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.

Thursday was a good day for the US dollar; according to the US Dollar Index, the buck extended recovery gains, adding +0.6% and clocking a two-month pinnacle. I noted here that we’re approaching a key resistance base on the daily scale at 103.85, which is still the case. Given recent upside momentum, this level will likely garner some bearish interest (short covering), though a higher breakout is also certainly not out of the question.

I have added the chart here again for convenience:

(Trading View)

The spirited USD advance came on the back of upbeat US economic data. Weekly jobless claims were 242,000 for the week ending 13 May, beating the market consensus of 253,000 and the prior week’s reading of 264,000. This marks a reversal from the three previous weeks, and, coupled with the stronger-than-expected NFP print, shows the economy may not be slowing as quickly as hoped. Consequently, Fed Chair Powell’s participation in a panel discussion titled Perspectives on Monetary Policy could be one to watch today at 4:00 pm GMT+1. You can find a link to the calendar here.

We also had the Manufacturing Business Outlook Survey for Philadelphia on Thursday, which revealed general activity increase from -31.3 in April to -10.4 in May. Note that this conflicted with the -31.8 downbeat print we saw in Monday’s Empire State Manufacturing Survey. Additionally, housing data revealed that existing home sales fell -3.4% in the month of April to 4.28 million. The National Association of Realtors noted that all four major US regions recorded MoM and YoY declines.

Emerging FX markets were lower across the board, underpinned by the broad USD strength; the USD/CNY remains above the 7.00 level, fading highs of 7.0598 in current trading. The USD/MXN currency pair also printed a third consecutive daily gain on Thursday. However, it recently responded to a decision point around 17.7485, thus could be an area we see a sell-on-rally scenario unfold to breakout lower and resume the three-year downtrend.

Procyclical currencies remained on the back foot in recent trading. Weighed by soft jobs data and a healthy USD bid, the AUD/USD underperformed (-0.6%), with technicians still likely targeting those range lows around $0.6580ish (daily timeframe). The New Zealand dollar and Canadian dollar also underperformed against its US counterpart, down -0.4%, respectively.

Europe’s shared currency and Britain’s pound were down around -0.6% at the close on Thursday. EUR/USD clocked a near-two-month low of $1.0762 and ended at session lows; GBP/USD also hit one-month lows of around $1.2392. Technically, the pound’s decline should not surprise. Weekly trendline resistance recently made a show alongside daily resistance at $1.2638. With room to approach daily support at $1.2272, H1 will likely seek deeper water below the $1.24 handle despite this morning’s modest recovery.

Finally, safe-haven currencies were clear laggards on the session; the USD/JPY recorded a sixth successive bullish day and reached highs of ¥138.75, levels not seen since November 2022.

GBP/USD Chart:

(Trading View)

Major Currency Markets as of around 8:00 am GMT+1:

(Trading View)

Headline Events for the Day Ahead:

Month-Over-Month Canada Retail Sales Data for November at 1:30 pm GMT+1 (Expected: -1.4%; Previous: -0.2%).

US Federal Reserve (Fed) Chair Jerome Powell Speaks at 4:00 pm GMT+1.

European Central Bank (ECB) President Christine Lagarde is Due to Speak at 8:00 pm GMT+1.

Thanks for reading. Have a great day!

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.