The parity is currently testing a rebound after having reach the lowest of July towards 0.8320. Indicators are globaly bullish. We maintain to trade only short positions as far as the price is below 0.8375. The breakout of 0.8320 will give a new sell signal.
The parity fake a return above 0.84. The price is now on its lowest of mid july below 0.8350. We maintain to trade only short positions as far as the price is below 0.84. The breakout of 0.8350 will give a new sell signal (0.8320 in extension).
The parity fake a breakout of the support at 0.8350. The price is currently testing 0.84. We maintain to trade only short positions as far as the price is below 0.84. The breakout of 0.8350 will give a new sell signal. If 0.84 is broken, we will wait the breakout of 0.8450 to trade only long positions.
The parity just got out of its range 0.8450/0.84. The breakout of 0.84 gave us a sell signal. All indicators are getting bearish. The price is currently testing 0.8350 (0.8317 in extension : lowest of July 13-14-15-23) We advise to trade only short positions as far as 0.84 is resistance. The breakout of 0.8350 will give a new sell signal and also the breakout of 0.83. As long as 0.83 is support, a pullback on 0.84 is possible.
* Stress test results are in--Yawn * Sterling bolstered as some of the economic gloom lifts * German recovery becoming difficult to ignore * JPY-strength becoming an issue in Tokyo * Key data and events to watch next week
Stress test results are in--Yawn
The long-awaited results of the Eurozone banking sector stress tests were delivered on Friday and markets greeted them with a collective yawn. Earlier leaks led markets to conclude the adverse scenarios would not be especially stringent, causing most to discount the results. To re-cap, only 7 of the 91 banks tested failed, requiring a total of only EUR 3.5 bio to be raised in new capital. To put that number in perspective, some analysts reckon Spanish banks alone need to raise EUR 40 bio to be adequately capitalized. The stress tests also excluded the potential for a sovereign debt default and focused only on securities held in banks' short-term trading books, and not the 90% of banks' government bond holdings that are classified 'hold to maturity.' But the basis of the European debt crisis was exactly that--banks holding large amounts of Euro-area government debt were vulnerable in the event of a sovereign default. The lack of credibility of the stress tests raises the risk that market concerns over Euro-area financial sector stability will resurface, leading to another round of speculation that the EUR is a doomed currency.
The one potential bright spot to emerge from the stress tests are disclosures of individual bank's holdings of government debt of Greece, Spain and Portugal, but those numbers were not available on Friday. They are expected to be divulged over the next two weeks. Revealing which institutions hold what amounts of troubled government debt will allow banks to more accurately determine which of their counterparties are most risky, and potentially improve credit market functioning and overall stability. Another possibility is that revealing government debt will lead to a two-tiered lending environment, with those holding significant exposures being forced to pay up or rely further on the ECB. We will be watching closely to see how European inter-bank lending rates move to start next week as the decisive measure of the market's acceptance of the stress test results. Going into the stress test results on Friday, with all that was known about the tests beforehand, 3-month Euribor rates were at the highest levels for the year, suggesting that credit markets remain on edge.
Against this backdrop, risk assets performed reasonably well in the past week, with stocks rebounding and making new gains, JPY-crosses at their highs (but still below recent highs), and the USD nearer to its lows against most others. Continued positive corporate earnings reports appear to be holding sway, but the overall environment remains extremely fragile and of low conviction. At the close of the week, risk looks like it may test higher next week, just as it looked set to extend losses at the end of last week. The passing of the stress test 'event risk' may propel risk higher in the near-term, but with more questions raised than answered, we think gains in risky assets are likely to prove unsustainable. As well, recent positive data surprises obscure the risks from a pending US slowdown into year-end, which is likely to echo around to other major economies. In this environment, we would suggest maintaining an extremely short-term trading bias and remaining alert for sharp intra-day reversals. Sterling bolstered as some of the economic gloom lifts
There is a broad consensus that the second half of this year will be difficult for the UK economy as it struggles in the face of budget reform. The news that Q2 GDP was far stronger than expected (+1.1% q/q) doesn't change this impression but it significantly reduces the chance that the UK economy will fall back into double dip recession on the back of austerity measures. The additional growth should soften the government's budget projections and should help heal the deficit a little faster than previously expected. Since UK growth in Q2 was quicker than expected it follows that inflation potential may also be a little firmer. Recent economic data does not support this view with headline CPI slipping back and average earnings moderating. That said there is sufficient fodder in price data for the UK inflation hawks to remain on edge. The impact of the GDP report was thus to send sterling sharply higher. EUR/GBP pushed below the 0.8390 technical support following the data release. A fall below 0.8310/20 could suggest another leg lower. Cable has broken above the USD1.5330 level which has strengthened the technical outlook. A break above USD1.5450 may see towards 1.5525.
German recovery becoming difficult to ignore
The German July IFO survey surged to 106.2 in July, outpacing both the market consensus and the June data by a generous margin. The release comes on the heels of stronger than expected German PMI data and provides more evidence that Germany's economic recovery continues to gather pace despite the loss of momentum in the US economy. Both the current and expectations components of the IFO surprised on the upside. Recent German surveys have shown some hesitancy in the expectations components, so the IFO's result suggests that the impact of the sovereign debt fears may have peaked. The current disparity between US and German economic data provides an interesting backdrop for the continued move higher in Euribor; though the ECB have attributed this to market forces. While there is little risk that the ECB will hike the refi rate at least before the middle of next year, the firmer Euribor is likely to offer EUR/USD decent near-term support. Medium-term the EUR remains susceptible to difficulties that some European banks may have in recapitalising themselves. Near-term, the USD1.2700 support continues to hold solid and risk is for another run at the USD1.3000 level.
JPY-strength becoming an issue in Tokyo
Japanese officials have stepped up their verbal rhetoric against continuing JPY strength, with comments coming from senior leaders at the BOJ and the MOF. Most highlighted the risk of a stronger yen being a significant danger to future growth in the Japanese economy. This week's Q2 earnings reports, as well as the highly awaited announcement of the European stress tests were major sources of pessimism over the past few weeks. The fact that both came and went without much fanfare has calmed the markets and reassured investor sentiment. Thus, the Yen has weakened against every major currency in the G10 this week; of note: USD/JPY (86.50 to 87.40), EUR/JPY (111.60 to 112.90) and AUD/JPY (75.25 to 78.30) rose over 4% this week alone.
The BOJ will continue to monitor market activity closely as increased global risk aversion is still on the forefront and could lead to fresh JPY-strength. There have been rumors of semi-official interest to buy USD/JPY down around 86.20/30 in the short term and we're likely to see further verbal intervention if it reaches 85.00. However, it is rather unlikely the BOJ will take further measures on additional strength unless it rapidly appreciates towards the 80.00 level, then the odds of actual intervention would become highly probable.
Key data and events to watch next week
The calendar in the US is moderately busy in the week ahead. Housing numbers kick off the week with June New Home Sales on Monday and the May S&P/CaseSchiller Home Price Index to follow on Tuesday. Also on tap for Tuesday are the Richmond Fed Manufacturing Index and the Consumer Board's Confidence Index for July. The data slate for Wednesday sees Durable Goods Orders for June followed by the Fed's Beige Book in the NY afternoon. Weekly Jobless Claims are scheduled for its regular release on Thursday. Friday's data sees Q2 GDP, Q2 Personal Consumption, Q2 GDP Price Index, and Q2 Employment Cost Index. Data for the week wraps up with Chicago PMI and University of Michigan Survey of Consumer Confidence Sentiment for July.
In the Eurozone, Wednesday sees the release of the Business Climate Indicator, Consumer Confidence, and Industrial Confidence numbers for July. Friday closes out the week with June Euro-zone Unemployment Rate and July CPI Estimate. In Germany, Tuesday sees the August GfK Consumer Confidence Survey and June Import Price Index. The data session comes to a close on Thursday with July Consumer Price Index and July CPI - EU Harmonized. In addition to the upcoming data releases, there will be top tier Q2 and first half earnings releases, kicking off with Deutsche Bank on Tuesday.
A light week of data in the UK starts with July Nationwide House prices, June Net Consumer Credit, and June Mortgage Approvals on Tuesday. There is no significant data due out until Friday, however the BOE's King, Bean, Fisher, and Sentance will be testifying on the May Inflation Report at Parliament's Treasury Committee on Thursday. Friday closes out the week with the July GfK Consumer Confidence Survey.
Data out of Tokyo is moderate, starting with June Retail Trade and Large Retailers' Sales on Wednesday. Thursday sees June Unemployment Rate, July Tokyo CPI, June National CPI, and June Industrial Production. Friday wraps up the week with June Housing Starts.
Canada begins a light week of data with Industrial Product Prices and Raw Materials Price Index for June on Thursday. The data session comes to a close with May Gross Domestic Product MoM on Friday.
A light calendar down under begins with Q2 PPI and CPI due out on Sunday and Tuesday. The week wraps up with June Private Sector Credit on Thursday. New Zealand begins the week with July NBNZ Business Confidence on Tuesday. Wednesday will have the RBNZ rate decision with expectations for a 25 basis point hike to 3%. Data continues on Wednesday with June Trade Balance and wraps up on Friday with June Building Permits.
The Great Britain pound jumped against all other major currencies today as the British GDP data release surprised all Forex market participants with extremely high values, beating even the optimistic forecasts.
The pound rouse against the U.S. dollar, the euro and the Japanese yen today as the Office for National Statistics reported preliminary estimate of GDP data for the second quarter of 2010. According to the release, the gross domestic product increased 1.1 percent in Q2 2010 or 1.6 percent if comparing Q2 2010 to Q2 2009. The average forecasts for both indicators were significantly lower.
GBP/USD rose from 1.5256 to 1.5400 as of 9:26 GMT today. GBP/JPY went up from 132.78 to 134.13, while EUR/GBP declined from 0.8443 to 0.8397.
The parity didn't succeed to break the resistance at 0.8450 and is making its return on 0.84. Indicators are mixed. We stay neutral between 0.84 and 0.8450. We advise to wait an exit of this range to take position: - Long if 0.8450 is broken. The break out of 0.85 will give a new buy signal - Short if 0.84 is broken. The break out of 0.8350 will give a new sell signal.
The parity is currently testing 0.84 as support. We maintain our last analysis : 'The parity found resistance on 0.85. The parity is now making its return below 0.8450 and is moving towards the next support at 0.84. Indicators are now mixed. We stay neutral on the parity between 0.8350 and 0.8450. We will wait a breakout of one of these two bands to take position: - Long if 0.8450 broken - Short if 0.8350 is broken.'
The parity found resistance on 0.85. The parity is now making its return below 0.8450 and is moving towards the next support at 0.84. Indicators are now mixed. We stay neutral on the parity between 0.8350 and 0.8450. We will wait a breakout of one of these two bands to take position: - Long if 0.8450 broken - Short if 0.8350 is broken.
For the moment, anyways, the EUR continues to enjoy the spotlight while the market awaits the results of the recent stress tests. Risk appetite in the market has surged from a wave of optimism. A number of analysts have been concerned about the EUR's sudden surge, however, since there is little to support such movement. European debt concerns remain, growth continues to lag behind expectations, and the bank stress test results are due this Friday which may reveal just how bad off the region is financially. Economic News
USD - US Dollar under Pressure from Slow Growth The US Dollar continues its decline against the other major world currencies. Concerns have been raised these past few weeks that the US economy is not recovering as quickly as previously anticipated. The decrease in expectations has put a damper on US investments and brought the USD down somewhat.
Against its primary rival, the EUR, the greenback has experienced gradual declines to a current price level of 1.2900. Against the Japanese Yen, the greenback has actually fallen to a 7-month low near the 87.00 price mark. The buck doesn't appear to be fairing too well against the British Pound or Swiss Franc either.
Concerns about slowing economic growth may have increased with Tuesday's housing reports, but today is expected to be a light news day. So long as market events continue to be ineffective at changing trends, the USD will continue its slide against the other major currencies.
EUR - Is EUR Rising Too Quickly before Stress Test Results? The EUR has experienced irregular optimistic movements these past several weeks. Despite a string of negative news releases, the 16-nation single currency continues to make gains on rising risk appetite. Some of the largest gains have been made against the US Dollar and Japanese Yen. The EUR/USD has risen steadily in value and currently trades at 1.2900, while the EUR/GBP sits at a present value of 0.8445.
A number of analysts have been concerned about the EUR's sudden surge since there is little to support such movement. European debt concerns remain, growth continues to lag behind expectations, and the bank stress test results are due this Friday which may reveal just how bad off the region is financially.
For the moment, anyways, the EUR continues to enjoy the spotlight while the market awaits the results of the recent stress tests. Risk appetite in the market has surged from a wave of optimism. Since the EUR-Zone isn't expected to publish any news today there is very little chance of a reversal and traders are still taking the opportunity to join the uptrend before it comes crashing down.
JPY - Yen Trading at 7-Month High vs. US Dollar The Japanese Yen has gradually gained against the US Dollar in this week's trading. Asian stocks took a small hit last week, but they appear to be on the rebound as of yesterday. On the other hand, the JPY has been surging against the USD, with a current value near a seven-month low of 87.00.
Against other currencies, such as the EUR and British Pound, the Yen has experienced similar gains. The EUR/JPY currently trades near record lows of 112.50, while the GBP/JPY also sits just above its all-time low with a current price of 133.23. So long as news reports come out neutral and with few surprises, there may be a strong chance for the JPY's current trends to continue throughout the week. - Declining US Inventories Could Help Raise Oil Prices
The price of oil has been gradually rising this week as the US Dollar continues its decline. The volatility in the oil market appears to have subsided somewhat, following the successful capping of the gushing BP oil spill in the Gulf of Mexico. As long as the cap holds, speculators can take a more accurate gauge of market sentiment towards oil demand.
The American Crude Oil inventories report is expected later today at 14:30 GMT. Inventories have been in decline these past 2 months and if they continue to fall we could see a continued rise in price. A target near $80 this month may not be far off the mark.
Technical News
EUR/USD Yesterday's steep decline may have brought the pair back in range as most indicators seem to be floating in neutral territory at the moment. Looking at the daily chart, it is evident that there might still be room for a continuation of the downward trend as the RSI is still floating in the overbought territory. Waiting on a clearer direction for the pair may be advised for today.
GBP/USD The pair seems to be range trading at the moment, with most indicators floating in neutral territory. However, there is bearish cross evident on the Weekly chart's Slow Stochastic indicating a bearish correction might take place in the nearest future. Going short with tight stops appears to be preferable strategy.
USD/JPY The pair has been range-trading for a while now, with no specific direction. The Daily chart's Slow Stochastic providing us with mixed signals. The 4 hour charts do not provide a clear direction as well. Waiting for a clearer sign on the hourlies chart might be a good strategy today.
USD/CHF The typical range trading on the hourly chart continues. The daily chart RSI is floating in neutral territory. However, there is an impending bullish cross forming on the Weekly chart's Slow Stochastic indicating a bullish correction might take place in the nearest future. When the upwards breach occurs, going long with tight stops appears to be preferable strategy.
The Wild Card Silver Silver prices are once again dropping, and it is currently traded around $17.60 an ounce. And now, the 8-hour chart's RSI is giving bullish signals, indicating that silver prices might go up. This might give forex traders a great opportunity to enter a very popular trend.
The breakout of 0.8450 just offered a new buy signal. The price is currently testing the next resistance at 0.85. All indicators are bullish. We maintain to trade only long positions as far as the price is above 0.8450. The break out of 0.85 will give a new buy signal. A pullback on 0.8450 is possible as far as 0.85 is resistance. Next resistances are at 0.8550 and 0.86.
The euro is growing against the other major currencies today, as the European banks’ stress test speculations provide a better ground for the Forex traders than the sovereign debt risk concerns in some of the Eurozone countries.
The currency rose against the U.S. dollar, the pound and the yen after opening with a bearish weekly gap and losing slightly during the early trading session. European officials are stress-testing 91 banks, trying to determine their level of strength against the crisis. The results of the test are to be released on July 23. The euro optimists are expecting the stress test results to show good results with the majority of banks doing well.
Meanwhile the euro is still traded under a potential threat of the sovereign debt crisis from such countries as Ireland, Greece or Portugal. Moody’s have downgraded Ireland’s government bond rating from Aa1 to Aa2 today. Hungarian forint has also performed badly today after the IMF refused to issue a loan for now. Although Hungary isn’t in Eurozone yet, it’s a potential member and its fiscal troubles influence the course euro.
EUR/USD rose from 1.2903 to 1.2954 as of 16:16 GMT today, it traded at as low as 1.2870 earlier today. EUR/JPY went up from 111.70 to 112.35, while EUR/GBP jumped up from 0.8438 to 0.8512.
The break out of 0.874 gave us a new buy signal. The price is currently testing one of the major resistance at 0.8450. All indicators are bullish. We maintain to trade only long positions as far as the price is above 0.84. The break out of 0.8450 will give a new buy signal.
