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Friday, 27 May 2011
Dollar Falls to Record Low vs Swiss Franc
The Swiss franc and the Japanese yen were the strongest performers yesterday as the Greek debt crisis continues to weigh on the euro. Weak US data has pushed market players into alternative safe-haven currencies rather than the US dollar.
USD - Dollar Falls to Record Low vs Swiss franc
The dollar has begun to weaken again as traders are turning to substitutes for a safe-haven currency rather than the traditional US dollar. Weak US data has kept a negative tone in the market for dollars and yesterday was no exception. The US preliminary GDP report was released in turn with the weekly jobs report and both fell short of market forecasts. US Q1 GDP came in at 1.8% on expectations for an increase of 2.2% while new jobless claims rose 424K on forecasts of only 403K. The negative data reports initially fed into USD selling but the trend reversed itself until comments Jean-Claude Juncker shifted market sentiment in favor of the safe haven currencies.
Following the remarks, the Swiss franc rose to a record high versus the dollar with the USD/CHF falling to a new low at 0.8541. The USD/JPY also fell sharply to 80.89 before recovering to the 81 level.
Despite the increased tensions in Europe over the Greek debt crisis the dollar has not been a main beneficiary of the market environment, rather the Swiss franc has become the preferred method of shorting the euro. Weak US economic data has weighed on the dollar and may continue to keep the EUR/USD supported above the 1.4000 level barring any significant change in the Greek debt situation or a drastic improvement in US economic data.
EUR - Juncker Comments Sink Euro
Yesterday comments by the head of the euro zone finance ministers Jean-Claude Juncker shifted FX market sentiment and increased the anxiety of euro longs which helped to drop the euro back below its weekly highs. Junker commented that Greece may not achieve this year's deficit target and therefore would be ineligible to receive its next tranche of funding from the EU/IMF negotiated bailout. Following the comments the euro fell from its intraday highs and hit a new record low versus the Swiss franc at 1.2164.
While the proposed austerity measures are expected to be implemented, many market pundits have low expectations of Greece's ability to reach its stated deficit reduction levels. Comments such as yesterday's from Junker continue to weigh on the FX markets as Greece may fail to service its debt as early as July. Steps are being taken by the Greek government in the right direction as further austerity moves have been made as well as a hastened privatization program.
The intensification of the European debt crisis as well as the politicking that continues in order to extract increased concessions from the indebted nations may well continue. A similar situation that comes to mind is the low Irish corporate tax rate, something which Irish government officials have been firm in their negations with the EU/IMF as this topic is off limits. Both Germany and France may attempt to leverage this issue should Ireland request a lower interest rate than it originally received from the bailout package.
JPY - Yen Surges against Dollar on Safe Haven Appeal
The yen rebounded sharply versus the dollar and yesterday following the comments from Jean-Claude Juncker. The sharp one day appreciation in the yen comes at a time when the yen was beginning to weaken versus the dollar over the past month given a broad rebound in the greenback. However, the flair up of the Greek debt crisis combined with increasingly negative US data threatens to derail any rebound in the USD/JPY. Traders will often use the Japanese yen as a safe-haven currency in times of high market stress and anxiety.
Yesterday the USD/JPY fell to a low of 80.89 from 81.88 before recovering to 81.04. The initial support at 81.30 was easily taken out and the next support level rests at 80.30, followed by the May low at 79.60. To the upside the previous trend line off of the May low should serve as resistance as well the May high at 82.20.
Oil - Crude Oil Prices Finish Lower but Remain above $100
The price of spot crude oil dipped yesterday but stayed above the psychological price level of $100. Crude prices were sent lower following the US data releases that came in below market expectations. After the disappointing GDP and weekly employment numbers spot crude oil prices dipped to a low of $100.60 before climbing back to close at $100.78.
US Q1 GDP grew a paltry 1.8% on market expectations of an increase to 2.2% while weekly unemployment claims rose to 424K on forecasts of only 403K. The noticeable downturn in US economic data has increased pressure on crude oil prices. While much of the recent demand for crude oil is driven by growth in China, the US still makes up a significant portion of crude oil consumption.
Technicals for crude oil remain constructive with the price locked in a triangle consolidation pattern on the daily chart. Resistance comes in at $102.60 with support at $97.85 followed by $96.40.
Momentum continues to shift to the downside with weekly stochastics falling sharply. Initial support was found at the 100-day moving average and the next major levels that come into play are between 1.3910 and 1.3860. The former is the 50% retracement level from the January to May move. The latter is a previous support level from mid-March. A breach here would target 1.3675 where the 200-day moving average and the 61.8% retracement levels coincide. This morning the EUR/USD took out the 1.4200 resistance level and new resistance is found at 1.4290 followed by the 50-day moving average at 1.4350.
Cable has received a bounce this week off of the rising trend line from the May 2010 low and broke through resistance at 1.6320 from the previous trend line off of the January low. Cable now targets 1.6515. Support is found at the 200-day moving average at 1.5935 which coincides with the March low.
Yesterday the pair made a decisive break below the short term rising trend line off of the May low and could signal a reversal to the downside. Daily stochastics are falling, indicating that short term momentum has shifted lower. Support comes in at 80.35 followed by the May low at 79.55.
The weekly high at 0.8890 coincided with the trend line falling off the February high. Since then the value of the USD/CHF has collapsed, moving below the previously broken lower channel line from the October 2010 low and the previous low in April. Traders should be short on the pair.
The Wild Card
The Kiwi continues to be the strongest performer out of the G-10 currencies. Early this morning the pair broke above the resistance off of the May high only to encounter resistance at the 0.8200 level. Momentum is to the upside and as such, forex traders may see the NZD/USD test its all-time high at 0.8214.
|07:00||EUR||German Retail Sales||m/m||1.0%||0.1%||-|
|08:00||CHF||KOF Economic Barometer||98.1||97.9||-|
|09:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.2%||-|
|09:00||EUR||Italian Quarterly Unemployment Rate||12.7%||12.6%||-|
|09:30||GBP||Prelim Business Investment||q/q||5.0%||2.1%||-|
|10:00||EUR||CPI Flash Estimate||y/y||0.4%||0.3%||-|
|10:00||EUR||Italian Prelim CPI||m/m||-0.1%||0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|14:55||USD||Revised UoM Consumer Sentiment||79.2||80.4||-|
|14:55||USD||Revised UoM Inflation Expectations||3.4%||*||-|