July 1, 2021 11:19:51

The dollar is pushing higher again today having enjoyed its biggest monthly rise since November 2016 in June. The hawkish turn by the Fed in its rates outlook, plus a safe haven bid due the rising infection numbers of the Delta variant across the globe is boosting the greenback.

The FOMC is now in data-dependent mode and USD was helped yesterday by a strong ADP employment report. Although this data is not a great predictor of tomorrow’s NFP number, the majors are now pushing beyond the post-Fed levels having traded sideways over the last week. Summer direction may be determined by the headline figure with current expectations for a 600k print.  

EUR/USD on recent lows

This week’s Eurozone inflation data has confirmed that the ECB will continue down the dovish road, at least relative to the Fed. Central bank divergence is a key theme in the markets and the Fed’s tightening cycle will start well ahead of the ECB, especially if US data remains strong.

Since tumbling after the June FOMC meeting, EUR/USD has eased oversold conditions, but a series of bearish candles last week signalled more downside to come. Prices have rolled over this week and have made new cycle lows below the 1.1847 post-Fed low. A move below 1.18 targets the year-to-date trough at 1.1704. The breakdown level will offer first resistance above at 1.1920 ahead of the top of the consolidation pattern at 1.1975 which is just shy of a confluence of resistance at 1.20. The move lower this week has touched the lower Keltner band which warns of a possible retracement.

USD/JPY new highs

USD/JPY’s bullish channel is there for all to see on the daily chart. A series of higher highs and higher lows which kicked off in late April has broken to new cycle highs today at 111.63. Momentum indicators are not overbought in the current environment although the pair has poked above the upper part of the channel. Targets for the bulls include the February 2020 high at 112.23 while any move lower will need to close below 111 and the previous cycle highs to slow the current bullish momentum. Of course, that may be a buying opportunity if the ascending channel holds.