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Morning Brief

Data from the overnight session shows that Japan’s National CPI reading is still deflationary but did come in better than expectations. Whereas the Australian Flash PMI data was mixed, printing better than analysts’ predictions for Manufacturing but falling short in Services and Composite readings. The Manufacturing reading was 59.9, 0.2 more than April and also a new record high, as new orders, employment and production all expanded. Australian retail sales beat expectations but were lower than the previous month.


The ActivTrader sentiment reading for the AUDJPY shows that 78% of traders are bearish of the pair, even though it has been trending higher for an entire 12 months. The last couple of days tested back down to the daily 50 ema which again held as dynamic support along with the 84.00 price level. If today’s price action were to break lower and be the start of a more meaningful correction to the downside, the daily 200 ema would be the most logical target, which is currently positioned 300 pips lower.


The big news at the start of the London session is that UK retail sales smashed through analysts’ expectations, coming in at 9.2%, which the Office for National Statistics (ONS) puts down to the easing of coronavirus restrictions. The ONS report stated, ‘Retail sales volumes were 42.4% higher than in April 2020, which was affected by the first national lockdown when the tightest restrictions were in place; however, these growth rates are distorted by base effects and are not a reliable guide; sales volumes were 10.6% higher than February 2020, before the impact of the coronavirus pandemic.’


The good news hasn’t translated into higher prices in the GBPUSD pair and 1.4200 remains key resistance above. For me, this shows that the US dollar is still in control of the currency pairs and for GBPUSD to rise further on improving UK data we’re going to need to see the US dollar collapse below the recent lows.


As the trading day begins for the UK, the weakest currency this morning is the Australian dollar, while the strongest pairs are the Japanese yen and Swiss franc. With the US dollar coming in stronger. The AUDUSD is still trading within its consolidation range but the AUDCHF is making a dash lower having broken through the 0.7000 level with some conviction.


The ActivTrader sentiment indicator for the AUDCHF is showing that 57% of traders are bullish, while the price action on the daily chart shows that the price is falling towards the 200 daily ema which resides currently at 0.68996, or roughly 50 pips lower. On a longer-term timeframe, a break lower than the 200 daily ema has signalled a longer trending move, so the bullish sentiment seen could be key to whether this pair goes lower. If traders start loading up on longs, they are likely to get squeezed lower.

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