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Tuesday, 28 Jun 2011
GBP Breaking Out of Long-Term Bullish Channel
Regional investors are expecting a technical downturn for the pound this week after several reports showed the currency breaking out of a long-term bullish channel. Lying behind the turning point is several months' worth of bearish manufacturing reports and a concern that inflation may become flattened out through the summer with analysts calling for a sluggish second quarter.
USD - USD Dips as Investors Await CB Consumer Confidence Data
The US dollar was seen in decline in trading yesterday as traders began to seek risk after a solid US stock market open. The EUR/USD was seen moving towards 1.4275 yesterday before settling mildly below this mark at day's close. The GBP/USD was also in a bullish channel, with a high of 1.6002 touched prior to getting tested by technical traders and finishing mildly lower than its daily high.
Yesterday's bullish consumer inflation data out of the American economy has so far helped to lift the value of riskier assets as investors seek higher growth in their portfolios. The EUR, GBP, and SEK were each appreciating against the US dollar throughout Monday's session, with mild downturns coming towards the day's closing.
With a heavy news day expected, traders are sure to see heightened volatility. Most significantly, the US economy will be publishing its CB Consumer Confidence report alongside an S&P/CS Composite-20 HPI figure. Analysts are expecting no change in consumer confidence from last month, but bearish sentiment is getting priced-in to the house price index by S&P and Case-Shiller. If risk appetite continues to grow ahead of the vote on Greece's austerity budget, we may see the USD continue to decline.
GBP - British Macro-Economic Data on Tap
The British pound (GBP) was seen trading with mixed results yesterday following news of heightened risk appetite across the region as well as inflation and manufacturing concerns in the United Kingdom. The UK Office for National Statistics is set to publish several data reports today, focusing intently on the macro side of the British economy.
Regional investors are expecting a technical downturn for the pound this week after several reports showed the currency breaking out of a long-term bullish channel. Lying behind the turning point is several months' worth of bearish manufacturing reports and a concern that inflation may become flattened out through the summer. A deep-seated structural deficit in the UK jobs market also carries some of the blame.
Today's macro data will help many forex investors get a feel for how well the structural challenges in the UK labor market have been addressed and whether the island economy will see growth this quarter. Final British gross domestic product (GDP) figures will get published at 9:30 GMT today alongside the latest reading on the country's Current Account, a measure which reports on the difference between imports and exports. The Monetary Policy Committee (MPC) of the governor of the Bank of England (BOE) will be testifying on the state of the economy and inflationary expectations. Overall, traders appear to be anticipating bearish pressure on the pound.
JPY - Japanese Retail Sales in Focus
The Japanese yen has undergone swings between bullish and bearish since late last week as traders attempt to get a feel for global risk appetite. By focusing on the Japanese economy itself today, many investors appear tuned in to go long on the JPY out of an expectant growth on the consumer side of the equation with the country's retail sales report.
The Japanese economy has witnessed a sharp downturn in retail sales, year-on-year, since back in April, when it dropped over 8%. Each month since, the nation has halved this decline, with only a 4% decline in May and expectations for a 2% drop in June.
If the early morning data can meet or exceed this forecast, traders may see a silver lining in Japan's currently bleak economic landscape. Given the sluggishness of the global manufacturing sector, however, many economists have expressed pessimism that Japan will meet the negative 2% target. Such a result could lead to heightened risk aversion and also feed into the yen, albeit for different reasons.
Oil - Crude Oil Price Decline Halts as EUR Finds Footing
Crude Oil prices dropped sharply towards $92 a barrel Monday as sentiment appeared to favor a downturn in global industry. The sudden halt to this downward movement came as a result of several forces Tuesday morning. Primarily leading the rebound in oil prices was a sense that risk appetite was on the rise and a favorable vote for an austerity budget in Greece could whip traders back into a buying frenzy on high-growth assets like oil.
Faltering dollar values may have also helped many investors pause on their short-taking positions on physical assets. Crude Oil witnessed a mild uptick in yesterday's late sessions while Gold and Silver began to largely see sideways movement. Should sentiment hold steady this week, oil prices may continue to find support near its current price, but with reluctance and weakness underlining any upward movement.
Momentum has now turned lower as falling stochastics appear on the monthly, weekly, and daily charts. Initial support comes in at the June low of 1.4075 and the May low of 1.3970. A break here and technical traders will target the 200-day moving average at 1.3860. While the 8 cent decline from the May high is a sharp drop, traders should keep in mind that the correction the pair is currently undergoing is just that, a correction. Buyers may be lurking at the rising trend line from the June 2010 low. Resistance comes in at the recent high of 1.4440 where the 50-day and 20-day moving averages are floating.
The pair has broken a significant technical barrier at the neckline from a head and shoulders pattern which measures a target at 1.5370. Monthly and weekly stochastics are turning lower so traders may expect further declines. Support is located at the March low at 1.5935 followed by the late January low at 1.5750. To the upside the neckline from the head and shoulders pattern at 1.6120 could offer traders a level to enter short as many times in a head and shoulders chart pattern the pair will revert back to the neckline only to head lower from there.
Yen bears are making a stand at the 80 level. A previously broken trend line from the April high comes in at this level and will also support the bears. However, once this last bastion of support is broken the fallout could be similar the price action in March. Should the move higher continue, resistance is found at 81 and 81.75.
The previous resistance at 0.8550 held and the all-time low at 0.8325 is continually being pressured so a break here may be in the works. An absence of supports or trend lines below this level makes it difficult to predict how low the pair could go.
The Wild Card
Spot silver prices have taken a turn lower after breaking below the short term trend line where support smartly turned into a resistance level. This may signal a short term top in the commodity. After four consecutive days of declines forex traders could target the May low at $32.30 with further support located at $31.70.
|10:00||EUR||Italian Monthly Unemployment Rate||12.3%||12.4%||12.6%|
|11:00||EUR||CPI Flash Estimate||y/y||0.3%||0.4%||-|
|11:00||EUR||Italian Prelim CPI||m/m||-0.3%||-0.1%||-|
|13:30||USD||Core PCE Price Index||m/m||0.1%||0.1%||-|
|13:30||USD||Employment Cost Index||m/m||0.7%||0.6%||-|
|14:55||USD||Revised UoM Consumer Sentiment||86.4||86.4||-|
|14:55||USD||Revised UoM Inflation Expectations||2.8%||-||-|