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Monday, 18 Jul 2011
US TIC Long-Term Purchases on Tap
The US economy will largely be absent from the economic calendar today, with the exception of the ever-important TIC Long-Term Purchases report which measures the level of foreign and domestic investment in the US. A minor housing market index from the National Association of Home Builders (NAHB) will also get published about an hour later, but is not expected to impact market direction.
USD - USD Flat ahead of Light News Day
The US dollar was seen trading flat at the start of this week as traders began to view the lackluster performance of the US economy these past several weeks as a sign that regional economic growth will be limited. The dollar has been primarily gaining from such momentum due to the shift into safer assets.
Though news has been both positive and negative, traders have been predisposed to short the higher yielding assets in general as the US and European economies falter. Assisting this shift was a dismal NFP jobs report out of the American economy which revealed sluggishness in US employment growth that may affect economic and financial outlook for the US and its neighbors over a longer period.
As the August 2 deadline rapidly approaches, we are beginning to see some hedging behavior with the Swiss franc (CHF) and Japanese yen (JPY) acting as alternate stores of value should the US default on its loans.
As for today, the US economy will largely be absent from the economic calendar, with the exception of the ever-significant TIC Long-Term Purchases report which measures the level of foreign and domestic investment in the US. A minor housing market index from the National Association of Home Builders (NAHB) will also get published, but is not expected to impact market direction.
EUR - EUR Trading at Record Lows vs. CHF
The euro (EUR) was seen trading lower last Friday following news of pessimistic growth in the US economy. Against the US dollar (USD) the euro was trading somewhat bearish in late trading as shifts into safe-haven investments pulled money out of the euro and into stores of value. The EUR/CHF, however, was more straightforward, with a severe downturn coming Thursday, followed by even more bearishness on Friday. The pair opened this week at a record low of 1.1414 after closing last Friday at 1.1539.
It appears the EUR also moved mildly lower versus the Japanese yen as safe-haven assets across the board experienced a rise due to increased market pessimism. With no news expected out of the euro zone today, much of this sentiment is not likely to be reversed.
Traders are looking for a way to store value, but show concern towards investing in the US dollar at the moment due to the debt limit talks taking place in Congress. A failure to lift the debt ceiling could result in a default by the US government, causing ratings agencies to downgrade US debt and pull the global economy bearish.
Sentiment across the euro zone has also turned negative, with many analysts and economists expecting further moves towards safety by traders this week. Any more bearishly-leaning news out of either economy will likely pull down on the EUR even further as investors flee risk.
AUD - AUD Trading Lower as Safe-Haven Assets Grow
The Australian dollar (AUD) was seen trading moderately lower versus most other currencies last Friday after news began to shift many traders back into risk averse assets. The Aussie has been experiencing several wide swings lately from the various shifts into and away from riskier assets. A vote on China's economic confidence after its latest rate hike also impacted the AUD heavily, causing movements away from the soaring Aussie.
As traders witnessed a turn towards safety after last Friday's economic reports from the United States. The resultant move into safe-haven assets has helped to push down on the AUD as traders turn away from its high interest rates in order to store value in lower yielding assets like the Japanese yen (JPY) and US dollar (USD). Australia's economy is publishing a report on motor vehicle sales this morning, which will likely impact the value of the AUD very little. Traders should keep an eye on data out of Europe and the United States for signals on the direction of risk appetite this week.
Gold - Gold and Silver Prices Advance despite USD Pressures
The price of precious metals like Gold and Silver found support this past week despite the rising strength of the US dollar, the currency in which such assets are valued. Precious metals bear their name as a result of their traditional store of value in times of uncertainty. Gold has been trading with rather mild price action since this past April, but traders have been awaiting price resurgence due to the rampant increase in risk aversion due to rising tensions from Greece and dismal jobs reports out of the US.
As investors seek safety, the value of gold and silver, which have been seen trading with mixed results, jump to a 2-week high of $1594.80 and $39.75 per troy ounce, respectively. A sudden jump in dollar values due to this week's risk averse environment has so far done little to suppress this price movement as these two assets serve as traditional stores of value. Should risk sentiment hold steady this week, the prices for these precious metals may continue to find support as the week moves ahead.
After a gapping lower to start last week the pair moved below the 200-day moving average and on the subsequent rebound the EUR/USD found resistance at its 100-day moving average, a previous level the pair struggled to close below between the months of April and July. While the rebound higher was sharp the failure of the pair to move above the 100-day moving average and to close above the opening gap signals weakness in the pair. Initial support is found at last week's low at 1.3870 followed by the rising trend line from the June 2010 low which comes in at 1.3750. A break here is significant as it would compromise the long term uptrend for the euro, exposing the 50% retracement level at 1.3410. To the upside, the 100-day moving average is the first resistance at 1.4290 followed by the falling resistance line from the May and July highs at 1.4490.
The GBP/USD price collapsed only to find support at the 38% retracement level of the May to April move at 1.5780 while the rebound higher was capped at the neckline from the head and shoulders reversal pattern. Positive divergence is found on the RSI-14 as the price made a new low but the RSI did not. This signals a potential warning sign for sterling bears. Resistance is located at 1.6230 off of the falling trend line from the April high. Above this level the previously broken trend line from the May to April move at 1.6330 will come into play. To the downside a break of 1.5780 would signal a resumption of the downtrend and would target 1.5650 which has served as both support and resistance in October and in December of last year.
The USD/JPY downtrend resumed with a vengeance last week as the pair broke below the 80 yen “line in the sand” and the support from May 5th at 79.55. This level has now turned into resistance as often happens to previously broken support levels. Only last week's low at 78.46 and the bottom of the long term wedge from the Sept 2004 at 77.60 stands in the way of the all-time low at 76.11.
The Swissie has moved in one direction and one direction only. The pair made a halfhearted attempt close above its 50-day moving average and moved sharply lower from there setting a new all-time low at 0.8082 which serves as the initial support level. Any move higher may find resistance at 0.8275, the falling trend line from the February high which comes in at 0.8450, and 0.8550.
The Wild Card
At 0.8740 the pair is testing the rising trend line from the mid-February low. Momentum is to the downside and forex traders should note a close below the support at 0.8720 would confirm a break of the trend line. The next major milestone in the reversal of the pair is the 200-day moving average at 0.8660 followed by the trend line off of the January and February low at 0.8630. To the upside 0.8850 may prove to be resistive as could the broken trend line from the May and June lows which come in at 0.8890.