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.
Markets are trading in a lethargic manner as participants continue to nervously take on risk-correlated trades. The move toward risk is logical because without the massive sovereign crisis fear hovering over the market like the Sword of Damocles, one needs to consider the fundamentals - particularly monetary policy, as the core driver. Overall, the rate at which central banks are mopping up excess liquidity has been slower-than-expected with the BoE and Fed still discussing the potential for further QE.
In this era of ultra-low policy rates, risk taking will be encouraged. In the past few days, we’ve seen Eurozone sovereign spreads narrow considerably, the VIX index is trending lower along with decreased FX volatilities and global equity markets have demonstrated a resilience to bearish news. If corporate earnings come out strong, this could be the start of a summer rally, however we’re not so sure. Our view is that the fears surrounding sovereign risk may have subsided for the time being, but will most likely return this fall.
Even with the recent stint of positive news, foreboding signs are on the horizon. The Fed’s Beige book released yesterday reported that the US recovery remained on track but has begun to actively slow. The notion of a US slowdown was reinforced by recent US data, including yesterday’s durable goods figures.
In New Zealand, the RBNZ raised its policy rate 25 bps to 3.00% as we had predicted and the accompanying statement asserted that future growth prospects had deteriorated considerably. Traders rapidly paired down their interest rate expectations which in turn weighed on the NZD.
Governor King’s comment seemed to slam into the sterling market, which was curious because his remarks were really nothing new or original. He recommended caution over reading too much into the strong Q2 GDP figures and reaffirmed that inflation remained finely in check. Paul Fisher stated that the global outlook had weakened and David Miles resonated with the most dovish view of all – that inflation would taper off and the current ultra-loose policy was correct.
The combination of all these comments hit the GBP value like a sledge hammer. It wasn’t until Sentance’s hawkish comments that the “current policy setting was extreme” that some sanity was regained in the FX market.
We are convinced that the market is now underestimating the strength of the UK recovery and that the current downtrend in inflation will flat line and then begin to move higher. The BoE interest rate path should give GBP a boost in the mid-term.
Otherwise, there’s a frenzy of data to be released during the European session today and after that it’s onto corporate earnings. We will continue to use equity market activity as a compass for FX directions. Correlation remains particularly high between the EURUSD and S&P and should thus be traded accordingly.
Today's Key Issues (time in GMT): 07:30 SEK Jun retail sales, +0.6% m/m EXP; prior +1.6% m/m, +2.7% y/y. 08:00 EUR GER Jul unemployment rate, 7.6% sa EXP; prior 7.7%. 08:00 EUR GER Jul unemployment, nsa and sa; prior 3.153 mln, 3.23 mln. 08:00 EUR GER Jul unemployment - change, -10k sa EXP; prior -21.0k. 08:00 EUR ITA Jun wages, +2.6% y/y EXP; prior +0.1% m/m, +2.5% y/y. 08:30 GBP Jun consumer credit, GBP300 mln EXP; prior GBP331 mln. 08:30 GBP Jun mortgage appl/loans, 49k/GBP1 bln EXP; prior 49.81k/GBP1.184 bln. 08:30 GBP Jun money supply; prior unch. 09:00 EUR Jul business climate index, 0.39 EXP; prior 0.37. 09:00 EUR Jul consumer sentiment index, -14.0 EXP; prior -17.0. 09:00 EUR Jul economic sentiment index, 99.1 EXP; prior 98.7. 09:00 EUR Jul industrial sentiment index, -5.0 EXP; prior -6.0. 09:00 EUR Jul services sentiment index; prior 4.0. 12:30 USD Initial jobless claims, thous (4wma) 24-Jul 23:01 GBP GfK consumer confidence survey, bal Jul
EurUsd We’ve had another day of tight range trading in EURUSD, and for the time being there is a ceiling of resistance at 1.3046 that is blocking the path higher. We are still playing the bullish break out of a symmetrical triangle pattern on the hourly chart, and based on the projected path of that triangle we are expecting a move to 1.3290 in the coming days. Once we clear 1.3046, the next resistance level is expected at 1.3093 (10 May high) with weak resistance also anticipated at 1.3213 and 1.3254 (14 and 13 May highs respectively). Support at 1.2950 is still valid, with trendline support just below at 1.2940 –should the pair drop below there we would have to concede the failure of the bullish triangle breakout, and would then eye technical levels below at 1.2793 (23 Jul low), 1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low).
GbpUsd There were a few hairy moments yesterday for GBPUSD as BoE’s King hit the newswires to downplay the significance of the latest GDP reading, but tellingly the temporary sell-off was met with eager buyers clambering to get in on this impressive GBPUSD recovery, and the pair has since pushed to fresh highs of 1.5655. As previously discussed, we feel that the UK GDP figures last Friday were a game changer, and from here we would relish any dips towards the lower edge of the current uptrend channel now seen at 1.5385 to get long. The way things have gone so far, we may not even get a correction that deep as decent support is also anticipated around the 200-day moving average at 1.5545, 1.5525 pivot, then again at 1.5443 (yesterday’s low). Really there is not much standing in the way of an assault on the 17 Feb high 1.5816 in the coming days, and beyond there we open up the possibility of re-testing the top of the 8-week uptrend channel (currently at 1.5950) before the psychologically significant 1.6000.
UsdJpy USDJPY may have slumped in a rather ungainly fashion back below 87.50 in the past few sessions, but the pair is at the very least continued carve out successively higher highs and higher lows since the double bottom around 86.25 levels. The last rally (which topped out at 88.11) was thwarted by a pretty formidable confluence of resistance levels (8-week downtrend resistance, top of 1-week uptrend channel and 88.00 pivot), but we still believe the bulls can overcome these barriers on a subsequent re-test now they are more comfortably spaced out. The 8-week downtrend has now crept down to 87.90 while the top of the current uptrend channel has climbed to 88.25; however thereafter few levels are discernible ahead of our triangle target 88.85. Should the rally have the momentum to continue beyond there, look for sellers at 89.15 (12 Jul high) and 89.50 (28-29 Jun high). The most convincing support level to try getting in on the long trade appears to be the lower edge of the 1-week uptrend which is now seen at 87.10-15 (already had one test of that area this morning), then further supports anticipated at 86.82 (Tuesday’s low) and 86.25 (recent range floor).
UsdChf Despite the bullish engulfing candlestick on Monday/Tuesday of this week AND the important break of the 1-month downtrend channel, the bulls have looked lacklustre in the past 24 hours and have sloppily allowed the 1-week uptrend to break down around 1.0560. This conclusively negates the bullish flag pattern we had proposed yesterday, and seems compelling argument to move to the sidelines for the time being on this one and wait for more favourable risk-reward trades to present themselves. Buyers should be able to catch the fall if it extends to 1.0450, and an extremely important support still remains at 1.0400 so we would look to resume buying down at those levels. Strong selling interest may once again cap rallies at 1.0640-47 (13 Jul & 27 Jul highs and 200-day moving average), and given the propensity of July/August markets to be directionless and range bound, we would actually look to sell at those levels rather than look for a continuation higher. IF the bulls manage to pull their fingers out and effect that break higher, a powerful resistance level around 1.0700 is backed up but the top of the 1-week uptrend at 1.0710.
MORNING BRIEFING: Beige Book shows some districts slowing economy
What’s new: United States: Financial state of emergency in California United States: Beige book report shows some districts slowing economy Euro zone: Tougher lending rules for banks from ECB United Kingdom: No tacit agreement to keep low rate China: IMF board split on China’s exchange rate debate Japan: BOJ’s Kamezaki says won’t base policy on forex New Zealand: RBNZ raises interest rates by 25bps to 3.00%
Today:
Rates in Asia and Indices: EURUSD: 1.3045 - 1.2978. USDCHF: 1.0581 - 1.0517. GBPUSD: 1.5631- 1.5584. EURJPY: 113.97 – 113.18. USDJPY: 87.52 – 87.10. DowJones: 10'497.88 -0.38% NASDAQ: 2'264.56 -1.04% S & P 500: 1'106.13 -0.69% Nikkei: 9'696.02 -0.59% Shanghai: 2'648.60 +0.57% Gold: $ 1'167.20 Crude Oil: $ 77.22
Comments: In an interview, British finance minister George Osborne declared ‘There is no tacit agreement with Bank of England Governor Mervyn King on keeping interets rates low. He is absolutely independent, as is his Monetary Policy Committee.'
New Zealand’s Central bank lifted interest rates by 25bps to 3.0%, but scaled back its plans for further move. The New Zealand Dollar fell sharply after the Reserve Bank of New Zealand signalled the pace of further interest rate hikes would be less than earlier thought. The kiwi fell to a low near $0.7202, from about $0.7287 before the announcement.
The Beige Book, released yesterday at 2000 CET, reports on conditions in all 12 districts that are part of the Federal Reserve system. The report, based on information before July 19, said activity "continued to increase, on balance" though Cleveland and Kansas City said business held steady. "Among those districts reporting improvements in economic activity, a number of them noted that the increases were modest, and two districts, Atlanta and Chicago, said the pace of economic activity had slowed recently," the Fed said.
The Euro is still hovering near an 11-week high against the US Dollar reached earlier this week. EURUSD is up to 1.3045 today, just shy of the recent high reached 27th of July. Against the Yen, the single currency dipped on high selling by Japanese exporters. Traders are expecting more offers to emerge if the Euro rises to above 115 Yen.
€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2965 level and was capped around the $1.3040 level. The big news in the market today was a weaker-than-expected result for U.S. June durable goods orders. Defying expectations of a positive print, the headline number came in at -1.0%, down from the revised May tally of -0.8%, while the ex-transportation component fell to -0.6% from the May result of 1.2%. Sub-components such as capital goods orders non-defense ex-air were also considerably weaker and these data suggest the U.S. economy sputtered lower at the end of the first half of the year. Other data saw MBA mortgage applications off 4.4% from the prior +7.6% result. Weekly initial jobless claims and continuing jobless claims data will be released tomrorow followed by GDP, PCE, and final July University of Michigan consumer sentiment data on Friday. The Federal Reserve released its July Beige Book today and its noted that economic growth decelerated in some areas over the past two months. The expiration of a homebuyers’ tax credit and a decline in commercial real estate both had a negative impact on the U.S. economy. The Fed continues to anticipate “continued moderate growth.” New Fed nominees Yellen, Diamons, and Raskin won their Senate votes today and will soon join the Board of Governors. In eurozone news, provisional German states’ July consumer price inflation data released today came in on the elevated side. The preliminary national July CPI came in at 0.2% m/m and 1.1% y/y with the harmonized measure at +0.3% m/m and +1.2% y/y. French June CPI data will be released tomorrow. The European Central Bank introduced more stringent rules today on bank collateral including new haircuts on certain bonds. Euro offers are cited around the US$ 1.3265 level.
¥/ CNY The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥87.25 level and was capped around the ¥88.10 level. Bank of Japan Policy Board member Kamezaki reported the central bank “wants to make utmost efforts proactively to escape from deflation and return to a sustainable growth path under price stability,” noting a stronger yen will hurt exporters. In contrast, other BoJ officials including Governor Shirakawa have been hesitant about commenting on the strong yen. There is speculation that industrial production growth in Japan is decelerating and this may increase pressure on the BoJ to ease further. Yen gains were also prompted by weaker-than-expected Australian consumer price inflation data, suggesting global growth continues to decelerate. Reserve Bank of Australia will likely not hike rates next week and the yen could stay bid as a result of this evolving monetary and economic landscape. While Kamezaki’s remarks may not increase the changes of yen-selling intervention by the government, traders remain fixated on the ¥85 level. Economic growth in Japan may also slow in the fourth quarter. The spread between three-month U.S. Dollar Libor and three-month yen Libor narrowed to 23.937 basis points today, the smallest difference since 20 May. Data released in Japan overnight saw July small business confidence improve to 48.1 from the prior reading of 47.4. June retail trade data will be released tonight. The Nikkei 225 stock index climbed 2.70% to close at ¥9,573.27. U.S. dollar bids are cited around the ¥86.29 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥113.20 level and was capped around the ¥114.70 level. The British pound moved lower vis-à-vis the yen as sterling tested bids around the ¥135.85 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.50 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7778 in the over-the-counter market, down from CNY 6.7784. The Federal Reserve Bank of Cleveland warned that the anticipated appreciation of the Chinese yuan will not lead to a “substantial” reduction in the U.S. trade deficit. People’s Bank of China is expected to keep monetary policy relatively stable and continue to promote domestic final private demand.
£ The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5635 level and was supported around the US$ 1.5545 level. Data to be released in the U.K. tomorrow include July Nationwide house prices, June net consumer credit, June net lending secured on dwellings, June mortgage approvals, and the July GfK consumer confidence survey. Bank of England Governor King today expressed concerns that proposed reforms to the Basel capital accord will not be strong enough. Monetary Policy Committee member Miles said now is not the proper time to change policy while MPC member Bean said sterling’s decline will likely have a larger-than-expected impact on consumer prices. Cable bids are cited around the US$ 1.5270 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8310 level and was capped around the £0.8365 level.
Plenty of important macro data from the U.S. was published yesterday. Investors were disappointed by the figures and responded mainly by moving away from riskier assets. At first U.S. Durable Goods came negative at -1%, at 12:30GMT later at 18:00GMT Beige book revealed a gloomy outlook for U.S. economy. Although company earnings are still high, yesterday fears about recovery came back to dominate the markets.
Economic News
USD - Traders Shift from EU Debts Concern to U.S. Economic Outlook U.S. macro data came far less than expected. Investors responded by moving away from riskier assets back to buying the Yen and U.S. Dollar. The EUR/USD was slightly down after U.S Durable Goods was published, The USD/JPY traded lower, currently trading at $87.22 as investors feel safer holding the Yen over the USD. The British Pound continued to rally against the U.S. Dollar, despite the move to safer assets.
U.S. demand for Durable Goods, which is usually a sign for economic strength, came negative at -1.0%. Forecasts which already expected a form of decline from last month were more moderate than the actual figure. Traders were surprised by the final figure and reacted by sending markets lower. Later the Beige Book was released by the Fed during mid U.S. day trading. It provided a mixed economic picture but eventually supported the markets from declining further. The report said that the U.S. economy was growing but there were also signs of a slowdown in some regions over the past two months.
Looking ahead to today, traders should follow the release of the Unemployment Claims at 12:30 GMT. A worse than expected result might intensify the current trend and strengthen the greenback further.
EUR - EUR's Recent Rally Losing Steam EUR's rally against its major counterparts stumbled yesterday as new economic data raised fears about the strength of global economic recovery, with the common currency ending lower against its major counterparts.
EUR/USD ended slightly lower yesterday, reaching a low of 1.2968; however, it managed to recover some of its loses to currently trade at 1.3010. The pair seemed to trade without a clear trend and moved mostly sideways. The EUR/JPY, however sent more clear signs of a correction building up. The pair's five days rally ended yesterday after it breached an 11 week high. Signals show that pair should further decline in coming days.
Looking ahead to today, traders are advised to follow the British HPI data at 6:00 GMT as well as the German Employment change at 7:55 GMT. Positive data might bring back some market optimism, pushing the Pound and EUR higher against their counterparts.
JPY - Strengthens on Safe Heaven appeal The JPY strengthened against the U.S. Dollar yesterday 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 of its major counterparts; however, a strong currency may ultimately weigh on the Japanese economy as it is heavily dependent on exports.
A strong Yen would have bad influence on profits of Japanese companies. Consequently the Japanese government might be forced to weaken their local currency. So far no comments were published regarding Government intervention. As long as the Japanese Bank avoids market intervention the Yen is expected to keep its strengthening momentum.
Looking ahead to today traders should pay attention to the $86.88 support line, crossing down might take the USD/JPY pair even lower. Some analysts estimate that that the Yen could even reach as high as $85 in the coming months.
Crude Oil - High U.S. Inventories Send Crude Oil Price Lower Crude Oil prices ended lower yesterday after U.S Oil Inventories rose by 7.3M barrels. Lately this figure made little impact over Crude Oil prices but yesterday it came quite high compared with expectations of a 1.4M drop.
Demand for durables goods which also came surprisingly lower added to worries that demand for Oil would decrease in the near future as manufacturing declines. Crude Oil price might decline further in the short term if economic figures continue to deteriorate. Investors are worried about a possible double dip, meaning a renewed recession.
Gold price rebounded slightly during yesterday trading session. During the day it reached as low as $1156.25, but thereafter recovered and is currently trading at $1165 Gold price dropped after inflation worries began to fade and analysts begin to worry about another recession or economic slow down.
Technical News
EUR/USD The pair was relatively unchanged yesterday and as such has formed a 2nd consecutive doji candlestick which reflects the bulls and bears inability to move the price significantly. The RSI (14) has crossed below the overbought line, triggering a sell signal. But traders may want to be patient and wait for the RSI line to break its trend line before going short. A rising trend line can be drawn from the low of the RSI line that begins on June 4th.
GBP/USD The pound was stronger yesterday and has risen versus the dollar for the past 6 consecutive bars. This has pushed most oscillators into oversold territory as the Slow Stochastic is showing a bearish cross and the RSI (14) is floating in the oversold territory. However, before going short, traders may want to wait for a breach of a short term trend line that can begins at the bar on June 22nd.
USD/JPY A bearish flag pattern has formed on the 4-hour chart. The base of the flag pole begins at the high on June 14th and runs to the low for the pair at 86.25. The flag pattern is sloping upward with a previous downward trend. Therefore, a breakout may be expected to the downside in the direction of the long term trend. Traders may want to wait for a confirmation of the breakout at a price of 86.80 and enter short.
USD/CHF For the past 15 days the pair has traded in a defined range between the prices of 1.0650 and 1.0400. In this trading range a double bottom reversal pattern may be forming. A confirmation of the reversal pattern will be a close above the 1.0650 resistance line.
The Wild Card Gold The drop in the price of gold shows a potential reversal in the trend. The price has closed below the long term upward sloping trend line for the past two days, confirming a significant breach of the trend line and a breach below the support level of $1169. However, yesterday's trading closed and formed a hanging man candlestick. This may signal an upturn in the price. CFD traders may find a good opportunity to go long on a breach above the $1169 resistance level.
The dollar declined against the yen in Asia Thursday on speculation that U.S. Treasury yields will fall further due to concerns over a slowdown in the world's biggest economy.
Strong demand at a U.S. five-year sovereign note auction overnight suggested that recent weak economic reports from the U.S. have made investors pessimistic about the country's growth outlook.
The U.S. currency was weaker also because of speculation that foreign investors will buy new shares offered by Japanese companies, a process which involves yen-buying.
On Wednesday, market sentiment was dampened after data showing demand for U.S. durable goods slid for a second straight month in June. At the same time, the Federal Reserve's latest beige-book report pointed to signs that the economic recovery may be running out of steam, adding to the market's disappointment.
The dollar was at JPY87.19 as of 0450 GMT, lower than JPY87.44 in New York Wednesday.
The euro was higher at USD1.3013 at 0450 GMT from USD1.2988 overnight while it was lower against the yen at JPY113.47 from JPY113.54.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 81.970 from 82.132.
The British pound remained at a 5-month peak against the dollar despite dovish comments from the Bank of England, which did little to diminish optimism about the UK economic outlook after a run of encouraging data.
Flat Asian stock markets left the Australian dollar floundering Thursday, rising only slightly through the trading day, with crucial Chinese manufacturing data Sunday the next major test of market confidence. General U.S. dollar weakness and cross-related demand helped to put some support under the Aussie dollar.
Market expectation
Currency dealers believe Treasury yields will keep falling for the time being, meaning investors will see less returns from their dollar-denominated assets. That view helped prompt dollar selling, said analysts.
Investors will pay attention to Thursday's seven-year Treasury bond tender to see whether yields keep falling.
The euro won't be able to rise far above USD1.3, dealers said, because big U.S. hedge funds have resumed selling the euro based on their medium-term European economic forecasts.
The greenback may fall to as low as JPY86.00 in this global day, some dealers said. But the pace of any decline below JPY86.50 would be slow due to dollar-buying orders placed by Japanese importers, said analysts.
European stock markets are expected to have an uneven open Thursday, as investors weigh up the competing influences of disappointing U.S. economic data but upbeat second quarter corporate earnings.
(Reuters) - The euro dipped against the yen on Thursday, pulling away from a recent two-month high on selling by Japanese exporters, while the kiwi struggled after New Zealand's central bank raised interest rates but warned further hikes could be more gradual.
The New Zealand dollar fell sharply after the Reserve Bank of New Zealand (RBNZ) signaled the pace of further interest rate hikes would be less than earlier thought. The kiwi fell to a low near $0.7205, from about $0.7280 before the announcement.
After staging a mild recovery, the New Zealand dollar was up 0.5 percent from late U.S. trading on Wednesday at $0.7244.
"The kiwi was dented by dovish comments from New Zealand's central bank, that came a day after data showed inflation has cooled in Australia," said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking.
Australian inflation data released on Wednesday proved far more tame than expected, ruling out the need for an interest rate rise possibly for the rest of the year.
The euro edged up 0.2 percent against the dollar to $1.3014, hovering near its 11-week high of $1.3047 hit on trading platform EBS earlier this week.
But the euro dipped 0.2 percent against the yen to 113.40 yen, pulling away from its highest in more than two months of 114.74 yen struck on trading platform EBS on Wednesday.
A trader for a Japanese bank cited euro-selling by Japanese exporters before the month-end, adding that more offers were likely to emerge if the euro rebounds and rises toward 115 yen.
"A lot of exporters are waiting at levels above 115 yen," the trader said.
The dollar slipped 0.3 percent against the yen to 87.19, extending losses after data on Wednesday showed new U.S. durable goods orders unexpectedly fell for a second straight month in June.
Still, the core measure of orders excluding aircraft and defense rose 0.6 percent in June, on top of an upwardly revised 4.6 percent jump in May, suggesting activity was not nearly as soft as the headline number suggested.
The dollar is likely to find support against the yen at levels around 86.80 yen, near the dollar's intraday low hit on Monday and Tuesday, said Teppei Ino, a technical analyst at Bank of Tokyo-Mitsubishi UFJ.
"There aren't strong reasons to bid up the yen beyond those levels at the moment, especially ahead of key U.S. data on Friday," Ino said. U.S. second-quarter gross domestic product data is due out on Friday.
A recent string of lackluster U.S. economic data has weighed on the greenback and led investors to cut short positions in the euro.
The single currency touched an 11-week high against the dollar earlier this week, helped by strong bank earnings and gains in European equities, following last week's favorable results of regulatory stress tests.
The dollar index .DXY was down 0.3 percent at 81.956, with near-term support around 81.44, a 50 percent retracement of the index's move from a low of 74.17 in November 2009 to a high near 88.71 in June.
The U.S. Federal Reserve's Beige Book on Wednesday pointed to a less-than-booming recovery with sluggish housing markets and sales of costly items like new cars weakening.
(Additional reporting by Anirban Nag in Sydney and Hideyuki Sano and Rika Otsuka in Tokyo; Editing by Joseph Radford)
(Reuters) - There has been just an inkling in recent weeks that financial markets might start to take their lead from the 'real' economy again after three years of being tossed about by their own panics and periodic exuberance.
Since the finance industry flailed into its crisis of confidence, doubting its own practitioners and the governments who became over-dependent on them, it has been almost impossible for households and companies to work out what markets are trying to predict about production, employment and consumption.
The net result has been the tail wagging the dog.
Guess the ephemeral mood of global markets six months hence -- voracious risk appetite or bunker-seeking safety -- and you might just stand a chance of predicting where businesses, consumers and policymakers would be forced to follow.
And while PIMCO asset managers predict a post-crisis 'new normal' of years of sluggish growth and policy angst, many yearn for an 'old normal' where finance reflects, rather th7an dictates, what is happening in the real economy where people produce and consume goods and services.
A VERY FINANCIAL COUP
For some, the credit crisis and aftermath had been fomented for decades by a more than a doubling of financial services to some 7.5 percent of the U.S. economy in the 40 years to 2007.
"The 3 percent of GDP (gross domestic product) that was made up of financial services in 1965 was clearly sufficient to the task, the proof being that the decade was a strong candidate for the greatest economic decade of the 20th century," Jeremy Grantham, Chairman of Boston-based asset manager GMO, told clients this month.
Lauding this month's U.S. financial regulation bill, he added: "The extra 4.5 percent would seem to be without material value except to the recipients. Yet it is a form of tax on the remaining real economy and should reduce by 4.5 percent a year its ability to save and invest, both of which did slow down."
Former International Monetary Fund chief economist Simon Johnson's 2009 Atlantic magazine essay, "The Quiet Coup", took a more conspiratorial view of the same phenomenon in sketching the lobbying power of the financial industry over that period.
Johnson estimated U.S. financial sector profits, which had never topped 16 percent of overall corporate profits in the decade to 1985, soared to 41 percent by the noughties. Average financial sector compensation as a share of the average in other industries almost doubled to 181 percent.
There was a similar development in Britain, where financial services had reached 8.5 percent of total output just before the crisis.
Deregulation, privatization, trade globalization and demographic trends were all catalysts for this growth in finance and the current regulatory backlash against the banks is unlikely to return the sector to its 1960s size.
But if knocking the froth off finance allows a more even relationship between real economic trends and financial markets, there may be a chance of tempering the endless boom and busts.
CHANGE AFOOT?
Is there any sign of that happening right now? Well, just an inkling.
In the past three years, financial and investment flows have been violently herded in and out of "safe-haven" cash and liquid assets, correlations zoomed between all asset classes and geographic regions, and risk gauges -- largely volatility measures -- careened from historic lows to highs and back again.
This mass behavior had been building for 20 years. Computer trading strategies supercharged the effect over time.
Yet as this year's euro zone sovereign debt crisis ebbs into the second half of the year, the herd seems for now to have stopped stampeding from its own rifle shots and may be listening more carefully to the underlying economy again.
Mindful of near-zero interest rates in cash, an expected dash back to safe-haven money market funds never really materialized during the worst of the euro crisis in April and May and 2010 outflows from these funds are still close to half a trillion dollars.
Partly as a result, stresses evident in lock-step asset correlations have ebbed and investors seem easier with idiosyncratic trends in selected stocks and credits.
Equity volatility has halved from April/May peaks and quartered from post-Lehman Brothers highs in 2008 and is holding closer to 20-year averages just above 20 percent rather than returning to unrealistic pre-2007 levels in single digits.
Even the world's main exchange rates between the U.S. dollar and euro -- long captive to "risk on/risk off" swings -- are starting to reflect interest rate gaps more than stress.
For active and diversified investors, this is how it is supposed to be and allows them to do what it says on the tin.
To be sure, we've been here before. But there are rays of hope for some return to old normals.
(Graphic by Scott Barber; Editing by Ruth Pitchford)
The dollar was flat to lower Wednesday, slightly extending a loss versus the Japanese yen while seeing little movement versus other currencies after U.S. durable-goods orders showed an unexpected June drop.
The dollar index (DXY), which tracks the greenback against a basket of major currencies, was slightly lower at 82.123 versus 82.200 in North American trade late Tuesday.
The euro, which failed to maintain an earlier push above the USD1.30 level, slipped to USD1.2980, down slightly from USD1.2989 in North American trading late Tuesday.
Against Japan's yen, the euro erased an early gain to stand at JPY113.82, off slightly from JPY114.05 late Tuesday.
The dollar, meanwhile, slightly extended a loss versus the yen to trade at JPY87.56, down from JPY87.82 late Tuesday. The yen tends to be among the largest beneficiaries of declines in risk appetite.
The Commerce Department said orders for durable goods fell 1% in June, defying expectations for a 1% rise.
The British pound traded at USD1.5601, up 0.1%. The currency showed little reaction to testimony by Bank of England Governor Mervyn King and other central bankers, including Andrew Sentence, before a parliamentary committee.
Market expectation
Worry over the U.S. economy taking a downturn is weighing on the dollar, analysts said. Investors will pour over the Federal Reserve's Beige Book, to be released at 2 p.m. EDT, for another assessment of the U.S. recovery from the perspective of the regional Fed banks.
Economists widely expect the Reserve Bank of New Zealand to raise its key interest rate by 25 basis points during late Wednesday New York hours to 3.00%. But a slightly more cautious statement is expected as the economic recovery remains fairly tepid.
Until key data from major economies grow gloomier the franc is likely to remain on its weaker path. Should the data published in the U.S. continue to disappoint, sentiment could deteriorate once again, benefiting the franc. While that is not the case, the franc is likely to remain under pressure, said analysts.
Risk correlated trades had a strong showing yesterday as banking stocks rallied and concerns over the inadequacies of the Stress Test dissipated. The USD lost ground to both the GBP and EUR while longs in JPY and CHF were equally cut. Risky trades continued to benefit throughout the trading day in spite of US Consumer confidence data coming in negative. We especially like the appreciation we saw in sterling. We suspect there has been a fundamental shift in GBP prospects due to the sturdy GDP reading last Friday and we anticipate further upside to sterling in the near-to-mid term.
Asian equity markets are having a roaring day and the positive effects are spilling over into European indexes. We are seeing other encouraging signs as VIX dropped below its 200-day moving average and Gold continues to come under heavy selling pressure. There has been a noticeable lack of 1st tier economic data and we are cautious in accumulating too much risk just yet. These are the dog days of the trading summer – as such, low liquidly and inconsistent participants will continue to be as important as real data.
During the Asian session, the big news was the disappointing Australian Q2 CPI reading which came in well below markets expectations. The market was quick to shift rate hike expectations from August to later in the fall (ACM expects a November hike). The AUDUSD dropped like a rock to .8923 from .9020 in response to the release. With the inflation rate now within the RBA’s 2-3% target, markets now pricing in a late fall hike. The large AUD interest rate differential will further erode, which in turn will lend added support to currencies like CAD and NOK. Look for CAD & NOK to gain in the near term.
We are still highly constructive on the global economy and suspect commodities prices to trend higher which should give AUD a boost against the USD. With all the excitement around AUD, the CPI watchers will now be turning their gaze toward New Zealand.
In NZ, July business confidence and activity outlook surveys showed a significant deterioration from the June results. Analysts are in unanimous agreement that the RBNZ will raise the OCR 25 bps to 3.00% at its policy meeting tonight. Market and media interest will be focused on the accompanying statement released with the rate hike. Although recent NZ CPI readings have come in lower-than-expected, the markets are still pricing in roughly 75 bps worth of hikes between now and the year’s end.
We believe that the RBNZ statement will sound slightly more dovish, signaling a minor shift in interest rate trajectory as policy makers prepare for a global economic slowdown later this year. The sudden adjustment in rate path should translate into short-term NZD weakness, especially against the AUD.
As for today, US Durable Goods data is due to be released as investors continue to look for directional signals for the US recovery. The Fed’s Beige Book will likely reflect recent data softness.
Today's Key Issues (time in GMT): 00:00 EUR GER Jul HICP - prelim, +0.2% m/m, +1.1% y/y exp; prior unch, +0.8%. 07:00 EUR ESP Jun retail sales; prior -1.9% y/y. 08:45 GBP BoE Gov King, other MPC member testimony before Parliament. 10:00 GBP Jun Land Registry house prices. 12:30 USD Jun durable goods orders, +2.9% m/m exp; prior -0.6%. 12:30 USD Jun - ex-transport, +1.0% m/m exp; prior +1.6%. 18:00 USD Fed Beige Book release. 18:30 USD Senate vote on Fed nominees 21:00 NZD RBNZ interest rate announcement, % 3.00% exp, 2.75% prior
EurUsd The symmetrical triangle pattern on the hourly chart is still very much in play, and thus far we have seen a couple of nudges through the 20 Jul high at 1.3028. We are long from the original break above 1.2950 (there was even the re-test of that level yesterday which we suggested as a chance to add to longs) and expect the triangle to yield a target in the region of 1.3290. At present the bulls are steadying themselves above 1.3000 so further progress has been somewhat laboured; the next resistance level is expected at 1.3093 (10 May high) with weak resistance also anticipated at 1.3213 and 1.3254 (14 and 13 May highs respectively). Support at 1.2950 is still valid, with trendline support at 1.2905 –but should the pair drop below there we would have to concede the failure of the bullish triangle breakout, and would then expect technical levels below at 1.2793 (Friday’s low), 1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low).
GbpUsd GBPUSD continues to march unwaveringly higher, making easy work of the tangle of technical resistance levels between 1.5525-75 (15 April high, 200-day moving average and 23 Feb high) and going on to touch 1.5627 this morning. As previously discussed, we feel that the UK GDP figures last Friday were a game changer, and from here we would relish any dips towards the lower edge of the current uptrend channel now seen at 1.5350 (coinciding with a recent pivot level) to get long, and set a stop through 1.5300. Really there is not much standing in the way of an assault on the 17 Feb high 1.5816 in the coming days, then only uptrend resistance (currently at 1.5905) before the psychological significant 1.6000. Supports now seen below at 1.5525, 1.5450 and 1.5350.
UsdJpy Finally, a breakout from the 86.25 –87.75 range; and as expected, this has occurred on the topside –in the process activating a double bottom pattern we proposed earlier in the week. Given the depth of the two troughs we should therefore anticipate a target around 88.85, and after this morning’s break above the significant 88.00 pivot level, that now seems an extremely attainable goal. Sellers may still hinder progress up through the remaining trendline resistance around 88.45 but then the next discernable levels are all beyond our target; 89.15 (12 Jul high) and 89.50 (28-29 Jun high). Adding conviction to our view is the bullish engulfing candlestick carved out on the daily chart which suggests the bears have become overwhelmed and further upside is likely. Dips back towards the 87.75 breakout level will likely meet good bids, with the supports below there at 86.82 (yesterday’s low) and 86.25 (recent range floor).
UsdChf The bulls finally got a better grip on USDCHF yesterday, and not only managed to take out the stubborn 1.0565 resistance level, but then to print a bullish engulfing candlestick on the daily chart. We now see a fresh bullish flag pattern possible on the hourly chart which would suggest that on a break above 1.0620 we should go long and aim for a target around 1.0770. Standing in our way before that would be yesterday’s high 1.0640 (roughly coinciding with the 200-day moving average at 1.0644), the top of the 1-week uptrend channel at 1.0685, then the major 1.0700 level. Bidders are very likely to lurk around 1.0565 where the old resistance level once stood, then 1.0450and 1.0400.
(Reuters) - Oil slipped toward $77 per barrel on Wednesday after an unexpected increase in U.S. crude stockpiles and a drop in U.S. consumer confidence fueled doubts about the pace of recovery in energy demand.
U.S. crude for September fell 35 cents at $77.15 by 4:19 a.m. ET, after reaching an early intra-day low of $76.88 a barrel. ICE Brent lost 28 cents to $75.85.
Prices touched $79.69 per barrel on Tuesday, their highest in almost 12 weeks, boosted by Wall Street gains and strong earnings by companies including DuPont and Co (DD.N).
But U.S. crude futures, also known as WTI, fell sharply after a report showed U.S. consumers in July were the least confident about the economy since February because of worries of a stagnant job market.
The American Petroleum Institute said U.S. crude inventories also posted a surprise increase of 3.1 million barrels last week, compared to a forecast decline of 1.6 million barrels.
Those figures pushed U.S. crude down to $77.50 by Tuesday's close, significantly well below the front-month contract's 200-day moving average.
RESISTANCE
"With trading volume at the lows of the year, continued stock builds, weakening product cracks, we will remain very cautious on any attempt to move above $80 per barrel on the wake of the S&P," Olivier Jakob, consultant at Petromatrix, said.
"WTI moved back below the 200-day moving average and both WTI and the S&P still need to prove that they can sustain that line as a support rather than a resistance."
Figures from the U.S. Department of Energy on stocks and demand will be released at 10:30 a.m. ET on Wednesday.
Those statistics are forecast to show U.S. crude oil stocks fell last week on a slip in imports and possibly some reduced production because of a storm threat in the Gulf of Mexico, a Reuters poll of analysts showed.
Refined products stockpiles were forecast to continue to show increases. For distillates, which include heating oil and diesel, the forecast was for a gain of 1.8 million barrels, the ninth consecutive weekly gain, while for gasoline, stocks should be up 400,000 barrels, the fifth straight increase in the middle of the U.S. summer driving demand season.
"Price-wise, given that most complexes are still on the top end of the trading range, we expect to see further erosion from here, especially if Wednesday's EIA numbers confirm the API trends," said Edward Meir, senior commodity analyst at brokers MF Global.
"However, we do not expect a sharp decline given that the energy complex is within a critical time window weather-wise, and prices therefore have the potential to turn on a dime."
The Organization of the Petroleum Exporting Countries (OPEC) has for the past year and a half expressed a preference for prices to remain stable around $75, saying that encourages investment to sustain and increase production capacity and does not threaten the economic recovery.
(Additional reporting by Alejandro Barbajosa in Singapore; editing by William Hardy)
(Reuters) - The euro struck a two-month high against the yen and stayed within reach of an 11-week high against the dollar on Wednesday, as markets stayed in risk-on mode on robust European bank earnings and solid economic data.
The Australian dollar bucked the trend, after weaker-than-forecast Australian inflation dented rate hike expectations.
Risk sentiment had been boosted on Tuesday as European shares hit a five-week closing high. Two of Europe's top banks, UBS AG (UBSN.VX)(UBS.N) and Deutsche Bank AG (DBKGn.DE)(DB.N), posted results that reassured investors following last week's regulatory stress tests.
A rise in Germany's GfK consumer sentiment indicator on Wednesday to its highest level since November has also boosted hopes that the economic outlook in Europe is improving.
Asian equity markets tracked the positive tone, as Japan's Nikkei 225 Index .N225 and China's Shanghai Stock Exchange .SSEC both jumped more than 2 percent on Wednesday.
"Clearly there's a risk-on situation as the market is starting to believe there's a European recovery in place, but there is thin liquidity behind it," said Neil Mellor, currency strategist at Bank of New York Mellon.
At 3:24 a.m. ET, the euro was trading up around 0.3 percent versus the yen at 114.50, close to a two-month high hit in early European dealing at 114.74 on trading platform EBS.
Technical analysts said the picture was becoming bullish, as euro/yen continued to make gains within its Ichimoku cloud. The top of the cloud was seen as key resistance at 117.86.
The euro stayed within touching distance of an 11-week high against the dollar at $1.3045 hit the previous day. Traders said an option barrier at $1.3050 would need to be taken out for a move toward Fibonacci resistance at $1.3125, which is a 38.2 percent retracement of the December-June move.
Large option expiries were reported by traders at $1.3000 and $1.2850, potentially slowing the euro's gains on the day.
Focus for the morning was the ECB's three-month liquidity operation, with the result due around 5:20 a.m. ET.
"The tenders have shown there are a still a large number of European banks which are clearly hooked on ECB funding, which isn't a good situation," said BNYM's Mellor.
Results of a Portuguese bond auction were also keenly awaited, set for release around 0930 GMT.
AUSSIE SLIDES ON CPI DATA
The Australian dollar slid 0.7 percent to $0.8949, having dropped from a 11-week high of $0.9069 reached the previous day.
Australian consumer prices rose much less than expected last quarter and core inflation slowed to its lowest in more than three years, ruling out the need for a rate rise next week and possibly the rest of the year.
"The Aussie has given back some of its recent gains as CPI data prompted investors to push back expectations for higher rates," said Ayako Sera, a market strategist at Sumitomo Trust & Banking.
"But the Aussie is likely to keep drawing support from Australian interest rates, which are still the highest among industrialized countries."
The dollar index .DXY was down 0.2 percent at 82.011, staying close to a 12-week low hit on Tuesday at 81.824.
(Additional reporting by Rika Otsuka; Editing by Susan Fenton)
(Reuters) - Gold steadied on Wednesday after falling 2 percent to a near three-month low the day before, when a bigger-than-expected drop in U.S. consumer confidence and an option expiry prompted heavy selling.
The position adjustment related to expiring COMEX August gold options pushed prices close to a key technical support, where the market was likely to hover before finding fresh clues for direction, traders said.
With increasing market scrutiny on nations' fiscal health and doubts over the effectiveness of ultra-low monetary policies in supporting the economy, governments around the world are facing difficulties finding fresh ways to stimulate the economy and beat deflationary pressures, said Koichiro Kamei, managing director at Tokyo-based researcher Market Strategy Institute Inc.
Expectations for rising inflation as a result of stimulative policies or concerns about a further deterioration in fiscal deficits as a result of more government spending have largely supported gold prices, which hit a record high in late June.
"Reasons supporting investor buying of gold have weakened recently, and options-related technical selling could undermine sentiment in the short-term as investors seek fresh clues for direction," Kamei said.
Spot gold was at $1,161.75 an ounce as of 0536 GMT, up 0.2 percent from late New York levels of $1,159.65 per ounce.
Spot gold could consolidate above $1,157.65 per ounce for a trading session before falling toward $1,140, as a rebound is expected after the previous session's sharp fall, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.
Spot gold fell to a low of $1,157.65 an ounce on Tuesday, the cheapest price since May 5. Bullion also posted its biggest one-day decline since July 1.
Kamei said that the market was close to the support of its 200-day moving average, which on Wednesday stood at around $1,148.
Key events closely watched by investors include the U.S. Beige Book report due later in the day, as well as U.S. monthly jobs data due next week and the U.S. Federal Reserve policy decision next month, Kamei said.
U.S. gold futures for August delivery climbed 0.3 percent to $1,161 per ounce, after settling on COMEX at a three-month low of $1,158 an ounce.
Gold priced in euros and in sterling stayed defensive a day after falling to multi-month lows.
Euro-priced gold was at 893.15 euros after hitting an almost three-month low of 891.25 euros on Tuesday. Sterling-denominated gold briefly fell as low as 743.31 pounds per ounce, a new three-month low.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), said its holdings fell to 1,300.829 tonnes by July 27, down 0.913 tonnes from the previous business day.
Among other precious metals, spot platinum was at $1,537.50 per ounce, up 0.7 percent from late New York levels of 1,527.15. It stayed near a one-month high of $1,559.50 marked on Tuesday amid caution over supply disruptions.
The National Union of Mineworkers (NUM) of South Africa said on Tuesday that a strike planned for Monday at Impala Platinum (IMPJ.J), the world's No.2 platinum producer, will be delayed to allow further negotiations between management and the union.
(Additional reporting by Risa Maeda; Editing by Joseph Radford)
The euro edged lower against the yen as the single currency's overnight gains to a more than two-month high encouraged Japanese exporters to sell the unit to lock in profits. Further declines in the risk-sensitive euro are likely to be short-lived, as rising Asian shares are supporting sentiment toward the currency.
As of 0450 GMT, the European single unit stood at JPY114.05 compared with its New York overnight levels of JPY114.37 and JPY114.42, its highest since May 18.
Cross-yen sales, which involve selling the dollar for the yen in the process, contributed to the dollar's fall. The U.S. unit was at JPY87.73 as of 0450 GMT, from JPY87.97 overnight.
The euro changed hands at USD1.3000 compared with USD1.3006 in New York late Tuesday. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.142 from 82.138.
The U.K. pound, now little changed, earlier bucked the trend of losses in higher-yielding currencies, hanging onto its strong gain on the dollar and trading near its highest level since February after U.K. retail sales smashed through economists' expectations with their best reading in three years.
The Australian dollar was lower late Wednesday after weaker-than-expected second quarter inflation data buried the idea that interest rates might be raised next week. Late Wednesday, financial markets were pricing virtually no chance of a rate hike in August, down from 30% ahead of the inflation report.
Market expectation
The European single currency may reverse course later in the global day if European and U.S. equities track firm Asian stock performances, prompting investors to sell the safe-haven yen, traders said.
EURJPY, EURUSD up as various investors including non-Japan hedge funds, Japan life insurance firms buy at lower levels, says traders. Players holding ample cash are gradually becoming focused on risk-tolerance with Nikkei +2.7% after market participants reduced risk exposure in past weeks to await release of Europe bank stress test results. Says EURJPY may rise to JPY115.00 vs last JPY114.26 (near JPY114.43, highest since May 18); EURUSD may gain to USD1.3040 vs USD1.3010. Adds if Friday's 2Q U.S. GDP data improve (+2.5% expected vs +2.7% in previous quarter), increasing Treasury yields, players may buy USD, risk-sensitive EUR further vs JPY, pushing EURJPY to JPY115.00 into weekend, JPY117.00 next week.
Market participants will pay attention to the Federal Reserve's Beige Book and the U.S.'s advance report on durable goods for June, both slated for release later in the day.
European stock markets are expected to open in an uncertain manner Wednesday, with U.S. economic weakness adding some downside pressure to Wall Street overnight, but relatively strong earnings news offering a degree of confidence.
The pound sterling was the top performer on Tuesday, bolstered by some strong economic data from the Confederation of British Industry, and some weak consumer confidence figures from the United States.
According to the CBI, UK reported sales rose to 33 level in July, surprising expectations for a gain to just 3 from -5 in June. July’s print was the highest in three years, and resulted in a 0.7% gain in the pound against major currencies.
Otherwise, FX trading on Tuesday has been rather lackluster with markets largely ignoring the fact that U.S. equities markets managed a four-day wining streak despite some downbeat consumer confidence index.
According to the Conference Board, headline consumer confidence fell to a reading of 50.4 in July from an upwardly revised 54.3 the month prior. Expectations had been for a 51.0 print.
As markets set their sights on the Asia-Pacific session, Australia is in focus with its consumer price report expected later today, and the U.S. publishing durable goods and the Federal Reserve’s Beige Book Economic Report.
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.
MORNING BRIEFING: Australian CPI rises less than expected, ease likeliness of RBA intervention
What’s new: Australia: CPI rises much less than expected United States: Consumer Confidence falls in July Japan: Nikkei strongest close in 2 weeks on strong corporate earnings and weaker Yen China: IMF staff estimate the Yuan is undervalued between 5 to 27 percent, say sources
Today:
Rates in Asia and Indices: EURUSD: 1.3033 - 1.2966. USDCHF: 1.0624 - 1.0590. GBPUSD: 1.5627- 1.5562. EURJPY: 113.48 – 112.57. USDJPY: 88.07 – 87.66. DowJones: 10'537.69 +0.12% NASDAQ: 2'288.25 -0.36% S & P 500: 1'113.84 -0.10% Nikkei: 9'753.27 +2.70% Shanghai: 2'634.77 +2.31% Gold: $ 1'162.10 Crude Oil: $ 77.54
Comments: The Nikkei climbed 2.7% on Wednesday for its highest close and biggest one-day gain in two weeks, breaking through several resistance levels on strong corporate as well as a weaker Yen.
Australian consumer prices rose much less than expected last quarter while core inflation slowed to its lowest in over three years, greatly lessening the possibility of the Reserve Bank of Australia raising interest rates, now at 4.5%, at its monthly meeting on August 3rd.
US consumer confidence for July fell to its lowest level since February, and eyes are on consumer durable goods numbers for June due today to further gauge the health of the world's largest economy.
The International Monetary Fund has chosen not to call the Yuan "substantially" undervalued, a move that recognizes China's efforts to free up its exchange rate and avoids friction with an increasingly influential shareholder. Since its de-pegging from the US Dollar, the Yuan has appreciated by 0.7% against the buck. Sources said IMF economists reckoned the Yuan was still between 5%and 27% undervalued depending on the methodologies used. A diplomat in Beijing confirmed the range.
The Euro is hovering above 1.3000 versus the Dollar today, however has failed to close above this technically crucial level, the 61.8% Fibonacci retracement from its fall since mid-April. Against the Yen, the single currency reached a 2-month high yesterday, while continued to record new highs today. EUR/JPY is now seen as bullish by an increasing number of traders, confirmed also by our RTFX Trend which turned bullish for the pair yesterday, with a start rate of 114.23.
The Aussie slipped to 0.8922 earlier following the release of inflation figures from an 11-week high reached yesterday at 0.9069.
€ The euro depreciated vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2950 level and was capped around the $1.3045 level. The common currency continues to orbit the psychologically-important US$ 1.3000 figure as traders weigh an improving eurozone sovereign outlook against a deceleration in U.S. economic activity. Dealers reacted to last Friday’s eurozone bank stress tests results by pushing the euro back above the US$ 1.3000 figure on the perception the European banking system should be able to withstand additional dislocations in the sovereign credit market. European Central Bank officials talked up the stress tests late last week and yesterday, suggesting the eurozone received more than a passing grade. Data released in the eurozone today saw the June M3 money supply increase 0.2% y/y and the ECB’s bank lending survey will be released tomorrow. German data saw the August GfK consumer confidence survey climb significantly to 3.9 from the prior reading of 3.6 and the June import price index was up 0.9% m/m and 9.1% y/y. Provisional July CPI data will be released tomorrow. French data saw total June jobseekers off 8,600, an indication of an improving labour market there. In U.S. news, dealers reacted negatively to a lower-than-expected July consumer confidence print of 50.4, compared with the previous revised total of 54.3. These data suggest consumer spending may be relatively weak as final private demand is limited by current sentiment. Other data saw the July Richmond Fed manufacturing index decline to +16 from the prior print of +23 while the May S&P/CaseShiller home price index was up 0.47% m/m and 4.61% y/y. MBA mortgage applications, June durable goods orders, and the Fed’s Beige Book will be released tomorrow. Philadelphia Fed President Plosser yesterday suggested the current economic situation does not warrant additional Fed stimulus but added the FOMC is prepared to move if and when needed. Euro offers are cited around the US$ 1.3265 level.
¥/ CNY The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥87.90 level and was supported around the ¥86.80 level. Dealers pushed the yen lower today on expectations Bank of Japan could ease monetary policy further. Demand for Japanese government bonds remains strong and this is a signal that many investors expect Japanese yields could fall further. There is still talk the government may look to protect the psychologically-important ¥85 handle by selling yen for U.S. dollars or other currencies in what would be the country’s first official yen-selling intervention in several years. Many BoJ-watchers believe the central bank will maintain its ultra-accommodative monetary policy for at least two more years. Japanese banks have been investing in longer-dated debt and the swaps market to record profits as yields on five-year JGBs move lower. Data released in Japan overnight saw the June corporate service price index decline 1.0% y/y, lower than the previous -0.8% May result and the latest evidence that deflation remains a major problem for the Japanese economy. The Nikkei 225 stock index lost 0.07% to close at ¥9,496.85. U.S. dollar bids are cited around the ¥86.29 level. The euro moved higher vis-à-vis the yen as the single currency tested offers around the ¥114.10 level and was supported around the ¥112.75 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥136.65 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.30 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7784 in the over-the-counter market, down from CNY 6.7790. Data released in China overnight saw the June leading index decline to 102.84 from the revised prior tally of 103.25. People’s Bank of China reported China’s economic fundamentals remain “good” and said the recent deceleration in economic growth will likely stabilize.
£ The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5575 level and was supported around the US$ 1.5440 level. Cable reached its strongest level since February 2010 as traders reacted positively to a surprise +33 print in July CBI reported sales, up from the prior reading of -5. Additionally, none of the £355 million in corporate bond securities Bank of England said it would purchase in its twice-weekly program was tendered today, the first time investors did not seek a BoE bid since March. This is indicative of improving sentiment in the credit markets. A perceived relaxation of terms in the Basel 3 capital accord terms is also supporting sterling. The key functions of the Financial Services Authority will be relegated to the BoE. Cable bids are cited around the US$ 1.5270 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8345 level and was capped around the £0.8415 level.
CHF The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0635 level and was supported around the CHF 1.0480 level. Data released in Switzerland today saw the June UBS consumption indicator improve to 1.810, up from the revised May result of 1.712 and its highest level since July 2008. Swiss unemployment remains at about half the level as the eurozone’s rate and this is resulting in positive economic activity. There is some speculation Swiss National Bank may have intervened by selling francs today given the significant move lower for the currency but SNB would not confirm this speculation. U.S. dollar offers are cited around the CHF 1.0980 level. The euro appreciated vis-à-vis the Swiss franc as the single currency tested offers around the CHF 1.3795 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6525 level.
Just as the stress test advocates were getting ready to declare Friday’s results a success due to a selloff in USD and rally in equity markets, we then ran right into a summer whipsaw.
The broad majority of G10 currencies sharply reversed their brief trends with today’s European open. Yesterday’s wave of risky asset investing lacked any solid drivers, so the momentum was bound to falter. Commodities continue to trade well (the exception being Gold) as Crude Oil continues to test the top part of its ranged resistance at 79.50. Commodity currencies should continue to be supported and could even receive a decent push in the near-term. AUDUSD traded about its 200 day moving average for the first time since May, while EURUSD traded about 1.3000. However given the frivolous nature of the current low-liquidity trading environment, we suspect the tide will change again.
The markets did view the stress tests as a minor positive, as slightly increased transparency is always good, sovereign bond spreads only tightened slightly. The tests failed to truly address the concerns of the market, especially because some EU banks refused to disclose their sovereign debt holdings. Due to several German banks refusing disclosure, German yields were pushed higher.
On a side note, Basel III announced yesterday that the members had come to a historic agreement to tighten capital requirements and start worldwide liquidity & leverage rules. Most likely, they’ll reduce some of their proposals while postponing others.
FX markets should settle into a period of consolidation this week as a lack of economic data will hinder any large decision making processes.
EurUsd The symmetrical triangle pattern we highlighted in yesterday’s report now appears to have become activated by the break above 1.2950, so we have gone long and now set our sights on a target above at 1.3290. The market is being somewhat choppy and directionless this morning, so should we pare back some gains and get a re-test of the 1.2950 break-out area we feel it would be a great opportunity to add to longs (or for those who missed the initial break-out to jump onboard). Next resistance is expected to exert its effect at 1.3028 (20 Jul high) and 1.3093 (10 May high) with weak resistance also anticipated at 1.3213 and 1.3254 (14 and 13 May highs respectively). With the 1-month uptrend very much still in play we expect buyers to step in ahead of trendline support at 1.2965 with more technical levels seen at 1.2793 (Friday’s low), 1.2733 (21 Jul low), 1.2683 (14 Jul low) and 1.2522 (13 Jul low).
GbpUsd GBPUSD’s revival has continued in the past 24 hours, with the 15 Jul high of 1.5473 becoming the latest technical landmark to be conquered by the bulls as the pair has marched on to the heady heights of 1.5530 not seen since February. For now, the quick peek above 1.5525 (15 Apr high) has only been brief, and indeed the pair has tumbled rather ungracefully back down to 1.5470 levels this morning. But we feel that the UK GDP figures last Friday were a game changer, and from here we would relish any dips towards the lower edge of the current uptrend channel (now seen at 1.5315) to get long. The 1.5350 pivot does come in just ahead of the trendline today so we set a limit order around 1.5360 with a stop through 1.5300 (the back side of last week’s downtrend). For now we feel the cluttered net of technical resistance above will cap this leg of the rally between 1.5525-75; this zone contains not only the 15 April high as previously discussed, but also the 200-day moving average at 1.5554 and 23 Feb high 1.5575. Should we be wrong and the pair instead capitulate through uptrend support, next levels eyed below are at 1.5125 (last Wednesday’s low), followed by 1.5080. Nearest support is back down around 1.5350 pivot level, with the lower edge of the 6-week uptrend now coming in below at 1.5280. Should the trend break lower once more then first stop on the downside will be 1.5125 (last Wednesday’s low), followed by 1.5080.
UsdJpy Although USDJPY and JPY-crosses have been broadly supported since the release of the bank stress tests and the much better than expected US housing data yesterday, we remain locked in the same range between 86.25 –87.75. Our bias is certainly for USDJPY to go higher in the medium term so focus on the price action approaching the range ceiling at 87.75, and for now there is still a possibility that a break above there could signal a double bottom pattern on the hourly chart. Should this be the case, we would be looking at a target above at 88.85. Before that destination, sellers are expected to step in around 88.00 (former pivot), 89.15 (12 Jul high) and 89.50 (28-29 Jun high). Obviously, until the break-out higher materializes we should still respect the range-trading environment that prevails, where 82.80 currently provides an intra range support and the range floor around 86.25 still looks robust having caught two previous sell-offs on 16 & 22 Jul.
UsdChf The bias on USDCHF in the short-term is bullish, but barely! The potential bullish flag pattern we noted on the hourly chart yesterday did not even activate (due to the failure to break above 1.0560) and now the slump back towards 1.0460 seems to have written off the possibility of this pattern being valid later on. Support should be readily forthcoming around 1.0450, with added buying interest below at 1.0425 (where the back side of the former downtrend now comes in). For now, 1.0565 is growing into a major ceiling of resistance limiting the upside, but should we manage to break above there, next levels expected at the 14 Jul highs 1.0618 and the 200-day moving average at 1.0641.
€ The euro appreciated vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3005 level and was supported around the $1.2875 level. The common currency briefly traded above the US$ 1.3000 figure before settling back during the North American session. Dealers continued to chase the pair higher following the release of Friday’s stress test results on 91 eurozone banks, the details of which were better than expected. Data released in the U.S. today saw the June Chicago Fed national activity index decline to -0.63 from the revised prior reading of +0.31 while the July Dallas Fed manufacturing activity index fell sharply. Also, June new home sales evidenced a surprising 23.6% m/m increase to an annualized 330,000 units. May CaseShilller home prices data will be released tomorrow along with July consumer confidence data and and the July Richmond Fed manufacturing index. Philadelphia Fed President Plosser reported “there is underlying strength that is still there,” adding there is not much of a role for additional Fed action in the near term but conceded Fed policymakers “have ammunition to act if we want to.” San Francisco Fed President Yellen, the presumed next Vice Chairman of the Fed, reported it would be “risky” to adopt a long-run inflation goal of 4% and said regulation and supervision are the “first line of defense” against financial risks. In eurozone news, June M3 money supply data will be released tomorrow followed by the ECB’s bank lending survey on Wednesday. European Central Bank President Trichet reported the stress test on the banks was a “very important transparency exercise” while ECB member Ordonez said the tests “for sure have been enough to restore investor confidence.” Eurogroup chaiman Juncker said the stress tests evidence a “robust” European banking industry. Euro offers are cited around the US$ 1.3265 level.
¥/ CNY The yen appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the ¥86.80 level and was capped around the ¥87.70 level. New political party “Your Party” called on the government to weaken the yen and undertake a more expansionary fiscal policy to stimulate the domestic economy and counter deflation. Nomura, Japan’s largest brokerage, downgraded its assessment of Japanese equities to “neutral,” citing a bleaker profit outlook and decelerating economic growth prospects. Nomura expects economic growth of 2.6% this fiscal year and 1.5% next fiscal year. Data released in Japan today saw the June merchandise trade balance increase to ¥687 billion from the revised previous tally of ¥320.9 billion. The June corporate services price index will be released overnight. The Nikkei 225 stock index climbed 0.77% to close at ¥9,503.66. U.S. dollar bids are cited around the ¥86.29 level. The euro moved lower vis-à-vis the yen as the single currency tested bids around the ¥112.20 level and was capped around the ¥113.45 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥135.55 level while the Swiss franc moved lower vis-à-vis the yen and tested bids around the ¥82.50 level. In Chinese news, the U.S. dollar depreciated vis-à-vis the Chinese yuan as the greenback closed at CNY 6.7790 in the over-the-counter market, down from CNY 6.7799. The June leading index will be released this week along with the July MNI business conditions survey and July PMI manufacturing. People’s Bank of China Deputy Governor Hu Xiaolian reported the “fixed” yuan exchange rate system caused excess liquidity that may cause “heightened inflation expectations and speculation in assets.”
£ The British pound appreciated vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.5515 level and was supported around the US$ 1.5405 level. Data to be released in the U.K. tomorrow include CBI July reported sales data followed by July Nationwide house prices data on Thursday and other mortgage and consumer credit numbers. Bank of England announced its new Financial Policy Committee will have eleven members and be in place by the autumn. The key functions of the Financial Services Authority will be relegated to the BoE. CEBR reported BoE will not need to raised rates for eighteen months. Chief Economist Dale has warned of lower economic growth, higher inflation, and rising unemployment. There is talk of a possible three-way split on the MPC this year if one or more policymakers voted to expand policy accommodation. Some believe the MPC may resort to increasing its asset purchase program. Cable bids are cited around the US$ 1.5140 level. The euro depreciated vis-à-vis the British pound as the single currency tested bids around the £0.8325 level and was capped around the £0.8380 level.
CHF The Swiss franc appreciated vis-à-vis the U.S. dollar today as the greenback tested bids around the CHF 1.0490 level and was capped around the CHF 1.0555 level. The June UBS consumption indicator will be released tomorrow followed by the July KOF Swiss leading indicator on Friday. U.S. dollar offers are cited around the CHF 1.0980 level. The euro depreciated vis-à-vis the Swiss franc as the single currency tested bids around the CHF 1.3565 level while the British pound moved higher vis-à-vis the Swiss franc and tested offers around the CHF 1.6345 level.
