FX Update: USD trying to show resilience ahead of ECB and NFP

Otmane El Rhazi : Today’s key US data will set the tone for the USD for weeks to come it tries to show signs of putting up a fight. Meanwhile, the EUR is quietly nervous ahead of the ECB meeting and the AUD is tumbling in the wake of sharp words from the RBA.

The Reserve Banks of Australia governor Glenn Stevens was out overnight protesting that the market was underestimating the likelihood of a significant fall in the AUD, saying “most measurements would say it is overvalued, and not just by a few cents”. This caught the market on the wrong foot as this Tuesday’s RBA meeting produced a statement that looked rather passive, waving a white flag in the face of further AUD strength. The sharpness of the fall, all the way back below 0.9400 in AUDUSD as of this morning, was aggravated by the fresh positions put on this week on the technical break higher and by the very weak Australian retail sales report for May that was released overnight. This reversal has created a compelling bearish reversal pattern, though one that will likely require a dose of isolated USD strength to have more durable significance. Cue today’s US economic data…

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