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Thursday, 4 Aug 2011
Market Pessimism Dominates Week
Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was acting as though no safe-haven could be found. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market. Traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.
USD - USD Sideways as Sentiment Bearish Across the Board
The US dollar (USD) was seen trading sideways at yesterday's close after a day of mixed news from the global economy. The value of safe-haven assets has been dampened by an interest rate decrease in Switzerland and poor fundamentals in Japan. Even the USD, which was expected to receive a boost no matter how the debt talks ended, appears to have succumbed to mixed sentiment regarding global outlook.
Economic news this week has pushed traders into a position of market pessimism; though trading yesterday was acting as though no safe-haven could be found. Little news has emerged which put a dent in the amount of pessimism surrounding the forex market, traders are now eyeing the finer details of the US debt ceiling plan to determine when, or if, a return to risk appetite is expected.
With a moderate news day expected from Europe and Great Britain, traders will be witnessing the release of this week's unemployment claims report from the US. Following yesterday's optimistic data from ADP's Non-Farm Employment Change report on the private sector, today's unemployment claims will offer another piece of info regarding the employment sector of the US economy. Should it also support optimism, traders may return mildly to riskier assets and away from the USD.
EUR - EUR Mixed as Data Confounds
The euro (EUR) was seen trading with largely mixed results yesterday as traders moved into and away from riskier assets across the region. Against the US dollar (USD) the euro was seen trading sideways in late trading as shifts away from the greenback, due to uncertainty about the US debt ceiling plan, caused several market participants to opt for other stores of value.
The largely bullish reports out of Europe yesterday have appeared to confound traders who were anticipating a string of bearish results. Though debt concerns still loom in the region, optimistic data has had the impact of muting the EUR's losses against its primary basket of currencies. With an interest rate announcement expected today, traders should see some added volatility in today's EUR market.
On tap today, traders will witness the release of a highly significant report on the region's Minimum Bid Rate. Should the rate statement come out with hawkish commentary, we could see heftier shifts to riskier assets in the days and weeks ahead. This would likely push the value of the EUR higher over the long-haul as traders temporarily cease to flee risk.
AUD - Australian Data Bearish; Weighs on AUD
The Australian dollar (AUD) was weighed down yesterday, as market reports showed contraction across the boards. Piling atop recent reports on Australia's shrinking housing sector, yesterday's publication of Australian retail sales and its national trade balance show a broadening contraction striking several sectors of Australia's economy. The retail sales figure, perhaps most shocking, witnessed contraction in June.
Expectations for the retail sales report was for a modest growth of 0.4% from last month's contraction of 0.6%. The actual report of 0.1% shrinkage has led many investors to pull away from the Australian dollar (AUD) in recent trading. The nation's trade balance also revealed sluggish growth of only A$2.05B as opposed to the expected A$2.22B, down from last month's A$2.70B. This data, combined with dismal HPI and new home sales reports, has so far dragged the Aussie lower and looks to continue doing so this week.
Oil - Crude Prices Lower as Ratings Downgrades Dampen Demand
Crude Oil prices fell mildly lower Wednesday as warnings of a downgrade of US debt by Moody's Investors Service pulled demand for oil significantly lower. Data releases out of Europe and the US last week are also driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.
The impact has been a decline in oil values from over $100 a barrel last week to a current price near $93. An expected 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, but with the USD's gains not materializing, sentiment appears to have the price of crude oil holding steady, with gradual losses priced in. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by week's end.
The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year's high of 1.4940.
Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
Yen strength has returned with a vengeance. Last week's candlestick closed with a shaved bottom indicating momentum is to the downside. This week's opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week's low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday's opening gap higher could create a Harami reversal pattern which may lead to slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.
The Wild Card
Following this morning's intervention by the Japanese Ministry of Finance MOF the yen is considerably weaker versus the US dollar and in the crosses. Forex traders should look to the previous intervention in March for reference. In the last attempt to weaken the yen the USD/JPY continued to rise for the next two weeks after the initial yen selling by the MOF before the JPY resumed its long term downtrend. The next resistance for the USD/JPY stands at the May low of 79.60 followed by the June high of 81.50 and finally the long term downward sloping trend line from the beginning in mid-2007 which comes in at 82.20.
|23:50||JPY||M2 Money Stock||y/y||4.4%||4.4%||-|
|00:00||JPY||Monetary Policy Statement||*||*||*|
|00:00||JPY||BoJ Press Conference||*||*||*|
|00:00||GBP||10-y Bond Auction||2.73|1.8||*||-|
|00:01||GBP||BRC Retail Sales Monitor||y/y||3.9%||*||-|
|00:30||AUD||NAB Business Confidence||8||*||-|
|06:00||JPY||Prelim Machine Tool Orders||y/y||40.3%||*||-|
|07:00||EUR||German Trade Balance||18.5B||19.3B||-|
|10:00||GBP||Inflation Report Hearings||*||*||*|
|15:00||GBP||NIESR GDP Estimate||0.8%||*||-|
|23:30||AUD||Westpac Consumer Sentiment||-3.0%||*||-|