The Japanese yen rose today against the U.S. currency as the growing concern for the global recovery spurs the investors to seek safety, increasing the appeal of the Japanese currency.
The U.S. economy continues to show the sings of the weakness. While the banking sector in Europe looks pretty robust, the manufacturing sector gives the reason for the concern. According to the experts’ estimates, the manufacturing confidence in the Eurozone was minus five in July.
USD/JPY fell from 87.44 to about 87.17 today as of 8:58 GMT after reaching as low as 87.08.
The recent upside failure at 1.3044 has seen a narrow consolidation, ahead of today’s renewed attempt higher. Break above the later is required to resume gains, with 1.3073/93 seen next, ahead of 1.3125 Fibonacci level. Immediate support stands at 1.2965/51 zone.
The latest strength retraced 50% of 1.7041/1.4230 descend at 1.5637 yesterday, with consolidation just below here followed. Fresh push higher is now underway, with clear break above 1.5637 to focus 1.5688, 18 Feb high, next. Below, 1.5544 offers initial support, while 1.5440 remains key support and possible break under here to weaken the structure and allow deeper corrective pullback.
The latest upleg off 86.82 higher low stalled at 88.10 yesterday, ahead of reversal. This has so far reached 87.09, retracing over 50% of the entire upleg off 86.25, increasing risk of lower top and possible fresh weakness towards 86.33/25, key support zone. Otherwise, regain of 88.10 would revive bulls and resume recovery.
Upside rejection at 1.0638, 200 days M.A on 27 July has triggered a reversal to 1.0515 so far. To maintain immediate bulls, higher low above 1.0480 is now required. Above 1.0638/45 will open 1.0675/95 barriers, with break here required to resume recovery. Loss of 1.0480/58, however, would attract key 1.0406/1.0393 support zone.
88 finaly acted as resistance and a correction occured, pushing back the price below 87.67. So, we are neutral on the parity between this level and 86.86. We will wait the breakout of one of these two bands to take position: - Long if 87.67 is broken - Short if 86.86 is broken
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 U.S. dollar fell today against the Japanese yen after the report today showed that the orders for the U.S. durable goods fell unexpectedly in June, fueling the concern for the economic recovery and spurring the investors to turn to the safety of Japan’s currency. The EUR/USD moves up and down today after it closed yesterday near its opening level.
Durable goods orders declined for the second consecutive month, falling by 1.0 percent in June after dropping 0.8 percent in May. The impact of this report was even more significant as the market participants anticipated the growth, not another month of decline. The unfavorable economic data outweighed the better than expected corporate earning, causing the Standard & Poor’s 500 Index drop by 0.5 percent. The Stoxx Europe 600 Index was down 0.4 percent.
Ben Bernanke, the Chairman of the United States Federal Reserve, said on July 21st that “the economic outlook remains unusually uncertain”. The data from the U.S. definitely added to the risk aversion sentiment on the markets, increasing the appeal of the yen.
USD/JPY traded near 87.67 as of 16:27 GMT today after opening at 87.90. EUR/USD near 1.2995 close to the opening level of 1.2996.
Near-term structure remains positive, with bull flag completed on Monday projecting further strength. Clearance of yesterday’s high at 1.3044 will extend gains toward 1.3125, 38.2% retracement of 1.5144/1.1875 decline. Immediate support now stands at 1.2965/51 zone.
Continues to trend higher, with lift above 1.5576, previous high, now approaching 1.5635, 50% retracement of 1.7041/1.4230 decline. Break of which will expose 1.5688, 18 Feb high, next. Key support at 1.5440 is expected to hold dips to keep immediate bulls in play.
Correction off 87.96, yesterday’s high, has found support at 87.64, ahead of fresh strength. The latest break above 88.03, 61.8% retracement of 89.14/86.25 downleg, as well as break above 5-wwek falling trendline, now opens way towards 88.50/80 next. Only reversal under 87.25 would delay.
Fresh strength off 1.0458 higher low, has broken above the recent 1.0393/1.0565 range, extending gains above 1.0600, to reach 1.0638 so far. Break here is required to resume bulls and focus 1.0675/95 area next. 1.0458 remains key support.
The U.S. currency strengthened today against the euro and the Japanese yen as the macroeconomic indicators suggested that the U.S. economy is recovering. The dollar dropped versus the Great Britain pound.
The report about the new home sales yesterday showed the unexpected surge to 330,000 in June from 267,000 in May. S&P/Case-Shiller Home Price index rose to 146.64 in April from 147.33 in May. Not all reports were favorable, though. The manufacturing index of the Federal Reserve Bank of Richmond suggested that the manufacturing growth is slowing. The consumer confidence dropped to 50.4 in July from 54.3 in June.
The U.S. economy shows signs of recovery, but it’s a long way to the certainty about its strength. Will the recovery gain momentum. The reports suggest that the consumers and the manufacturers don’t believe in this.
EUR/USD dropped to 1.2981 from 1.2994 as of 15:54 GMT today after it jumped as high as 1.3045. GBP/USD rose to 1.5536 from 1.5489 after it reached 1.5576, the highest level since February 23d. USD/JPY currency pair went up to 87.81 from the opening level of 86.87.
The Japanese yen declined today against the U.S. dollar and the euro as the signs of the economic recovery in the U.S. prompted the investors to leave the safe currencies in favor of the higher-yielding ones.
The Dow Jones Industrial Average rose by 1 percent yesterday after FedEx Corp., the second-largest package-shipping company in the U.S., raised its earnings forecast for the quarter and for the year. The forecasts also suggest about improving consumer confidence in Germany and increasing number of the durable goods orders in the U.S.
USD/JPY went up from 87.37 to 87.36 today as of 9:19 GMT. EUR/JPY traded at 113.43 after it jumped as high as 113.70.
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 parity made a pullback on 86.86 and then, the breakout of 87.50 gave us a new buy signal. We maintain to trade only long positions as far as 87.67 is support. The next resistance is at 88.35. The breakout of this level will give a new buy signal. If 87.67 is broken, we will stay neutral.
Maintains positive tone off 1.2731, 21 July higher low, as clearance of 1.2965 confirms a trend continuation. Today’s break through 1.3026, with 1.3044 seen so far, now opens way for test of 1.3073/93 and 1.3125. Corrective pullback should be contained by 1.2888/59 to keep immediate bulls in play.
Continues to trend higher, following bounce off 1.5123, last week’s higher low and clearance 1.5470, 15 July previous high. Today’s lift above 1.5526 has so far tested 1.5561/75, 200 days moving average / 23 Feb high, with sustained break here required to open 1.5635, 50% retracement of 1.7044/1.4230 decline, next. Initial support stands at 1.5440, while loss of 1.5345 delays.
Recovery attempt off 86.25/33 stalled at 87.71 yesterday, ahead of reversal to 86.80, where the fresh strength emerged. Today’s price action has seen renewed attempt at 87.71, with break here needed to resume recovery. Otherwise, failure at 87.71 may mark a double top for fresh weakness towards 86.33/25.
Confirmed a minor double bottom at 1.0393, 22 Jul low, with today's strength through 1.0562, currently breaking above 1.0617 resistance. Bulls seek 1.0632, 200 days MA, ahead of the 1.0676 pivot. Only loss of 1.0480/58 would defer for a 1.0394 retest.
The U.S. dollar weakened today as the new home sales surged in the U.S. and the corporate earning increased, improving the appetite for the risk among the investors. The greenback fell versus most of other major currencies.
The U.S. new home sales jumped in June to 330,000 (23.6 percent) from the revised May rate of 267,000. The U.S. house market was showing the awful values previously, and this improvement, while not unexpected, is much better than the economists hoped for. The Standard & Poor’s 500 Index rose 0.6 percent after jumping more than 3.5 percent in the previous week.
The improving risk sentiment spurred the investors to the riskier currencies, decreasing the appeal of the U.S. currency. The signs of rebound in Europe’s economy helped the euro to gain versus the greenback, while the Great Britain pound rose against the dollar after all major Britain’s banks passed the stress tests.
EUR/USD rose to 1.2997 as of 17:41 GMT today after it opened at 1.2887. GBP/USD reached the highest level in three months, climbing to 1.5490 from 1.5416. USD/JPY traded at 86.94 after it opened at 87.45 and jumped as high as 87.71.
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.
A false breakout of 87 occured and we maintain to trade only long positions as far as 86.86 is support. The breakout of 87.50 will give a new buy signal. However, if 86.86 is broken, a sell signal will be given.
Maintains positive tone off 1.2731, 21 July higher low, with yesterday’s break through 1.2965 barrier, now attempting at key near-term resistance at 1.3026. Break here is required to resume gains towards 1.3073 and 1.3125, 38.2% of 1.5144/1.1875 decline. Immediate support stands at 1.2888/59.
Continues to trend higher, following bounce off 1.5123, last week’s higher low and clearance 1.5470, 15 July previous high, to attempt at 1.5526 today. Break here to focus 1.5575, 23 Feb high and 1.5635, 50% retracement of 1.7044/1.4230 decline. Below, loss of 1.5345/35 support zone to weaken the outlook.
Congestive lows at 86.25/33, posted on 16/22 July, marked a tentative short-term base that has supported recovery through 87.58, 20 July previous high, to reach 87.71, 50% of the 89.14/86.25 decline, so far. Immediate reversal has so far found support at 86.80, with risk seen on a break under 86.80/72 to expose 86.33/25. Above 87.71 resumes recovery.
Is trading within 1.0393/1.0562 range, following recent weakness from 1.1730, 2010 high, posted on 01 June. Loss of momentum at upper short-term range has seen a drop to 1.0458 yesterday, ahead of fresh strength. Break through the upper boundary at 1.0562 is now required to resume recovery attempt towards 1.0617/45 next.
The pound sterling is much higher after UK second quarter advanced GDP easily beat expectations, growing at 1.1% annualized pace compared to +0.6% expected; year-over-year GDP rises 1.6% compared to 1.1% expected. Cable has rallied as high as 1.5450 but has since pulled back and appears to be retracing.
The other data point in European trading was the German IFO business climate survey. It crushed expectations as it rose to 106.2 in July compared to 101.5 expected and 101.8 prior. Europe continues to put out better-than-expected economic data. ECB executive board member Jose Manuel Gonzalez-Paramo said recent data reduces the risk of a double-dip recession, which effectively reflects the market sentiment (or even understates it).
The major event in North American trading will be the noon ET (5 p.m. in London) results of the European stress tests. 91 banks were tested by 20 different regulators so there is a considerable amount of uncertainty. Today, Goldman Sachs released a survey that indicated that the consensus of banks that will fail stress tests is 10.
Leaks are possible in the hours leading to the results and it’s likely that some market participants already have inside knowledge of what has transpired. Spanish newspaper El Pais reports that several Spanish banks have failed the stress tests. Gonzalez-Paramo said he has “no doubt” the impact of the tests will be “very positive” for markets. Similarly, ECB executive board member Gertrude Tumpel-Gugerell said the stress test results will send a “clear message” about the resilience of Europe’s financial system. Given all the leaks and the prevailing sentiment, it’s highly unlikely that there will be some sort of negative shock in the results.
Outside of Europe, there is a focus on yen levels. In Asia-Pacific trading, Japanese Cabinet Office official Keisuke Tsumura says yen has been “a bit too high.” We suspect further verbal intervention if USD/JPY falls to 85.00 with actual intervention only coming if the pair falls close to 80.00.
Thursday’s main economic news included more testimony from Fed Chairman Ben Bernanke, some better-than-expected U.S. housing data, and a surprise rise in euro zone consumer confidence.
In his annual testimony to the House panel on Capitol Hill, Bernanke said, “Unemployment is the most important problem we have right now.”
He added that the Fed is prepared to take action if the economy “doesn’t continue to improve, if we don’t see the kind of improvements in the labor market that we are hoping for and expecting”.
Bernanke listed possible actions the central bank may undertake: signaling the path of interest rates, cutting payments on excess reserves and engaging in further quantitative easing.
Also in the U.S., some above-consensus housing data was released. Existing home sales fell to a 5.37 million pace in June, better than expectations for a drop to 5.10 million from 5.66 million in May.
Meanwhile, sales slipped by 5.5% on the month, above calls for a 9.9% decline to follow the 2.2% fall in May
The surprise in the data was followed by a rally in the U.S. S&P 500 stock index, which helped risk currencies.
Ultimately, the S&P 500 closed 2.3% higher and at its strongest level since last Thursday.
Investor sentiment was also supported by better-than-expected Q2 earnings from Caterpillar and 3M.
Caterpillar announced Q2 earnings per share (EPS) of $1.09, exceeding calls for $0.84, while 3M revealed EPS of $1.54 versus the Street’s estimate of $1.47.
Against strong risk appetite in U.S. stocks, all G10 currencies advanced against the U.S. dollar. The Australian and New Zealand dollars outperformed.
Aside from the yen, the pound sterling made the smallest gains against the U.S. dollar, though its advance (by around 100 pips) was nonetheless impressive.
Aside from risk appetite, the euro, which rose above $1.2900USD once again on Thursday, was supported by an upside surprise in euro zone consumer confidence. It surprised expectations for it to remain at -17 in July by rising to a -14 print.
With no major Asia-Pacific releases scheduled for Friday, market participants’ attention now turns to the German IFO survey, UK Q2 GDP and Canadian consumer prices data.
The parity broke its bearish slant, giving us a buy signal. Currently, the price is making a strong correction. However, we advise to trade only long positions as far as 87 is support. The breakout of 87.50 will give a new buy signal. However, if 87 is broken, we could trade again short positions.
