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Tuesday, 12 Jul 2011
British Inflation under Review Today
British manufacturing and housing both appear to be offering solid signs of economic growth, though its industrial production data last week was mildly disappointing. Most speculators view the UK as only a slightly better investment option than the euro zone residing to its south and east. Markets may capitalize on this by holding their GBP positions longer, but the region's bearish move has some investors uneasy about such positions. Today's 9:30 GMT release of inflationary data will help fill in several of the missing data points.
USD - USD Rising from European Debt Contagion Fear, EUR Decline
The US dollar was seen increasing yesterday as traders began to seek shelter following speculation that Italy was experiencing symptoms of a debt contagion caught as a byproduct of Greece's austerity budget moves and bailout. Speculators are now warning that Italy represents Europe's “AIG moment,” referring to the bailout of the financial giant that was considered “too big to fail” by US policymakers in 2008.
The news so far has shifted several traders into a risk averse position, helping to lift the value of the USD as riskier currencies like the EUR took a dive. With the economies of Europe and the US largely absent from yesterday's calendar, little news emerged which put a dent in the amount of pessimism surrounding the forex market.
With a heavy news day expected today, however, traders are sure to see a return of portfolio adjustment as volatility becomes elevated. The US economy will be publishing its trade balance and IBD/TIPP Economic Optimism 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. Traders will also want to keep an eye on euro zone economic news as it may also impact risk sentiment heavily.
GBP - British Data may Support GBP despite Risk Uncertainty
The British pound (GBP) was seen trading only mildly lower yesterday following news of stable growth in the island economy's service sector and producer-based inflation last week. 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; sentiment appears to be favoring a downward movement of the pair as of today's early trading hours.
While the pound was seen moving modestly higher against the EUR yesterday, it appears to have moved lower against the Japanese yen, as the safety of the JPY caught traders' appeal in recent trading. British manufacturing and housing both appear to be offering solid signs of economic growth, though its industrial production data last week was mildly disappointing. Most speculators view the UK as only a slightly better investment option than the euro zone residing to its south and east. Markets may capitalize on this by holding their GBP positions longer, but the region's bearish move has some investors uneasy about such positions.
As for today, traders will witness a wide series of publications from Britain centered mainly on inflationary growth. At 9:30 GMT, the UK Office of National Statistics will be releasing its data on CPI, RPI, DCLG HPI, and the country's trade balance. At 10:00 GMT, Conference Board, Inc. (CB) will publish its conglomerate report on seven indices affecting a variety of sectors of the British economy, known as the Leading Index. If inflationary growth is on target, the GBP may find modest support in today's trading despite recent setbacks in risk outlook.
JPY - Defensive Trading Leads to Stronger JPY
The Japanese yen (JPY) was trading stronger versus most of its currency counterparts yesterday after several data releases began to shift traders back into safety. The yen has been gathering momentum these past few weeks as risk aversion becomes predominant in the global market. Fears of a debt contagion spreading from Greece to Italy now factor greatly into risk assessment. Moreover, a statement that the Italian economy was moments away from needing a bailout appears to have sparked a rapid flight to safety.
This movement has helped lift the yen against all of its currency rivals, including other safe-havens like the US dollar (USD). The steady, and dovish, monetary policy of the Bank of Japan (BOJ) feeds the yen's appeal as investors find its low yield as an affective store of value. The rate statement expected by the BOJ this morning will not likely change much of this sentiment. Traders appear to be anticipating a continuation of the JPY's appeal as a defense against unwanted risk.
Oil - Reduction of Imports by China Drags Oil Prices Lower
Crude Oil prices dropped moderately towards $95.60 a barrel Monday as sentiment appeared to favor a downturn in global industry alongside a slump in demand. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
As investors sought safety, the value of crude oil, which has been seen rising since the middle of last week, fell to a weekly low of $95.60 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 meet resistance.
After a false breakout higher from the triangle chart pattern the EUR/USD is approaching the rising support line off of the May low at 1.4160. Falling daily and monthly stochastics suggest the next move will be to the downside. A break here and the next major support is found at 1.3970. The 200-day moving average at 1.3905 may also prove supportive. Below this key technical mile marker the rising trend line from the 2010 May low comes in at 1.3710 and traders may see buying interest at this level. To the upside the July 7th high at 1.4370 could be supportive, as well as the falling resistance off of the May and July highs at 1.4530. A close above the June high at 1.4700 would likely signal a shift in momentum to the upside.
Cable is caught in a 220 pip range as the pair struggles to stay above its 200-day moving average and its initial support at 1.5910. A move lower and the next support to enter the picture stands at the late January low of 1.5750, not far from the 38% Fibonacci retracement from the 2010 May to 2011 April move. Support is also found at 1.5650 which has served as both support and resistance in October and in December of last year. The consolidation pattern is capped at 1.6140 where the neckline from a head and shoulders pattern rests. For traders who are not yet short this would be a point from which to sell a potential rally. The head and shoulders reversal chart pattern shows a measured move which could take the GBP/USD lower to 1.5370.
A series of higher highs and lower lows has created a bullish channel on the daily chart but the pair will likely remain locked in a range that has contained the USD/JPY since early June. A number of resistance levels will provide ample opportunities to sell into any gains, a play that is in-line with the long-term trend. The top of the channel is found at 81.50 and is close to the 100-day moving average. Additional resistance is located at the May high of 82.20 and the falling trend line from the 2007 high comes in at 82.80. The bottom of the channel could prove to be supportive at 80.45 but a break here could test the May low at 79.50.
The daily chart provides an interesting technical picture for the Swissie. The pair is flirting with its 50-day moving average at 0.8550, a technical indicator the pair has not traded above since February. A potential head and shoulders bottom reversal may also be forming with the neckline falling from the mid-June highs and the high from July 1st. A measured move from the pattern suggests potential gains of 260 pips and a reversal would likely target the mid-May lows at 0.8755 and the March 16th spike lower which is also a Fibonacci retracement target at 0.8845.
The Wild Card
A sharp pullback of -1.81% was seen yesterday in the S&P 500 in-line with a flair up of the Greek debt crisis. US equities were heavily sold for the second consecutive day and yesterday's declines filled the exhaustion gap from June 1st. Forex traders may take this as a sign that the rally over the past two weeks was overextended and selling in the index may continue until the next support at the June 22nd high of 1,298.
|16:00||USD||IBD/TIPP Economic Optimism||42.0||-||-|
|19:00||EUR||ECB President Draghi Speaks||-||-||-|
|23:30||USD||FOMC Member Williams Speaks||-||-||-|
|00:30||AUD||AIG Construction Index||53.8||-||-|
|01:01||GBP||BRC Shop Price Index||y/y||-1.4%||-||-|
|02:00||AUD||HIA New Home Sales||m/m||-1.8%||-||-|
|02:01||JPY||Monetary Policy Statement||-||-||-|
|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||-||-|