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Thursday, 26 May 2011
Return to the “Risk-On” Trade in Asia Boosts the NZD and Commodities
In Asian trading the dollar block currencies and commodities were noticeably higher with Asian bourses climbing, signaling a potential rebound in the “risk-on” trade.
USD - Dollar Mixed After Durable Goods Report
The greenback was mixed yesterday following weaker than expected core durable goods orders, -1.5% on consensus expectations of a gain of 0.7%. The March output was revised higher to 2.5% from a previous 1.3%. Initially the report fed into a bout of USD buying but the negative tone dissipated with the euro eventually reaching 1.4117 before closing back at 1.4081. Earlier in the day the EUR/USD dipped to its daily low at 1.4013 following disappointing German consumer numbers. Interestingly enough, yesterday's low coincides with the neck line of a potential head and shoulders pattern.
This morning the dollar was on its back foot with a return of the “risk-on” trade as Asian bourses made strong gains. The Nikkei was up 1.4% while commodities such as silver and spot crude oil were also making strong gains. The gains in Asian trading may be due to a Financial Times report citing Chinese interest in the Portuguese bailout debt auctions from the European Financial Stability Facility. A separate report stated China may look to invest 1.5% of its FX reserves in New Zealand assets and 2% in Australian assets.
Today traders are expecting a more positive result from US GDP numbers. The second of three US GDP releases, the preliminary data is forecasted to show a growth rate of 2.2% in Q1 versus 1.8% from the advanced GDP report. US weekly unemployment claims are also expected to improve slightly. Should today's US economic data be released above market forecasts, this may help to build on this morning's gains in Asia while keeping the dollar on its back foot.
EUR - Euro is Bid in Asia
Yesterday the euro was flat versus the dollar but traded noticeably lower against the Swiss franc and the British pound. The spillover from the Greek debt crisis is more apparent in the crosses as dollar strength may only be transitory given the loose monetary policy the Fed maintains. Yesterday the EUR/CHF hit an all-time low at 1.2269 while the EUR/GBP dropped to a 10-week low at 0.8632.
This morning the euro received some much needed support on the heels of Chinese FX diversification reports with the 17-nation currency coming off its lows across the board. German import prices are expected to rise albeit at a slower pace than the previous months. Follow through price increases in the German economy due to rising commodity prices may bring the inflation story back to the front of the FX market headlines. A surprise in this data release and traders may be forced to focus back on the interest rate differentials between Europe and the States while putting the European debt crisis on the back burner.
NZD - Asian Bourses Trade Higher as Kiwi Soars
The Asian trading session got off to a strong start today on the back of renewed sovereign buying interest. Both the New Zealand dollar and the Australian dollar were sharply higher following the report China may look to invest 1.5% of its FX reserves in New Zealand assets and 2% of its reserves in Australian assets. This has helped the NZD/USD surge today and is the FX market's strongest performer out of the G-10 currencies.
Versus the Australian dollar the Kiwi has put in significant technical damage. The AUD/NZD has fallen from its early May high at 1.3700 and this morning has cracked the psychological support level of 1.3100. In overnight trading the pair plunged lower, breaking the previous support at 1.3190 which should now serve as initial resistance. Further support is found at 1.3040. A more long term target for the AUD/NZD may be found between the January low at 1.2775 and the 61.8% retracement level from the 2010 low to the May 2011 high at 1.2740.
Oil - Spot Crude Oil Prices Surge
Spot crude oil prices rebounded after commodity prices have been subdued following the early May sell-off. Crude prices surged to close above $101 following the weekly US crude oil inventory report showed increased demand from oil refineries. While the headline inventory number was higher than expected, the bullish refinery data was more than enough to bring crude oil bulls back into the market. The price of spot crude oil rose to $101.54 from $98.77 on strong demand in the New York trading session.
Since the sell-off in early May spot crude oil prices have been consolidating and have formed a triangle pattern on the daily chart. Despite yesterday's almost $3 appreciation in the commodity, the price declines in May were so sharp that crude oil prices still have until $102.60 before the commodity is even testing a breakout to the upside. Support comes in near yesterday's low at $97.80.
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 1.4130 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 the last two days off of the rising trend line from the May 2010 low and has encountered resistance at 1.6320 from the broken trend line off of January low. A move higher would test 1.6515. Support is found at the 200-day moving average at 1.5935 which coincides with the March low.
Weekly stochastics are rising, indicating longer term momentum is swinging to the upside. The daily chart's 14-RSI is also moving steadily higher confirming the short term bullish run. The USD/JPY has already retraced 38% of the April to May move lower and a rebound in the pair could continue further. The 50% and 61.8% retracement levels stand out as potential targets, coming in at 82.55 and 83.25 respectively. Before these retracement targets, near term resistance comes in at 82.20 followed by 82.80. The rising trend line off of the May low should prove to be supportive with significant support at this week's low at 81.30.
The weekly high at 0.8890 coincided with the trend line falling off the February high. Since then the USD/CHF has moved lower and could target 0.8660 from the previously broken lower channel line from the October 2010 low. A breach here would target the swing low at 0.8553
The Wild Card
The AUD/NZD has fallen from its early May high at 1.3700 and this morning has cracked the psychological support level of 1.3100. In overnight trading the pair plunged lower, breaking the previous support at 1.3190 which should now serve as initial resistance. Further support is found at 1.3040. Forex traders may use a more long term target for the AUD/NZD which can be found between the January low at 1.2775 and the 61.8% retracement level from the 2010 low to the May 2011 high at 1.2740.
|05:00||JPY||BoJ Monthly Report||*||*||*|
|06:30||EUR||French Final Non-Farm Payrolls||q/q||-0.1%||0.1%||-|
|14:30||USD||Crude Oil Inventories||1.4M||-||-|
|17:01||USD||10-y Bond Auction||2.80|2.5||*||-|
|18:00||USD||Federal Budget Balance||-10.4B||-223.2B||-|
|20:00||NZD||Official Cash Rate||2.50%||2.50%||-|
|20:00||NZD||RBNZ Press Conference||*||*||*|
|20:00||NZD||RBNZ Rate Statement||*||*||*|
|20:00||AUD||RBNZ Monetary Policy Statement||*||*||*|
|23:50||JPY||Core Machinery Orders||m/m||-15.7%||7.3%||-|
|00:00||AUD||MI Inflation Expectations||2.3%||*||-|
|00:01||GBP||BoE Quarterly Bulletin||*||*||*|
|00:01||GBP||RICS House Price Balance||53%||52%||-|