Daily Trade Recommendation

Our trade call today is buying AUDNZD on any substantial pullbacks. The area between 1.0940 and 1.0960 will likely provide good support for the next move higher. This is a high conviction trade of 7/10, however the likelihood of it pulling back that far is small. Entries could also be made at higher levels, however this will incur a higher risk of pullbacks in the context of the pair's current extension on the day.

Alternatively, one can look to sell NZDUSD from 0.7050 or 0.7100, however this trade incurs the risk of any USD weakness, with the USD showing unpredictable volatility in recent days. However any rallies in NZDUSD that do not have attached fundamental reasons for USD weakness should be viewed as selling opportunities. This view may remain in place for some time. 

Current Sentiment:

In this morning's Asian session, antipodean currencies took the spotlight. The RBNZ cut the official cash rate 25 basis points to 3.25%. This was expected by some market participants given core inflation was at the lower bound of 1% and dairy prices are in a multi-month downtrend. Due to the partial unexpectedness of the cut, and coupled with early Asian session lack of liquidity, Kiwi gapped over 100 pips lower immediately upon release; the pair is now down 200 pips and testing support at the 70 handle. The accompanying statement and press conference was also dovish, with remarks that NZD is overvalued, a lowering of GDP forecasts and an inclination for further easing, depending on the data.

The employment release from Australia showed some incredible numbers, which have been surrounded by suggestions of inaccuracy. The figure, which is compiled and released by the ABS, showed 42,000 new jobs were added for the month of May, compared with the 11,000 expected. In addition the released showed unemployment dropped to 6% - the lowest reading in a year. On further inspection of the numbers, it is evident that a large contributor to the headline change was an increase in part-time employment and the unemployment rate was lower due to a decrease in the participation rate. Aussie ran 85 pips from lows to highs upon release.

We also saw Retail Sales and Industrial Production from China, with all numbers coming in relatively close to expectations.

Fundamentals:

The USD remains the strongest currency in the longer term. The recent NFP reading has reaffirmed USD strength amid speculation of a rate hike by September. Although we expect bullish sentiment on the dollar to remain in the near term, it is near its long-term highs against most counterparts and therefore may be susceptible to pullacks - such pullbacks will likely provide buying opportunities.

The EUR remains fundamentally weak due to QE and the ongoing Greek debt issue, however recent inflation and unemployment numbers have signalled that a recovery is on track, which has given the currency some positive sentiment recently. If Greece fails to make any of their imminent repayments, the euro will be pressured. Conversely, a deal with a solid resolution will precipitate a relief rally.

GBP is looking at a rate hike in the next 12 months. There is no clear sentiment on pound at present. We await some tier one data to help guide trading decisions on the currency.

AUD: Low commodity prices and a slowdown in China has put bearish pressure on the AUD, however the recent RBA statement did not include any specific mention of further cuts and stated that inflation is expected to remain within target. Last week saw mixed data from Australia, with both better and worse data coming in. Overall the bias for AUD is on the bearish side of neutral, until we see more data. The market surprisingly shrugged off Stephens's bearish comments yesterday and today's stellar jobs report has given bullish sentiment to AUD.

NZD now has a new official cash rate of 3.25% after the RBNZ cut rates. They have left the door open for further easing and as such the Kiwi dollar is a bearish currency.

CAD remains on the weaker side of neutral. CAD will take most of its direction from any significant changes in the price of West Texas Intermediate crude oil. When there is no oil-related news, the oil price will generally move with negative correlation to the USD.

JPY remains bearish due to QQE. Yen weakness has accelerated recently on the back of USD strength. Yen is at a 12-year low against the dollar. Sentiment on the JPY can turn bullish quickly if there is severe uncertainty in the markets. Language from the BOJ shows they believe a recovery is beginning and QQE is having its intended effect. Recent positive GDP readings have dampened speculation of any additional easing, and Kuroda's recent comments have spurred strength in the yen.

CHF is fundamentally a weaker currency given the SNB's negative interest rates. It is highly susceptible to volatility due to SNB potentially intervening to weaken the currency as it tends to strengthen on safe-haven demand. CHF often will take direction from the EUR with which its correlation over the last 50 trading days is approximately 75%.

Technicals:

We will be monitoring levels of support and resistance in unison with any impactful news and the underlying fundamentals in order to find a high probability trade. Support and resistance includes previous highs and lows (horizontal s/r), trendlines, moving averages, Fibonacci retracements, daily pivot levels and round numbers. These levels of support and resistance are most effective when there are several of them converging at the same area (confluence).

Other Market Moving News:

Today's major data point is Retail Sales from the US. Later we will see a speech from BOC Governor Poloz.