April. Of note, we did see the final CPI print for the euro area yesterday, which had headline YoY inflation at 7.0% and core at 5.6%. Softening consumer prices could weigh on the euro further, following the EUR/USD recently drilling through its 200-day simple moving average. We will also see European Central Bank (ECB) President Christine Lagarde in Frankfurt at 10 am GMT+1 today.

AUD/USD

Overnight, the Australian dollar took a hit following disappointing jobs data. The AUD/USD currency pair fell 0.4% after the release, which revealed that Aussie unemployment (seasonally adjusted) increased 0.2 percentage points to 3.7%, up from 3.5% prior (and 3.5% expected). Employment change also showed a drastic dip in April, following two months of gains (-4.3% vs expected 25.0k [previous: 53.0k]). Markets continue to price in the probability of the Reserve Bank of Australia (RBA) maintaining the Official Cash Rate at 3.85%—pretty much unchanged from before the jobs release.

Positioning on the chart shows the currency pair closing in on pre-announcement levels in early European trading. Medium term, the pair has been lacklustre since March, pencilling in a range between $0.6578 and $0.6786. However, the unit is now below its 50- and 200-day simple moving averages ($0.6685 and $0.6715, respectively) and poised to test range lows. Consequently, this market could maintain its bearish position until $0.6685ish.

(Trading View)

US Dollar

Regarding the ongoing debt ceiling talks, US President Joe Biden and Republican speaker Kevin McCarthy echoed more of an enthusiastic vibe on Wednesday, both communicating confidence in avoiding a US debt default. Looking at economic data, housing starts and building permits data in the US largely aligned with market consensus. The former increased to 1.401 million, while the latter reached 1.42 million, just under the 1.44 million expected. Mortgage applications also fell by 5.7%.

According to the US Dollar Index, the greenback finished Wednesday marginally off best levels, extending recovery gains off the 50-day simple moving average at 102.32. In the absence of nearby resistance, additional outperformance towards daily resistance at 103.85 could be seen.

Looking ahead today, markets will welcome US unemployment claims and the Philly Fed Manufacturing Index at 1:30 pm GMT+1, as well as existing home sales data at 3:00 pm GMT+1.

(Trading View)

Major Currency Markets as of around 8:25 am GMT+1:

(Trading View)

Headline Events for the Day Ahead:

European Central Bank (ECB) President Christine Lagarde is Due to Speak at 10:00 am GMT+1.

US Initial Jobless Claims for the Week Ending 13 May at 1:30 pm GMT+1 (Expected: 254,000; Previous: 264,000).

Thanks for reading. Have a great day!

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