A combination of mixed data out of the US on Tuesday, highlighted by softer consumer confidence, and a relatively flat equity close, could now be warning of a potential reversal in the broader market into Wednesday trade.
The Euro closed with a doji formation, while Aussie and Kiwi also managed to put in some bearish doji candles on the daily charts against the buck. Meanwhile the Canadian Dollar softened after initially being very well bid, with the Loonie finding some heavy offers in North American trade to result in a Usd/Cad close back above the very well supported 100-Day SMA. The standouts in Tuesday trade were undoubtedly the Swiss Franc which was heavily offered across the board, with many citing official action, and the Pound, which was an impressive outperformer on the back of yet another impressive round of data in the form of CBI retail sales. Yen price action was also not to be ignored, after the currency was also well offered against the USD.
The disappointment in the European bank stress tests is still being felt, and could actually be weighing on the Euro over the past few sessions. Technical studies certainly seem to be warning of a bearish reversal on Wednesday and it will be interesting to see if things actually play out this way. In our opinion, the commodity currencies are the most at risk over the coming days, with all three major commodity currencies trading at cyclically stretched levels against the USD and also looking quite vulnerable given the latest liquidation in the gold and oil markets. On Tuesday we talked about the potential for some form of a catalyst to trigger the resumption of broad based USD buying, and we could be on the verge of seeing this play out. It certainly looks as though we already have our catalyst in the antipodeans, with the much softer Australian inflation data and poor New Zealand consumer confidence result already weighing ahead of the European open.
Looking ahead, all is expected to be quiet on the European data front, with the only notable release coming in the form of the European Central Bank lending survey due at 8:00GMT. However, although the session will be data light, we do not expect it to be price action light. Currencies have benefited from a very healthy rally against the buck over the past several weeks and with technical studies starting to show signs of a reversal, we could be in for a very volatile next 24 hours.
