UK Mortgage Approvals are expected to fall for the second consecutive month in June while Net Consumer Credit growth slows from the previous month over the same period.
UK Mortgage Approvals are expected to fall for the second consecutive month in June while Net Consumer Credit growth slows from the previous month over the same period. The figures will reinforce dovish comments from BOE policymakers delivered in testimony to the Parliament’s Treasury Committee, where governor Mervyn King downplayed the stronger-than-expected second quarter GDP result to stress lingering uncertainty about the recovery in general and inflation in particular, signaling monetary policy is firmly stuck in accommodative territory for the time being.
Trading Tactics
A clear uptrend could be an opportunity to Buy GBP/USD.
The buying point is at 1.5627; Pivot point highest level is the take profit at 1.5695; Pivot point is the stop loss at 1.5590
The selling point is at 1.5570; Fibonacci 38.2% is the take profit at 1.5450; Pivot point is the stop loss at 1.5650
Technical: Sterling forms a new high and may continue the minor uptrend. A move back higher could set up a test of 1.5695
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice MACD crosses the signal line upwards; Momentum and RSI (Relative Strength Index) are in an uptrend; stochastic oscillator gives a neutral signal.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
The U.S. Dollar advanced on Wednesday, gaining 1% against the Japanese Yen and pushing the EUR back under $1.30, after a report showed U.S. consumer confidence fell more than expected, pressuring equities lower and reducing investors' appetite for risky assets. Economic News
USD - Dollar Rises on Demand for Greenback's Safety The U.S Dollar advanced against most of its major counterparts as a decline in U.S. consumer sentiment to a 5 month low revived demand for the relative safety of the world's main reserve currency. The U.S. consumer confidence for July fell to its lowest level since February with all eyes on consumer durable goods numbers for June later in the session for more evidence about the world's largest economy. The greenback advanced as much as 1.3% to 87.97 Yen in the biggest intraday gain since June 2. Treasury two-year note yields increased as much as 0.06 percentage point to 0.64% in the biggest intraday climb since June 10. The USD/JPY recent weakness has been related to the very low level of U.S. yields, analysts said. And the fact that the yields are rebounding at this stage is likely to lend some support to the pair.
EUR - EUR Erases Gains; Slips Below $1.30 level The European currency hovered below a key level on Wednesday, running into profit taking after it hit a 11-week high against the U.S. Dollar, with attention turning toward the Australian Dollar ahead of crucial inflation data. The EUR slipped below the psychological, and technically crucial, level of $1.30, having hit a high of $1.3045 on Tuesday.
The 16-nation currency held some impressive gains against the Japanese yen, trading above 114 yen after having jumped over 1% on Tuesday to a 2-month high. Traders said the EUR/JPY looked increasingly bullish on charts, especially after it rose above 113.50 yen where it had met lots of offers from Japanese exporters.
Moreover, despite the EUR/USD easing from highs, sentiment toward the single currency remains bullish in the short term with a number of commentators surprised by the resilience of the Euro-Zone economy. On the other hand, doubts remain over the ability of the U.S. economy to avoid a slowdown. Market players say that a sustained break above the $1.30 level could place the single currency against the greenback in a new $1.30-$1.35 trading range in the coming weeks.
JPY - Yen Rises on Safety Demand Japan's currency gained versus all 16 major counterparts ahead of U.S. reports in two days which are forecasted to show economic and business activity grew at a slower pace. The Yen rose from near a two-month low against the EUR on speculation signs of a slowing U.S. recovery will spur demand for safer assets.
The Yen typically strengthens in times of financial turmoil as Japan's trade surplus makes the currency attractive as it means the nation does not have to rely on overseas lenders. The Yen traded at 87.77 per Dollar from 87.90. The currency gained to 113.95 per EUR from 114.24 yesterday, when it reached 114.42, the weakest level since May 18.
Crude Oil - Oil Falls a 2nd Day after Consumer Confidence Drops Crude Oil declined for another day after an industry report showed U.S. crude inventories rose and the Conference Board said confidence among the nation's consumers fell, signaling growth and energy demand may falter. Rising oil production capacity in the Gulf of Mexico after Tropical Storm Bonnie fizzled over the weekend without damaging infrastructure also weighed on Oil prices, analysts said. Oil prices dropped the most in more than 3 weeks Tuesday as the U.S confidence index declined to the lowest level in 5 months. Traders mentioned that there was a sell-off in the crude market because of a fall in U.S. consumer confidence and the sentiment is still weak.
Technical News
EUR/USD Yesterday the pair pushed to its highest level in the past 3 months before falling backwards to finish almost unchanged, forming a spinning top candlestick formation. This may signal indecision on the part of traders and a lack of buyers in the current uptrend.
GBP/USD The pound was a big gainer in yesterday's trading as the cable breached and closed above the resistance level of 1.5520. The pair has been a strong performer as of recent, recording gains over the past 5 trading sessions. However, technical resistance is forming on the daily chart. The RSI (14) is dropping below the overbought zone while the Slow Stochastic oscillator is forming a bearish cross, indicating the next move may be to the downside. Traders may want to tighten their stops on any long positions.
USD/JPY The yen suffered during yesterday's trading, rising as high as 87.96 while closing above the 20-day simple moving average and the downward sloping trend line that began on June 14th. However, traders may be able to fade the trend as a bearish cross has formed on the 4-hour Slow Stochastic oscillator, indicating that the pair's next move may be lower. Traders can target the resistance level of 87.40 with an extended target at the year to date low of 86.25.
USD/CHF The pair may see a continuation of its recent downtrend in today's trading as the RSI for the pair floats in the overbought territory on the 2 hour and 8 hour charts with most other indicators floating in neutral territory. Traders may be advised to go short for the day.
The Wild Card GBP/NZD The pair may see some downward correction today as the RSI for the pair is floating in the overbought territory on the hourly and 2 hour charts while a bearish cross is evident on the 2 hour and 4 hour charts Slow Stochastic, indicating an imminent downward movement. Furthermore, a breach of the upper Bollinger Band is evident on the 2 hour chart. Forex traders may be advised to go short for the day.
The Euro hit a one-week high against the US Dollar as risk appetite held up overnight.
The Euro hit a one-week high against the US Dollar as risk appetite held up overnight. A tame European calendar puts the onus on US consumer confidence data and another round of second-quarter earnings reports. The Euro inched higher in overnight trade, adding nearly 0.2 percent and reaching a high of 1.3017 to the US Dollar, the strongest in a week. The British Pound was little changed, tracking sideways in a narrow range below the 1.55 figure.
Trading Tactics
A clear uptrend could be an opportunity to buy EUR/USD.
A buying point is at 1.2988; Pivot point is the take profit at 1.3075; Fibonacci 23.6% is the stop loss at 1.2900
A selling point is at 1.2880; Fibonacci 50% is the take profit at 1.2775; Pivot point is the stop loss at 1.2960
Technical: Euro breaks standard error channel middle line upwards and may continue the major uptrend. A move back higher could set up a test of 1.3075
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice MACD is in a bullish direction; RSI (Relative Strength Index) and Momentum are pointing upwards; stochastic oscillator crosses %D line downwards.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
The EUR once again reached above $1.30 on Monday after better than expected economic data from the US, and an advance in global equities, boosted demand for riskier assets. Gold continues to decline as market concerns ease and people turn away from safe-haven assets.
Economic News
USD - Dollar Declines on Renewed Risk Appetite The US dollar declined against all of its major counterparts Monday following the release of better than expected US New Home Sales data. Combined with a boost in FedEx Corp.'s earnings, these two reports together have helped to raise demand for riskier assets. New US home purchases increased 24% from May to an annual pace of 330,000.
The Dollar depreciated 0.7% to $1.008 per EUR during today's early Asian trading, from $1.2909 at the end of last week. The dollar fell to 86.86 Yen, from 87.46.
Looking ahead to today, traders are advised to follow the release of the CB Consumer Confidence at 14:00 GMT. Better than expected results on this report may intensify the greenback's recent downtrend, especially since risk appetite will rise with a positive reading.
EUR - EUR and GBP Advance after Banks Pass Stress Tests The EUR remained within its trading range as results from the stress tests continued to reassure investors. The common currency traded within a cent of the 10-week high of $1.3029 reached July 20; however, it has since returned to trade around $1.3015.
The EUR rose to ¥112.97, up from ¥112.11, after reaching ¥113.48, the highest level since June 3rd. The British pound also rose to $1.5490 from $1.5425 after briefly reaching above $1.55, the highest levels since late April.
The Pound advanced after a July 23rd announcement that HSBC Holdings Plc, Barclays Plc, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc passed the European bank stress tests.
JPY - Yen Drops as Demand for Safe-Haven Currencies Diminishes The Japanese yen fell versus all 16 major counterparts after the release of better than expected US New Home Sales data. The yen's safe-haven appeal also diminished as global equities gained and boosted demand for riskier currencies.
The JPY is currently trading at 113.07 per EUR as of today's early Asian trading, from 112.89 in New York yesterday, when it touched 113.48, the lowest since June 3. The yen is at 86.95 per USD, up slightly from 86.88.
Traders should follow the release of today's economic data from the US and Europe as positive news will likely dampen demand for the yen further.
Crude Oil - Crude Remains around $79 a Barrel Better than expected economic data from the US and advancing global equities helped support oil prices around $79 a barrel. Crude oil for September delivery traded at $78.85 a barrel, down 13 cents in electronic trading on the New York Mercantile Exchange
Oil seems to remain between $70 and $80 as future demand remains unknown and above average stockpiles are keeping Crude from breaching higher. For the time being, oil futures continue to trade on economic data as well as movements in equities. Traders should follow the release of today's US CB Consumer Confidence report at 14:00 GMT as better than expected results might help push oil prices closer to the $80 resistance level. Technical News
EUR/USD The price has broken out from the rising channel pattern on the daily chart for the second time; making a solid close above the upper line of the channel. A pullback into the channel pattern would signal a false breakout, as was the case last in last week's trading. A rise to the 38.2% Fibonacci retracement level at 1.3110 would signal a confirmation of the breakout pattern.
GBP/USD The pair rose as high as the resistance line of 1.5520, found the May high before falling back to close up at 1.5494. Momentum appears to be behind the price move as the 14-day Momentum indicator is sloping higher at 103, indicating further appreciation may be in store for the pair. The next significant resistance level comes in at 1.5820.
USD/JPY The bullish correction the pair experienced in the later half of last week came to an end yesterday. The price rose as high as the 20-day simple moving average before heading sharply lower. The inability for the pair to breach this resistance level indicates a sharp downtrend in the pair. Traders should be short with a first target at the support level of 86.25.
USD/CHF Shorter-time frame charts on this pair don't seem to be hinting too strongly at an impending direction. The hourly and 4-hour Stochastic (slow) and RSIs show upward mobility, but have not yet entered signal territory. We can see, however, that the weekly chart's Stochastic (slow) is giving off what appears to be a recent bullish cross. It seems upward pressure is mounting on this pair and we may see traders taking long positions as a result.
The Wild Card USD/SEK After a few days of trading sideways, this pair now seems to be giving off some clear buy signals. The 4-hour Stochastic (slow) appears to be approaching the beginning of a bullish cross, indicating future upward movement. The daily and weekly Stochastic (slow) also seem to indicate an impending bullish cross. The daily RSI also appears to be floating in the over-sold territory, indicating further upward pressure. Forex traders may want to take advantage of this information and enter a short-term long position on this pair for quick daily profits.
The Pound remains trading higher, supported by improved market confidence, and moving at 3-month highs above 1.5470, with room for further appreciation, according to technical analyst at Commerzbank.
The Pound remains trading higher, supported by improved market confidence, and moving at 3-month highs above 1.5470, with room for further appreciation, according to technical analyst at Commerzbank. The Sterling is biased to the upside, trading on an uptrend channel from May lows, targeting 1.5525/60 area, says Jones: "Short to medium term, the market has recently severed its 1.5310 down channel.
Trading Tactics
A clear uptrend could be an opportunity to Buy GBP/USD.
The buying point is at 1.5467; Pivot point is the take profit at 1.5565; Fibonacci 23.6% is the stop loss at 1.5400
The selling point is at 1.5380; Fibonacci 61.8% is the take profit at 1.5270; Pivot point is the stop loss at 1.5495
Technical: Sterling breaks the previous resistance level and forms a new support on moving averages line. A move back higher could set up a test of 1.5410
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice MACD crosses the signal line with a higher histogram; Momentum and RSI (Relative Strength Index) are in an uptrend; stochastic oscillator crosses %D line in oversold area.
*Analysis is for information purposes only and does not constitute advice in any form. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
After a long time waiting, the Euro-Zone's famous Bank Stress Tests results were finally published on Friday evening. The results failed to reassure investors regarding the stability of the European banking system as analysts claimed that the test weren't strict enough. As this week begins, the reliability of the tests will remain the main topic. Will it eventually boost the Euro?
Economic News
USD - The Dollar Ends A Volatile Trading Week Following Mixed Data from the U.S. The Dollar saw mixed results against the major currencies during last week's trading session. The Dollar had ups and downs vs. the Euro, and eventually the EUR/USD level closed at the 1.29 level. The Dollar also slightly strengthened against the Yen, while falling against the Pound.
The Dollar's volatile session came as a result of the mixed data from the U.S. economy. On one hand, the housing sector provided positive data last week. The U.S. Building Permits report showed that 0.59M new residential buildings permits were issued during June. The meaning of the data is that the quantity of future construction will rise; obtaining a permit is among the first steps in constructing a new building.
However on the other hand, the unemployment reports delivered negative signals. The weekly Unemployment Claims report showed that jobless claims in the U.S. increased more than forecasted to 464,000. The number of individuals who filed for unemployment insurance for the first time during the past week rose from 427,000, and failed to reach expectations for 449,000.
As for the week ahead, many interesting economic reports are expected from the U.S. The most significant publications look to be the New Home Sales, the Consumer Confidence, Durable Goods Orders indices, the Unemployment Claims, and the Gross Domestic Product (GDP). All these reports have potential to impact global trading and the Dollar in particular, and traders are suggested to follow the end results.
EUR - Stress Tests Fail to Ease Investors' Concerns from a Possible Debt Crisis The Euro saw a volatile session during last week's trading. The Euro began last week's trading with a bullish trend vs. the Dollar and the Yen. However the Euro then saw sharp drops and by the end of the week, resumed to its previous levels.
The Euro had a rising trend with the beginning of the week as positive data from the Euro-Zone supported the 16-nations currency. The German Producer Price Index (PPI) rose by 0.6% in June, beating expectations for a 0.2% rise. The report suggested that inflation in Germany rose for the 4th consecutive time, reassuring investors that the German economy is recovering. The European Industrial New Orders report also provided an unexpected positive data. The report showed that industrial orders in the Euro-Zone rose by 2.8% in May, well above expectations for a 0.1% drop.
However, by the end of the trading week, the Euro erased its profits, as the European Bank Stress Tests failed to reassure investors concerns from a possible sovereign crisis. The tests showed that merely 7 banks have flunked the stress test, out of 91 major banks that were tested. The supposedly positive data failed to create an impact in the market as investors felt that the tests may not have been strict enough. However, traders should take under consideration that European governments are putting a lot of efforts in the attempt to convince investors regarding the reliability of the tests results.
As for the week ahead, a batch of data is expected from the Euro-Zone. Traders are advised to focus on the German Preliminary Consumer Price Index (CPI), which will prove if the German inflation is indeed rising as last week's PPI data showed. Traders should also keep in mind the affects of the bank stress tests, as these results will continue to impact the market this week.
JPY - Yen Weakens Against the Majors The Yen fell against most of the major currencies during last week's trading session. The Yen dropped about 100 pips vs. the Dollar and about 300 pips against the Pound, and the GBP/JPY pair is now trading near the 135.50 level.
The Yen dropped last week due to speculations that Asia's economic recovery is advancing. These speculations have increased risk-appetite in the market, and have turned investors to look for riskier assets. The Yen is considered to be a safe-haven currency, and tends to fall as risk aversion weakens. The speculations came following several reports which showed that South Korea's economy grew faster than analysts forecasted, and Japanese exports rose more than expected.
As for this week, many interesting publications are expected from the Japanese economy. The main news events that traders are advised to follow are the Retail Sales on Monday and the Tokyo Core Consumer Price Index (CPI) on Thursday. If the reports will continue to provide positive signals, the Yen might weaken further as investors will continue to look for higher-yielding assets.
OIL - Crude Oil Prices Consolidates Around $79 a Barrel Crude oil prices continued to climb during last week's trading session. A barrel of crude oil was traded around $76 a barrel at the beginning of last week and as the week progressed, crude oil prices soared, and a barrel of crude oil is now trading around $79 a barrel.
Crude oil strengthened last week due to several positive economic reports from the U.S. and the Euro-Zone. The positive reports have created speculations that global energy demand will increase, and as a result, crude oil prices consistently rose. The bullish trend halted close to the weekend as concerns regarding tropical storm Bonnie have eased due to reports claiming that the storm has weakened.
As for this week, traders are advised to follow the main publications from the U.S. and the Euro-Zone, as they have significant affect on oil prices. Trades should also follow the U.S. Crude Oil Inventories report on Wednesday as this tends to have an instant impact on spot crude oil prices.
Technical News
EUR/USD Last week's trading has led to a doji candlestick formation on the weekly chart indicating a potential reversal lower for the pair. Traders will want to combine this signal with other technical indicators for confirmation before entering short. The next significant resistance level rests at the 38.2% Fibonacci retracement level at 1.3110. The next support level is found at last Wednesday's low of 1.2730.
GBP/USD The 2-month bullish correction has pushed the price above significant technical resistance levels, signaling a shift in the long term trend of the pair. The weekly chart shows the price broke the long term downward sloping trend line that began in July of 2008. The price has also moved above the 200-day simple moving average line. Traders will want to be long on the pair with the next resistance level coming in at 1.5520, April's high. USD/JPY Last week the pair failed to break below the support level of 86.25. Momentum for the pair has reversed as the Momentum (10) is trending higher. The price is looking to break above the resistance at the 20-day simple moving average line. A breach above this line could take the pair to the resistance level at 89.15, close to the long term downward sloping trend line. The potential correction could lead to a good setup to enter short in the direction of the trend.
USD/CHF The Relative Strength Index on the 4-hour chart shows the pair in overbought territory, indicating a downward correction could take place. That being said, according to most other technical indicators, the pair is trading in neutral territory with no clear direction. Traders may want to take a take a wait and see approach today, as a clearer picture may present itself later.
The Wild Card AUD/USD The Stochastic Slow on the 8-hour chart indicates that a bullish cross has formed, meaning a downward correction may occur today. This theory is supported by the Relative Strength Index on the 4-hour chart. Forex traders may want to go short in their positions for this pair today, as bearish movement will likely occur.
* 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.
A decline in US 3-month libor below 0.50% coupled with solid Q2 company earnings have buoyed demand for carry trade strategies, driving high yielding and commodity currencies through key resistance levels vs the USD. It is debateable how long momentum can be sustained in a context of faltering momentum in the US. The idea that additional policy stimulus by the Fed could be required and would re-flate risk assets appears misplaced when elsewhere fiscal stimulus is withdrawn and liquidity is unwound. With the EU bank stress tests finally behind us, we look ahead to a G10 calendar next week dominated by the MPC testimony to the TSC and the first estimates of US Q2 GDP. Month-end implies currency and bond portfolio rebalancing. In five of the last six months, the re-weighting resulted in EUR/USD firming an average 0.5%. In contrast, GBP/USD only gained in month-end fixings in March and May.
Recap
The recap for fx this week reads very similar to that of two weeks ago. A rally in global equities propelled the AUD to the top of the G10 table, helping the currency to gains of 3.3% vs EUR, 2.6% vs USD and 2.5% vs GBP. A 1.1% q/q jump in UK Q2 GDP boosted GBP and helped the pound to record a 1.3% gain vs the JPY and 1.2% vs the EUR. GBP/USD ended the week above 1.5350, having traded as high as 1.5450. EUR/USD was equally unable to cling on to the best levels above 1.29 as profit taking emerged on the release of the EU bank stress tests following earlier bidding on a 3-year high for the German IFO.
UK Q2 GDP surpassed the most bullish estimates as the ONS reported a 1.1% q/q jump in output vs 0.3% in Q1. This still leaves the economy 4.7% below the starting pointof the recession in 2008, and will not tempt the MPC to change its view that the economy may weaken in the second half of 2010. The MPC minutes were remarkably more dovish on growth and members Posen and Dale did not hold back to warn of the dangers ahead. Retail sales also beat consensus estimates by climbing 1% in June. A marked decline in the retail deflator to 1.3% and a fall in inflation expectations back below 3% will comfort the MPC about the inflation outlook. Public finances recorded a bigger deficit in June, with borrowing reaching £14.5bln and data for May revised up to £17.0bln.
A good start to the week for UK rates reversed on Friday on the strong GDP release, causing yields to end the week on a high. 5y swaps climbed to 2.47%, up 6bp on the week. 10y yields rose above 3.40% to a 3.43% high. A deceleration in inflation pressures should keep yields capped going into August, with downside risk to the US macro data providing better levels to buy. The 3mth Libor/Ois spread widened one bp to 24bp. The 2y/10y swap spread widened 2bp to 198bp, and 10y swap spreads stayed flat at 2bp. A disappointing 2016 gilt sale drew lower than previous cover of 1.38x (1bp tail) .
G10 FX - GBP/USD, ST Trend Still Bullish
Back in June we noted that by flirting with a return to the 1.4784- 1.55 trading range in place between February and May, GBP/ USD had approached a crossroads, and how an improved technical picture and a rebound in correlations with equities and commodities pointed to further upside in the short-term (1.54 topside). This week we review our call and state that even though GBP/USD has posted impressive gains in July, there is no compelling case to drop the bullish near-term picture. Though the correlation of GBP/USD has eased back to statistically insignificant levels since the June comment (see chart), the divergence between UK and US macro indicators (see chart) brings the potential of further upside over the coming weeks before potential profit taking sets in ahead of the August MPC meeting and the Inflation Report on August 11.
The retreat of USD crosses since June has been led by a net change in speculative positioning and is marked by a net reduction in short JPY, EUR and GBP contracts. Disappointing US macro data since June has added downside USD pressure and is fuelling talk that the Fed may engage in a new round of policy stimulus in Q3/Q4 to prevent the economy from losing further steam. Though the jury is out whether the Q2 slowdown is a blip or start of a downtrend, a decline in US 3-mth libor below 0.50% and a rally in short-dated FF futures curve indicates that the market is taking a more pessimistic view. Additional US measures would threaten to drag the USD lower vs non-QE currencies or currencies where exceptional measures are gradually phased out.
Though strong UK Q2 GDP (+1.1% q/q) took the market off guard and lifted GBP/USD above 1.54, one cannot ignore the dovish observations by the MPC and individual comments by members Posen and Dale. This could lead investors to re-engage in accumulating GBP short positions into early August. To what extent the Budget will bear down on the Bank's growth and inflation forecasts will become clear in the next Inflation Report. Minutes from the July MPC meeting hint that growth prospects may be scaled back. Depending on whether inflation and inflation expectations also recede, talk of additional policy loosening (a greater than 50% probability accordng to MPC member Posen) would cloud the outlook for GBP vs other G10 currencies, especially those where performance is linked to positive interest rate spreads and elevated correlation with equities and commodities.
Based on our quantitative metrics, the correlation of GBP/USD with risk assets has receded markedly to the point that price action in stocks has become statistically insignificant for short term direction. Rate differentials between the US and the UK have also faded as a driver for GBP/USD, offering no clear sense of direction for the cross. Though we are tracking changes in correlations closely, this means is that markets are inclined to put more weight at present on corporate flows and a divergence between US and UK macro indicators, but with confidence about deficit reduction equally playing a part.
Technically, to sustain the upward short-term move GBP/USD has to overcome 1.5454, the July 15 high. Beyond 1.55 lies a cluster of resistance at 1.5524 and 1.5578. A breakout of the February- May range would bring 1.5814 into play.
The Euro and the British Pound consolidated NY-session losses in overnight trade, with the single currency tracking sideways in a narrow range above 1.2750 while the UK unit oscillated within 30 pips above 1.5160.
The Euro and the British Pound consolidated NY-session losses in overnight trade, with the single currency tracking sideways in a narrow range above 1.2750 while the UK unit oscillated within 30 pips above 1.5160. Preliminary German Purchasing Manager Index figures are set to show that growth in the manufacturing and service sectors deteriorated to the slowest in four months. A composite Euro Zone Purchasing Manager Index reading is expected to decline for the third consecutive month to print at the lowest since February.
Trading Tactics
A clear downtrend could be an opportunity to sell EUR/USD.
A buying point is at 1.2860; Pivot point is the take profit at 1.2970; Fibonacci 50% is the stop loss at 1.2770
A selling point is at 1.2778; Pivot point is the take profit at 1.2635; Fibonacci 38.2% is the stop loss at 1.2830
Technical: Euro breaks previous support level and continues the minor downtrend. A move back lower could set up a test of 1.2635
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice histogram MACD is in a bearish direction; RSI (Relative Strength Index) and Momentum are in an uptrend; stochastic oscillator gives a bullish correction signal.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
The euro’s gains are close to petering out amid “fragile market confidence,” Royal Bank of Scotland Group Plc said.
The euro’s gains are close to petering out amid “fragile market confidence,” Royal Bank of Scotland Group Plc said. “Confidence will take a hit if European economic growth begins to fade,” Greg Gibbs, a currency strategist in Sydney, wrote today in a report. “It is hard to see confidence in European debt markets improving further from here. Perhaps the stress tests will deliver one more spurt of confidence. But it is close to a peak and so is the euro.”
Trading Tactics
A clear uptrend could be an opportunity to buy EUR/USD.
A buying point is at 1.2987; Pivot point is the take profit at 1.3060; Fibonacci 23.6% is the stop loss at 1.2910
A selling point is at 1.2880; Fibonacci 50% is the take profit at 1.2775; Pivot point is the stop loss at 1.2935
Technical: Euro breaks the previous resistance level upwards and may form a new support level. A move back higher could set up a test of 1.3060
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice histogram MACD is in a bullish direction; RSI (Relative Strength Index) and Momentum are in an uptrend; stochastic oscillator crosses %D line downwards for a small correction.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
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 British Pound pared the rally from earlier this week and slipped to a low of 1.5357 during the European trade as investors scaled back their appetite for risk, and the shift in market sentiment may drag the exchange lower
The British Pound pared the rally from earlier this week and slipped to a low of 1.5357 during the European trade as investors scaled back their appetite for risk, and the shift in market sentiment may drag the exchange lower going into the end of the week as investors maintain a cautious outlook for global growth. Former Bank of England board member David Blanchflower said policy makers should be cautious when withdrawing support from the economy as the recovery “is being driven by stimulus,” and went onto say that central bank around the global should wait for clear evidence of private sector growth before normalizing policy during an interview.
Trading Tactics
A clear uptrend could be an opportunity to Buy GBP/USD.
The buying point is at 1.5321; Pivot point is the take profit at 1.5410; Fibonacci 38.2% is the stop loss at 1.5270
The selling point is at 1.5240; Fibonacci 61.8% is the take profit at 1.5150; Pivot point is the stop loss at 1.5340
Technical: Sterling forms a new support level on the previous resistance and may continue the uptrend. A move back higher could set up a test of 1.5410
To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice MACD crosses the signal line upwards; Momentum and RSI (Relative Strength Index) are in an uptrend; stochastic oscillator crosses %D line upwards.
*Analysis is for information purposes only and does not constitute advice in any form. Past performance is not an indicator of future performance. Trading in financial products carries a high degree of risk to your capital and it is possible to lose more than your initial investment.
The euro rose slightly against the dollar on Monday as investors anticipated that stress tests of European banks would allay fears about the region's banking sector.
The euro managed to hold on to its marginal gain despite a downgrade of Ireland's credit rating Monday and the breakdown in funding talks between Hungary and the International Monetary Fund over the weekend.
The ICE Dollar index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.584 from 82.535.
Moody's Investors Service cut Ireland's credit rating Monday to Aa2 from Aa1, with a stable outlook, indicating it isn't likely to consider a further downgrade soon. The agency cited a rising debt burden, the high cost of rebuilding the country's banking system and sluggish growth as factors in the decision.
Currencies are lethargic as NY trading gets underway, sticking to overnight ranges. On the whole, USD slightly ahead, but EURUSD is holding onto its minor gain, with investors waiting to see what happens to demand for risk at the US equity opening. Tokyo markets had been closed for a Japanese holiday and European markets are thin due to summer vacation month, so North American trading may stay calm. EURUSD trades at USD1.2955 from USD1.2927 late Fri. USDJPY at JPY87.15 from JPY86.61, while GBPUSD at USD1.5260 from USD1.5298.
Market expectation
EURCAD could extend its gains if equities fall in the short term as suspected, it is likely there will be a rally in EUR crosses such as EURCAD and EURAUD, says analysts. EUR is stabilizing across the board with the relative stabilization in European fixed income markets, while on the whole CAD and AUD still trade with risk appetite, analysts say. Several technical indicators are supportive of EURCAD, and 200-day moving average at 1.4241 may be tested in the near term, they say.
(Reuters) - Gold steadied in Asia on Monday after early selling on low inflation signals gave way to fresh concerns over Hungary's ability to pay its debts prompted safe haven buying.
But longer term, the firmness in bullion is not supported by technical analysis, which suggests gold is ready to ease further to lows last seen in late May of $1,175 per ounce.
Spot gold at 0330 GMT was almost flat at $1,193.05 an ounce versus Friday's nominal close after prices ended last week almost 2 percent lower.
Gold has found some crisis-based support on news that the IMF and European Union suspended a review of Hungary's funding program at the weekend, which has ignited fresh eurozone jitters, according to bullion dealers.
This means the country will not have access to remaining funds in its $25.1 billion loan package set up in 2008 until the review is concluded.
Trading volumes were reduced by a market holiday in Japan.
Countering sentiment over Hungary's financial outlook are signs of the United States economy heading into deflation based on cautionary Federal Reserve minutes released last week.
"If it becomes clear that deflation is a strong possibility, that will be negative for gold," a metals dealer in Sydney said.
Federal Reserve Chairman Ben Bernanke testimony before the Senate Banking Committee on Wednesday will be closely watched for reaction in currency and bullion markets, according to dealers.
If Bernanke suggests that the Fed will resume quantitive easing measures the greenback is likely come under more pressure, possibly offering bullion a lift to gold, they said.
But a balanced outlook suggesting the current weakness is likely to be temporary should provide some support for dollar and likewise is seen weighing down bullion prices.
Gold usually moves inversely to the dollar and in line with the euro. When the dollar rises it makes gold for holders of other currencies more expensive and reduces its demand.
The euro stepped back after touching a two-month high versus a broadly weaker dollar on Friday as investors bet that gains supported by rising European money market rates were overdone.
U.S. gold futures for August delivery climbed 0.4 percent to $1,193.00 an ounce against Friday's settlement price of $1,188.20.
Later in the week, bullion markets are awaiting the results of stress tests on European banks due out on Friday as an indicator of wider risk levels in euro-zone economies.
The U.S currency dropped to its weakest level in 2010 against the Japanese Yen as signs the U.S. economic recovery is losing momentum supported speculation that the Federal Reserve will keep borrowing costs low for the rest of the year. The USD also declined versus the EUR for the first time since May as a gauge of U.S. consumer confidence dropped more than economists expected and corporate revenue missed analyst forecasts. Economic News
USD - Dollar Weakens on Signs of Economic Slowdown The U.S Dollar fell the most against the EUR in 14 months and dropped to the lowest level this year versus the Yen as economic reports added to evidence that the U.S. recovery is losing momentum.
The greenback touched a level weaker than $1.30 versus the European currency as minutes of the Federal Reserve meeting last month indicated policy makers trimmed their forecasts for growth.
On Friday, a private survey showed U.S. consumer sentiment weakened in early July to an 11-month low and capped a week which saw U.S. data on the softer side, raising questions about the sustainability of the U.S. recovery.
Investors are closely watching the USD/JPY for the possibility of the greenback dropping to a 15-year low by breaching the November 2009 trough of 84.00 yen. Analysts said with U.S. yields heading lower, the Dollar could break past support around its 7 month low of 86.25 yen in the next few days.
EUR - EUR May Erase Gains on Bank Stress Tests The European currency rose for a 3rd straight week against the U.S Dollar ahead of partial results of stress tests on the region's banking system, which are due on July 23. The 16 nation currency has surpassed $1.30 on Friday for the first time since May and traded around $1.2950.
The EUR has rallied 8.9% versus the Dollar since reaching a 4 year low of $1.1877 on June 7 as concern eased that Europe's sovereign-debt crisis would undermine the region's economic recovery.
However, the EUR may reverse its recent advances against the U.S Dollar given the slim likelihood of a very positive surprise from European bank stress tests this Friday, analysts said. European regulators will be examining the strength of 91 banks to determine if they can survive potential losses on sovereign bond holdings. The European currency is unlikely to fall past $1.20 unless there is a major negative surprise given that U.S. economic growth shows signs of slowing down.
JPY - Yen Rises Towards Year's High The Japanese Yen rose toward its strongest level this year against the U.S Dollar as signs the U.S. economy is losing momentum added to speculation that the Federal Reserve will keep interest rates at almost zero this year. The Yen also rose against the Dollar as falling U.S. yields continued to weigh on the U.S. currency, with traders targeting stop-loss orders placed under 87.00 Yen.
Japan's currency gained versus all 16 of its major counterparts and rose toward the strongest level this year. The Japanese currency traded at 87.20 per USD from 87.40 yesterday, after climbing to 87.17, approaching this year's high of 86.97 set on July 1.
Crude Oil - Crude Falls below $76 On Poor U.S. data Crude Oil prices fell below $76 a barrel in early Asian trading Monday, extending the previous session's decline on concern about the U.S. economic outlook after data showed consumer sentiment fell to a near one-year low.
However, analysts said marginal slide in Oil prices shows that Crude was receiving ample support at above $74 a barrel, thanks to bullish inventory reports that showed large draw downs in U.S. Crude stockpiles over the past three weeks. Technical News EUR/USD Following the prolonged upward movement the pair has experienced recently, it appears a bearish correction may be imminent. The Relative Strength Index on the 8-hour chart is currently in overbought territory, as is the Stochastic Slow on the daily chart. Traders are advised to go short with tight stops today. GBP/USD
Mixed technical signals indicate that no clear direction for this pair is presenting itself at this time. While the Stochastic Slow on the 4-hour chart indicates the pair may experience upward movement later today, the Relative Strength Index on the 8-hour chart shows the opposite. Traders may want to take a wait and see approach for this pair today.
USD/JPY Most technical indicators are showing this pair trading in oversold territory, indicating that an upward correction will likely occur today. The Stochastic Slow on the daily chart shows a bearish cross forming, and the Relative Strength Index on the 8-hour chart supports the theory that upward movement is forthcoming. Going long may be the preferred strategy today.
USD/CHF Practically all technical indicators show the pair currently trading in neutral territory, with no clear direction at this time. These include the Stochastic Slow and Relative Strength Index on the 8-hour and daily charts. Traders are advised to take a wait and see approach for this pair today.
The Wild Card Hang Seng Index The Slow Stochastic on the 8-hour chart shows a bearish cross forming, indicating that upward movement could occur in the near future. The Relative Strength Index on the 4-hour chart supports this theory. CFD traders are advised to go long with tight stops today.
Stocks tried to rally for a second consecutive week, subsequently giving up those small gains, to end unchanged (though the Nikkei and Shanghai Composite lost 1.85%). Rather than the usual 'risk on/risk off' knee-jerk reaction investors seem to have become a little more savvy; they continue buying top-quality bonds, so that US benchmark two-year TNote set a record low yield at 0.58%, UK five-year Gilts matched 2009's record low 1.985%, while ten-year BBB+ rated Mexican ones set a new record low at 6.64% as did Brazil's BBB- at 4.34%. Peripheral Eurozone Treasuries remain under pressure trading at or close to record spreads with the ECB's reluctant quantative easing in place. While buying yen, taking it to 86.50 per USD, they sold dollars against most currencies taking the Euro to $1.3008 and Cable $1.5473, an increase of 2.5% in five days leaving consensus opinion (for a stronger greenback) head-scratching calling this a 'technical short-covering rally'; previous 'darlings' are lagging well behind. CBOT Wheat rallied strongly again for a third consecutive week, caused by the heat wave in Europe and parts of North America, reaching 598.5 cents per bushel and its most expensive in a year, dragging Corn up to 397 cents.
Political and Economic Developments
The Bank of Thailand raised it key rate by 25 basis points from a record low 1.25%. Moody's downgraded Portugal's sovereign rating to A1. UK inflation remains stubbornly high, CPI +3.2% Y/Y to June and RPI +5.00% (the higher figure which no longer will be used for index-linking payouts) though no rate hikes are currently in sight. US CPI far more benign, +1.1% Y/Y to June, Core +0.9% almost as low as 1961's record low +0.7%.
Minutes from the Fed's FOMC meeting saw 2010's GDP forecast trimmed to 3.0%-3.5% saying it might need to 'consider whether further policy stimulus might become appropriate'. Sentiment surveys from New York, Philadelphia and Michigan were rather downbeat this month and nationwide Retail Sales dropped 0.5% after May's 1.1% decline.
Underlying Themes
US Congress voted 60 to 39 to pass a new financial regulation bill aimed at preventing 2008's 'too big to fail' fiasco. How exactly and when this will be implemented remains to be seen, its subsequent implications for the industry too numerous to consider here. One thing looks certain though: credit will be more constrained and banking less profitable. Yesterday heads of the UK's top five banks were hauled in to the Treasury where the Con-Dem's George Osborne and Vince Cable were in 'listening' mode for talks forming the basis of a green paper to be published in about a fortnight - aimed at increasing lending to small and medium-sized enterprises. All banks face unspecified hikes in capital requirements (with or without Basel III), UK ones seeing a sharp drop in the growth of household deposits these last two months, trying to re-build balance sheets while facing high levels of bad debt. No mean feat. At least the Fed's Janet Yellen had the decency to say, 'we have learned a harsh lesson about the dire consequences a financial crisis has for ordinary Americans... (because) weak bank regulation contributed to excess' at yesterday's Senate hearing, while nominee Raskin bemoaned the fact that government reforms had not addressed the problem of GSE home-lenders. What to watch for next week
Monday the 19th a Marine Day holiday in Japan, Eurozone May Current Account, Construction Output, UK July Rightmove House Prices and US NAHB Housing Market Index while top US financial regulators meet for the first of four public hearings on updating rules. Tuesday German June PPI, UK Public Finances, Money Supply and Mortgage Approvals, US Housing Starts and Building Permits while the Bank of Canada decides on rates (many expect a 25 basis point increase to 0.75%). Wednesday just Bank of England July 7th/8th MPC Minutes and the Fed's Bernanke delivers his semi-annual report to the Senate Banking Committee. Thursday Japan May All Industry Activity Index, EZ16 Industrial New Orders, UK June Retail Sales, US Existing Home Sales, Leading Indicators, May House Price Index, July Manufacturing PMI's for various European countries and Eurozone Consumer Confidence. Friday German July IFO, UK May Index of Services, June BBA Mortgages and Q2 GDP plus more interestingly the results of Europe's bank 'stress tests'.
Positioning and Technical Analysis
Markets are nearly always thin in July and early August, exacerbating price swings; volumes are usually poor so that often bankers question their job prospects. Watch FX weekly closes for important breaks, 87.00 for dollar/yen and $1.3000 on the Euro. Another round of generalised US dollar selling is likely if not next week then next month, something which should prop up commodity prices. Top-notch Treasuries and Corporate bonds should remain well bid maintaining the pressure on credit spreads. The merest hint of an end to policies propping these up could send them into a tailspin. Stock markets will probably be subject to increasingly violent intra-day swings.
Despite enthusiasm over the start of earnings season markets paired gains yesterday. Retails Sales in the U.S. came in lower than expected for the second consecutive month. Investors responded by sending equities lower. In the currency markets the Euro continued to head higher against the USD, explained by reasonably better macro data released by Europe.
Markets recovered during the mid NY trading session, just to pair gains again after the FOMC meeting minutes were published, eventually ending the NY session flat. Fed minutes released later revealed more concern over the economic recovery. The Fed stated that, for the time being, there is no need for new steps to boost the economy. However, in case the economy continues to slow, it might take the necessary measures to accelerate growth. Economic News
USD - Retail Sales and Fed Minutes Sent USD Lower U.S. Retail Sales and Fed Minutes released yesterday sent the greenback lower against its major counterparts. The EUR/USD pair continued the recent rally for another day. The rally gathered momentum as European macro data was better than the disappointing figures released in the U.S. The U.S. economy is signaling that the economic recovery may be slower than previously thought. The fed sees rising risks and growth at a slowing pace.
The U.S. Dollar is currently trading at 1.2750 against the EUR during early trading today.
Looking ahead to today, more macro releases will influence the greenback. Data is expected to be lower than previous months but in case economic growth is indeed slowing, data might turn even worse than expected. In this case the U.S. Dollar might continue to decline against its major counterparts.
EUR - Weak U.S. Figures Send Euro Higher The Euro continued its rally against the U.S. Dollar for the second day, although the pair traded higher most of the day it ended almost flat. The EUR reached $1.2776, thereafter it paired some of it gains, while concerns over the European economy remains.
The EUR remained almost unchanged versus the British pound. The EUR/GBP is currently trading at 0.8342, however the EUR traded lower against the Japanese yen currently at 112.58, as investors return to buy safer assets.
Looking ahead to today, there are no major news events to be released in Europe. Therefore U.S. macro data may influence investors' appetite for riskier assets. In case figures turn worse than expected, investors would continue to prefer the EUR and GBP over the greenback. The Japanese yen, unlike the USD, could turn stronger against the Euro and British pound, as it still considered a safer asset.
JPY - Remains a Safe Heaven Currency The JPY strengthened against the U.S. dollar as investors expressed their concerns about the U.S. economy by selling the U.S. dollar and buying the Japanese yen. The yen traded higher against most its counterparts, aided by lower likelihood of currency intervention from Japan's policymakers. It strengthened against the British pound, the euro the Canadian dollar and the Australian dollar.
Looking ahead to today traders should pay attention to the support line at 88.00. A below this level might take the USD/JPY pair even lower. Some analysts estimate that that the yen could even reach as low as 85 in the following months.
OIL - Worries about Double Dip Hit Crude Oil price Crude Oil price ended flat yesterday after Fed Meeting Minutes signaled slower growth than previously expected. Crude Oil traded higher above $78 before NY trading session only later to pare its gains after disappointing U.S. Retail Sales, declining further after the Fed published its monthly minutes.
Crude Oil prices have risen sharply since last Tuesday from $71.46, currently trading at $77.25. Having little effect on price, Crude Oil stockpiles decreased by 5.1 Million barrels according to the weekly EIA report published yesterday. Distillate stocks rose by 2.9 million barrels, analysts expected, on average a rise of 800K barrels.
Crude Oil prices may decline further in the short term if economic figures continue to deteriorate. Investors are worried about a possible double dip, or a renewed recession. The Fed at this stage will not take steps to accelerate the economy.
Technical News
EUR/USD Yesterday the EUR/USD rose as high as 1.2776 but found resistance at the upper line of the pair's rising price channel. The close was also above the resistance line at 1.2750 and the long term downward trend line that began in December of 2009. Traders may want to target the next resistance line at 1.3100. This level also coincides with a 76.4% Fibonacci retracement level from the pair's bullish trend in 2009.
GBP/USD The pair ran into technical resistance yesterday, rising to a high just shy of 1.5300. This price level is reinforced by the long term downward sloping trend line that began in July of 2008. The price level also coincides with a 23.6% Fibonacci retracement level of the same long term bearish trend. A breach of this price could send the pair to the resistance levels of 1.5380 and 1.5520 in the short term, with a long term target at 1.6425.
USD/JPY The brief bullish correction has ceased in the pair as yesterday the price fell to the support level of 88, the significant resistance level reached on the same day of the "flash crash". Falling momentum may push the pair lower as the 10-day Momentum Indicator is falling below the 100 level. The price has also failed to make a significant breach of the 20-day simple moving average. The next target for the pair could be the support of line at 87.
USD/CHF Yesterday the pair pulled back to the 61.8% Fibonacci level at 1.0610 before heading lower to the daily low set on Tuesday. A breach of the 1.0480 support level could send the pair lower towards the 76.4% Fibonacci retracement level from the previous bullish trend at a price of 1.3050.
The Wild Card Oil Rising prices have been accompanied by increasing momentum as the 14-day Momentum indicator is sloping sharply higher. Yesterday the price of the commodity rose to a high of 78.12 before falling back for a slight gain. CFD traders may want to continue to be long on spot crude oil with a near term price target of $80.
(Reuters) - The U.S. stock market landed at a technical crossroads following its best week in a year, yet the potential for positive earnings surprises beginning this week could give an edge to the bulls.
Analysts turned increasingly bearish before the start of earnings season. Sentiment stands at its lowest since May 2009, according to a Bespoke Investment Group note that said analysts have lowered estimates for 572 companies in the S&P 1500 in the last four weeks, while they raised expectations for 396.
At the same time, bullish investor sentiment as measured by the American Association of Individual Investors fell to just 21 percent, the lowest since early March 2009 -- right at the market's bottom.
Equity funds worldwide saw more than $11 billion in net outflows in the first week of July, while money market funds attracted the biggest inflows in 18 months, fund tracker EPFR Global said.
"Expectations are low going into the results, so we could have some positive surprises there and the big test will be if we can get back above 1,100 (on the S&P 500)," said Paul Hickey, a co-founder of Bespoke, based in Harrison, New York.
The Standard & Poor's 500 Index .SPX ended slightly higher on Friday at 1,077.95. For the holiday-shortened week last week, the three indexes rose more than 5 percent.
Even with signs of dwindling sentiment, analysts still expect 27 percent growth in earnings on the S&P 500 for the second quarter according to Thomson Reuters data. That is up from previous readings in the past three quarters, which hovered around 22 percent.
To be sure, beating top and bottom line expectations could still prove a Pyrrhic victory. Chief executives must also provide outlooks that convince investors the U.S. economy does not face a double-dip recession or the European credit crisis will not damage future earnings.
"Everybody's concerned about the economy and the market has reflected these concerns," said Cleveland Rueckert, equity strategist at Birinyi Associates in Stamford, Connecticut.
"Right now the market has priced in a slowdown in earnings, so we're going to see a lot of focus not only on the reports but also the guidance," he said.
TECHNICALS: HALF FULL, OR HALF EMPTY?
After regaining the key 1,040 level last week, the S&P 500 also generated a 'buy' signal in its moving average convergence-divergence, or MACD chart. But its 50-day simple moving average is still below the 200-day moving average. This so-called death cross is seen as a signal of further downward pressure.
The index also stands at its 20-day moving average, which leaves it right in the middle line of its Bollinger bands, meaning it technically has space to move in any direction, and leaves it susceptible to volatility.
"We're seeing a tug of war between technical indicators," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.
"You're going to see people migrating toward one end of the camp or the other depending on how the earnings season plays out."
Amid the lack of technical guidance, options traders seem to be hedging themselves for some volatility. On Friday, the most active trades on the SPDR S&P 500 fund (SPY.P) were the July $107 calls and the July $107 puts.
"The volume is nearly the same for calls and puts, so these just look like bets on volatility next week instead of a direction," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.
BUSY EARNINGS WEEK
Big names like Google Inc (GOOG.O), Intel Corp (INTC.O), JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) will post their quarterly scorecards in a busy week that will see Alcoa Inc (AA.N) start the season after the market's close on Monday.
JPMorgan will be in focus as many investors expect financials to lead or take part in a stocks comeback. But the bank is expected to post earnings of 67.9 cents per share according to StarMine's SmartEstimate, which weights estimates according to analysts' accuracy, versus the mean of 72 cents a share.
If JPMorgan does miss median expectations, it could threaten this nascent stocks rally.
More than a few Dow components posting earnings could overshadow the economic data, but the minutes of the latest Federal Open Market Committee meeting, expected Wednesday, will be closely watched as they will provide a window into the Fed's take on the extent of the effect of the European credit crisis in U.S. growth.
Other data high points include business inventories Wednesday, the Producer Price Index and initial applications for unemployment benefits on Thursday and the Reuters/University of Michigan survey of consumers on Friday.
Overseas data includes Chinese gross domestic product due on Thursday and expected to show a slowdown to 10.5 percent year-on-year growth from 11.9 percent.
"If people see a higher number they might think China is going to really rein in their economic growth, which could then put downward pressure on commodity (and U.S. equity) prices," Wells Fargo's Jacobsen said.
(Reporting by Rodrigo Campos; Additional reporting by Angela Moon; Editing by Kenneth Barry)
* Risk markets rebound, but sentiment lacking conviction * Stress tests dominate attention in Europe * Double dip a done deal? * GBP shows a little resilience * Key data and events to watch next week
Risk markets rebound, but sentiment lacking conviction
After dropping to recent lows at the end June, risk assets have regained most of that lost ground, but there are some noteworthy differentiations that suggest caution and a lack of conviction continue to dominate. In terms of recoveries, the S&P 500 has effectively recovered all its losses since the end of June, and is now re-testing the key 1075/80 breakdown area, now resistance. In bonds, US Treasuries yields are up off their lows, but still below the key technical resistance (prior lows for the year) between 3.05/3.10%. For stocks and bonds, those resistance levels remain the triggers to a further risk rebound. In commodities, the recovery has been more muted, with the CRB Index having regained only about 2/3rds of its losses since the end of June, which is potentially suggestive of a correction rather than a rebound. More fundamentally, a lesser rebound in commodities suggests ongoing concern that the global recovery is stalling. Declines in the Baltic Dry Index to lows not seen since May 2009 underscore the outlook for weakness in commodity demand.
In currencies, the notable shift is more pronounced USD weakness, with the USD index having fallen for the last 5 weeks straight. Weakness in the buck is due to consistently disappointing US data over that period, which highlighted concerns that the US recovery is stumbling. An increasingly likely US slowdown, in turn, jeopardizes the broader global recovery, which explains the back and forth in risk assets over the last few weeks. In the JPY-crosses, the rebounds closely mirror those seen in US shares, with losses since the end of June simply being recouped rather than surpassed. Clearly, conviction is lacking across all asset classes and that suggests short-term flexibility in positioning remains essential.
In terms of shorter-term trading direction, we are clearly at a crossroads, where recoveries above risk resistance levels cited above could trigger additional follow-through. In FX, strength in EUR/USD above the 1.2720/30 area is the equivalent trigger and represents a break of the entire downtrend from Nov. 2009, and a likely new phase of USD weakness. In the bigger picture, though, risks remain tilted toward further weakness as the developed economies remain burdened by high unemployment and impending austerity measures/fade out of stimulus. In that sense, we view the rebounds of the past week as more of a correction and continue to see gains in risk assets as selling opportunities. However, we are mindful of still heavy risk-averse positioning (e.g. short-EUR, long USD, short JPY-crosses) and with it the potential for a further squeeze higher and thus we would suggest relatively tight stop losses just above the past week's highs.
Stress tests dominate attention in Europe
Initial enthusiasm that most banks would pass the stress tests outlined by the Committee of European Banking Supervisors (CEBS) on July 7 quickly dwindled as fears rose that non-stringent tests would fail to bring sufficient transparency into the banking sector. The banks will be tested against macro-economic scenarios; the most adverse of which will assume a 3% deviation in GDP from the EC's forecast over a 2 year horizon. A shock on interest rates to reflect a possible deterioration in the EU government bond market will also be included. However, there is plenty of debate on whether the haircuts made to government bond holdings will sufficiently reflect potential risks; some investors are unhappy that the CEBS has apparently ignored the possibility of sovereign default. EU officials have moved quickly to offset concerns over the credibility of these tests, but doubts are likely to persist at least until the publications of the test results on July 23, and possibly beyond. The fact that German Landesbanken and Spanish savings banks are on the list of banks that will be tested suggests that the authorities are not deliberately avoiding the institutions considered to be among Europe's weakest. By implications, however, the market will be expecting some of these banks to fail if the tests are to be perceived as sufficiently credible. The EC has reassured the markets that the EU is well prepared to deal with this situation, but uncertainty over the results could leave the EUR unsettled in the coming weeks.
Double dip a done deal?
Earlier this week the S&P 500 was down 15% from its April 2010 high. The ongoing debate on whether the US economy is poised for a double dip recession can be linked with these falls. At present there is insufficient evidence to conclude that the US economy will fall back into recession, though there are signs that the recovery could be losing momentum. A key question is whether the adjustment in asset prices seen since the end of April has been appropriate. Proponents of double-dip imply that asset prices may have further to fall. In contrast, die-hard bulls suggest that equity valuations are looking cheap. In the past few sessions, the bulls have been gaining the upper hand.
The reining in of government fiscal incentives and in many cases the implementation of austerity measures suggests that economic growth in most of the developed world will be constrained for the next few years. The release a month ago of the much worse than expected May US Labour report was followed by a bout of poor US housing and confidence data that had the effect of triggering a wide scale debate about the prospects for double dip recession in the US. The guts of the June US employment report did little to dissuade this speculation. Average hours worked in June fell and 652K people gave up looking for work; during the early stages of an economic recovery the labour market usually expands. That said the data were not bad enough to suggest that double dip is a done deal. Private sector payrolls managed to expand by 83K. While this was less than expected an expansion in private sector payrolls tends to be a precursor to economic expansion.
Adding to evidence that the US expansion remains in place is the steady expansion in the US industrial production index from its mid 2009 trough. Retail sales have been more volatile, but the underlying trend in the index also suggests improvement. As it stands, double dip in the US would seem unlikely. In Germany, sentiment has been affected by concerns over the strength of the European banking sector. That said German factory orders and industrial production have been on a clear upward trend, pulling in new workers along the way.
The industrialized world is still struggling to fully overthrow the constraints of the financial crisis. The slow-to-moderate growth in money supply data in many countries continues to illustrate that the banking sector is not yet fully healed and that the process of balance sheet repair continues on both a corporate and consumer level. The US, Spanish and Irish housing markets are far from recovered; in the UK it remains wobbly. The pace of economic growth in 2010 and 2011 for many developed countries will be relatively low compared with their averages of the past decade. That said, growth is likely to be sustained suggesting that fears over double-dip are likely overdone and that equity markets and other risk assets may find support. GBP shows a little resilience
Relative to the EUR, sterling has now unwound all of its post-June 21 budget gains. These gains had made the pound susceptible to poor economic news, sterling's resilience in the face of poor trade data released July 9 suggests there is more investor interest in establishing sterling longs at current levels and that sterling may again become more sensitive to stronger economic data than to bad. Technical resistance lies at EUR/GBP 0.8430, assuming this holds EUR/GBP could be poised to resume its downtrend.
Key data and events to watch next week
The calendar in the US is modestly heavy in the week ahead. No data on Monday but Tuesday kicks off with the IBD/TIPP Economic Optimism Index. The data slate on Wednesday is the heaviest of the week with Import Price Index, Advance Retail Sales, Business Inventories, and the FOMC Minutes to wrap up the day. Thursday sees June PPI, weekly Jobless Claims, July Empire Manufacturing, Industrial Production, and the July Philadelphia Fed Index. Friday wraps up the week with June CPI, May TIC data, and U. of Michigan Consumer Confidence.
Eurozone data is relatively light. EZ Finance Ministers will meet in Brussels on Monday where they are expected to outline their planned responses to the results of EZ bank stress tests. Tuesday sees the ZEW survey of economic sentiment along with EZ CPI and Industrial Production on Wednesday. Friday caps off eurozone data with EZ Trade Balance. Tuesday will be the only day with data announcements out of Germany when the Wholesale Price Index and German ZEW survey of economic sentiment will be released.
Data out of Tokyo is moderately busy kicking off with Industrial Production, Capacity Utilization, and Consumer Confidence on Tuesday. Wednesday will have the BOJ Monetary Policy Meeting followed up with the BOJ Target Rate on Thursday. Additional data on Thursday has June Machine Tool Orders and the May Tertiary Industry Index. Capping off data releases for the week will be June Nationwide and Tokyo Dept. Sales numbers on Friday.
The UK starts off a significant week of data with final 1Q GDP, Current Account, BRC June Retail Sales Monitor and the RICS House Price Balance. Tuesday sees CPI, RPI, and DCLG UK House Prices. Thursday wraps up the week's data with Claimant Count Rate and Jobless Claims Change.
Data out of Canada is light with Manufacturing Sales and Leading Indicators to be released on Thursday and Friday, respectively.
The calendar down under begins with NAB Business Conditions, Westpac Consumer Confidence, and DEWR Skilled Vacancies on Tuesday. Wednesday ends the week of data with New Motor Vehicle Sales. New Zealand releases Food Prices on Monday followed up with REINZ House Sales and Retail Sales on Tuesday. Business NZ PMI is up on Wednesday while Consumer Prices rounds out the week on Thursday.
China kicks off the data early with June's Trade Balance report set to be released on Saturday. The rest of the releases are all slated for Tuesday when we will see 2Q GDP, PPI, Money Supply, and Industrial Production.
(Reuters) - Gold rose to hold above $1,200 an ounce on Thursday on steady purchases from jewelers and other physical buyers after a recent drop to a six-week low, while sentiment was also lifted by gains in equities markets.
The Nikkei jumped nearly 3 percent after U.S. stocks logged their best one-day gain in about six weeks on optimism about the coming earnings season, discouraging speculators from selling gold to cover losses in other markets. .T
Gold added $1.80 to $1,203.65 an ounce by 0537 GMT (1:37 a.m. EDT). It had dropped to its weakest since May 25 at $1,185.05 on Wednesday, or around 6 percent below a record high above $1,264 struck in late June, before regaining strength.
Traders said gold would have to crack a June level of around $1,230 to sustain gains, but that a rebound to the current level had prompted investors to start accumulating long positions again. Silver, platinum and palladium also bounced from Wednesday's lows.
"There will also be people who start to see that the decline of the past few sessions is healthy and allows technical indicators to unwind from their overbought conditions," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
"Tough resistance will be that $1,230 level. If it can go pass that level, it will really signal a return to the bullish uptrend."
U.S. gold futures for August delivery rose $5.4 an ounce to $1,204.3 an ounce.
The physical sector saw buying interest from Indonesia and Thailand, but consumers were not too aggressive after prices crossed $1,200 level again.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P) said its holdings were unchanged at 1,316.481. The holdings hit a record at 1,320.436 tonnes on June 29.
"There's still some buying but I guess most people are now waiting for delivery. Physical buying is still there and my premiums have gone up to 80 cents," said a physical dealer in Singapore, who offered gold bars at 70-cents premium earlier this week.
Jewelers in India have been stocking up ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell.
India, which accounts for more than 20 percent of global demand, will celebrate the Hindu festival of Raksha Bandhan on Aug 24, Janmasthami and Ganesh Chaturthi in September.
A firmer euro also supported gold. The single currency rose to a two-month high against the dollar on Thursday, with an upbeat day on Wall Street underpinning improved tolerance for risk.
The European Central Bank holds a news conference later in the day after its monthly meeting, and will face pressure to say whether Europe-wide stress tests on banks will be tough enough to convince markets of their worth.
Gold had hit a lifetime high on worries the European debt crisis would spread and the U.S. economy was slowing.
The global economy is unlikely to slip back into recession over the next few years, although such a scenario is not impossible, the International Monetary Fund's chief economist Olivier Blanchard said on Thursday.
