'Euro short-covering rally has the momentum to test critical $1.15 mark' - David Rodríguez, DailyFX

   David
Rodríguez

PROFILE:
• Current Job:  Quantitative Strategist for DailyFX.com in New York.
• Career: Specialized in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by FXCM.

View profile at FXStreet

David Rodríguez is a quantitative analyst for DailyFX.com, specializing in statistical studies in currency trading markets and algorithmic trading systems for the Managed Accounts Programs offered by parent company, FXCM.

He holds a degree in Economics from Williams College with heavy emphasis on quantitative methods and began trading financial markets in the tech boom and bust of 1999-2001. Since then, David's primary focus has shifted from equities to currency markets, but he continues to trade futures and futures options on a broad range of asset classes as well as currencies.

The Fed acknowledged economic slowdown, but left the door open for a June hike. Why do you think the dollar failed to pick up momentum?

The Fed achieved its mission through its recent decision: make as few waves as possible and leave room to change policy if necessary. Very few truly believe that the Fed will hike in June, and in fact interest rate futures showed implied expectations were exactly unchanged following the print. Stable outlook gives Dollar bulls fewer reasons to hold onto positions, and a clear wave of position-squaring leaves the USD noticeably lower.

EUR/USD has been on recovery mode over the last weeks despite Greece made little progress in negotiations with creditors. Do you see EUR/USD reaching 1.1500 in the near term, or moving closer to parity?

The Euro rally has everything to do with an aggressive wave of short covering, and ultimately it seems as though it has the momentum to test critical price levels near the $1.15 mark. A study of real trader volume shows that there’s little in the way of resistance until key congestion zones starting at $1.14 that extends through the February high of $1.15. Of course the coming week brings a highly-anticipated US Nonfarm Payrolls report which could force a shift in US Dollar trends.

The Cable has nearly recovered all its losses of this year during the last two weeks and yesterday approached 2015-highs at 1.55. Can the uncertainty of the UK Elections shift the trend and take the GBP/USD down south?

It’s especially difficult to predict how the elections will turn out and much less how the Sterling will react to the unpredictable outcome. The uncertainty in itself will likely be enough to keep the GBP from rallying further ahead of the election result. That said, there’s relatively little reason to believe that a negative outcome will be enough to force a meaningful turn lower.

Kuroda announced this week that BoJ has not discussed QQE exit, preventing the JPY from lifting. Do you foresee any reason for the USD/JPY to break out of the range 118.5-120.7 where it has been stuck for the last month?

The Japanese Yen resembles a snake that is coiling up before striking out violently in one direction, and recent Dollar momentum suggests this may be to the downside. Yet it’s clear that this break won’t come easily as there is substantial trader interest and congestion support near ¥118.50. A breakdown in the USD/JPY would likely coincide with a Euro move towards $1.15 and a much larger US Dollar sell-off.

The RBNZ also had its meeting this week and denied the possibility of a rate hike any time soon, with the NZD taking a hit. AUD/NZD was in a long-term downtrend nearing parity but has bounced off just before reaching it. Do you think this could still happen in the near-term?

Strong multi-year price momentum in the AUD/NZD exchange rate certainly suggests we will see a test of NZ$1.00 through the foreseeable future. Yet a recent recovery in hard commodity prices has boosted the Australian Dollar versus its New Zealand counterpart. And indeed the relationship between hard commodities and agricultural commodities will likely dictate near-term direction in the AUD/NZD given relatively equal interest rate expectations for Australia and New Zealand.