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Wednesday, 6 Jul 2011
AUD Reluctant to Rise as China Hints at Rate Hike
The steady, and dovish, monetary policy of the Reserve Bank of Australia (RBA) served the Aussie with little support in this week's market as most participants await news from China and New Zealand to determine the direction of the AUD relative to its Pacific neighbors. It appears any negative news in Australia, or a rate hike by either China or New Zealand, will push the Aussie into a tailspin as risk aversion takes hold.
USD - USD Bullish as China Rate Hike Weighs on Risk Appetite
The US dollar was seen increasing late yesterday as traders began to seek shelter following speculation that China may pursue a more hawkish monetary policy due to rampant inflation. The EUR/USD was seen moving towards 1.4380 yesterday while the GBP/USD was inching towards 1.6030.
The news so far has sent several traders into a risk aversion shift, helping to lift the value of the USD as riskier currencies like the EUR took a dive. Assisting this shift was a dismal retail sales report out of the euro zone arriving five hours prior to US data which revealed sluggishness in US factory orders and as commodity values dipped on a decline in demand outlook.
With another heavy news day expected today, traders are sure to see heightened volatility. Most significantly, the US economy will be publishing its ISM Non-Manufacturing PMI inflationary report. Should today's news disappoint, there is a possibility that more investment will get pushed towards the safety of the greenback, driving USD values higher.
GBP - British Housing Data on Tap
The British pound (GBP) was seen trading only mildly lower yesterday following news of stable growth in the island economy's service sector. Against the US dollar (USD) the pound was seen trading somewhat bearish in late trading as shifts into safe-haven investments pulled money out of the Cable and into other stores of value. The EUR/GBP, however, was more mixed as news affecting both currencies was centered on uncertainty.
While the pound was seen flattening out against the EUR yesterday, it appears to have moved mildly lower against the greenback and continues to see sideways price action versus the Japanese yen. Today's housing data will not likely affect currency values in Britain significantly enough to warrant interest, but traders will want to keep track of how such sectors grow or contract considering their longer-term implications.
The report published earlier this week on British housing highlighted expectations for a continued rise in home purchases and construction spending through the summer months. Should today's Halifax HPI come in as expected, or better, the joint data releases may prove positive for the pound as investors find reason to go long on the UK's real estate market.
AUD - Aussie Trading Hesitantly on Possible China, NZ Rate Hikes
The Australian dollar (AUD) was seen trading hesitantly versus most other currencies yesterday after news began to shift many traders back into risk averse assets. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.
However, yesterday's news appears to have moved many investors towards safe-haven assets, which tends to result in a weaker Aussie. The steady, and dovish, monetary policy of the Reserve Bank of Australia (RBA) served the Aussie with little support in this week's market as most participants await news from China and New Zealand to determine the direction of the AUD relative to its Pacific neighbors. It appears any negative news in Australia, or a rate hike by either China or New Zealand, will push the Aussie into a tailspin as risk aversion takes hold.
Oil - Fears of Reduced Fuel Demand Drops Oil Prices
Crude Oil prices dropped sharply towards $93.60 a barrel Tuesday as sentiment appeared to favor a downturn in global industry alongside a slump in demand for the black gold. Data releases out of Britain and China yesterday were driving many investors back into safe haven assets as most reports suggested a surprise downtick in growth among global industrial output and consumer spending; with dismal consumer confidence reading these past few days from the major economies of the West.
As investors sought safety, the value of crude oil, which has been seen plummeting all week, fell to a monthly low of $93.50 a barrel. A sudden jump in dollar values due to this week's risk averse environment has helped many investors ram up their short-taking positions on physical assets. Should Crude Oil sentiment hold steady this week, oil prices may continue to fail to find support near current prices.
A bullish engulfing pattern on the weekly chart does not bode well for further declines in the pair. Combined with rising weekly and daily stochastics, a case can be made for additional gains in the EUR/USD. The first resistance level the pair should face is 1.4700 off of the June high and a move above here and the pair would encounter selling pressure at the May high of 1.4940. Should the pair fail to move outside the upper line of the triangle consolidation pattern at 1.4515 the EUR/USD would encounter support at 1.4440 and the lower leg of the triangle which comes in at 1.4130.
The monthly chart shows potential declines for sterling. Falling stochastics point to additional losses in the pair. Traders could be looking for the GBP/USD to decline to 1.5650, a level that offers long term support. Both the 20-month moving average comes in near this area but more importantly this is where the falling trend line from the 2007/2008 highs comes in and sterling could see a technical bounce in this area. This level has further significance as it coincides with the October 2010 lows on the daily. To the upside resistance is found at 1.6150, the top of the current consolidation pattern as well as the previous trend line from the May 2010 low at 1.6280.
A triangle consolidation pattern has formed on the daily chart with the legs forming from the May high and the June low. Judging from the long term trend the USD/JPY would be expected to break lower where support comes in at 80.25. A break here would likely test 79.70 and 79.55. However, a move higher may also be in the cards and a break above the initial 81.10 resistance would target 81.75.
After forming a base near the 0.8300, the pair has risen to test its falling trend line from the February high which comes in at 0.8535, not far from the resistance level at 0.8550. Further resistance awaits the pair as the 50-day moving average. A breach here and the pair could unravel to the mid-May low at 0.8750.
The Wild Card
Regular readers of this article may have noted the recent focus on the EUR/CHF. Following a 4% rebound from its all-time low the pair retraced 38% of its April to June move before turning sharply lower at this key technical level. As such, forex traders may want to be short on the pair with stops above 1.2350.
|08:00||EUR||German Industrial Production||m/m||0.7%||-||-|
|08:01||JPY||BoJ Press Conference||-||-||-|
|08:45||EUR||French Trade Balance||-3.3B||-||-|
|09:00||CHF||Foreign Currency Reserves||540B||-||-|
|10:30||GBP||Manufacturing Production m/m||m/m||-0.8%||-||-|
|10:31||EUR||German 10-y Bond Auction||0.69|1.2||-||-|
|16:00||GBP||NIESR GDP Estimate||0.5%||-||-|
|16:30||USD||Crude Oil Inventories||4.0M||-||-|
|19:01||USD||10-y Bond Auction||2.24|2.7||-||-|
|01:01||GBP||RICS House Price Balance||53%||-||-|
|01:50||JPY||Core Machinery Orders||m/m||-3.6%||-||-|
|05:45||JPY||30-y Bond Auction||1.41|3.1||-||-|