Forex News and Events:
Quiet sessions in Asia, as risk appetite pushed equities lower. Nikkei fell -1.45% as the JPY stayed in demand with FX flow moving towards safe havens. Yesterdays weak US durable Goods set the negative tone in stocks, as the report printed a 2.1% fall in headline orders and 0.4% drop in core capital goods orders. Global stock market indices turned into the red, US treasury went sideways and commodities retraced from their recent gains. Overnight, the only real news was the RBNZ kept the OCR steady at 2.5%, however, the accompanying statement suggested the growing need of a hike. EURCHF has been choppy, trading about the 1.14950 to 1.15250 range, while USDJPY is looking to retest the weekly lows at 77.58. Reuters reported that Economy Minister Yosano told Governor Hideaki Omura, whose prefecture is home to Toyota motor Corp, that FX intervention of around JPY1-2trn would be difficult. Then went on to suggest that FX intervention ahead of the Aug 2nd US debt ceiling deadline would be unlikely. While Noda has tried to keep traders wary of a possible intervention with the ?tried and true? verbal intervention of ?I will continue to pay attention to markets?. As to be expect, there was no noticeable reaction in the JPY.
In Europe, the credit ratings for Greece and Cyprus were cut, highlighting the lingering problems that the EU Summit's second rescue program failed to manage. S & P commented in their statement that ?the proposed restructuring of Greek government debt would amount to a selective default under our rating methodology". They then went on to say, "We view the proposed restructuring as a 'distressed exchange' because, based on public statements by European policy makers, it is likely to result in losses for commercial creditors." The threat of select default clearly has also weighed on the EUR, as the EURCHF continues to make new lows. Interestingly, a Reuters poll of 50 analysts, stated that 31 believed the bailout did not solved the EU problems. For us, it?s just a matter of time before the next wave of EU sovereign crisis hits Europe.
On the US debt ceiling debate, no real update, as the political wrangling continues. The US debt deadlock continued as Speaker John Boehner?s two-step strategy to increase the U.S. debt ceiling was blocked by Congressional Budget Office, who stated that the proposal would cut the deficit by less than it actually claims. The failure of Republicans to stick to proper accounting practices would have surely given President Obama the authority to veto the plan. As we have stated, we suspect that the negotiations and horse trading will go until the 11th hr, before a ?grand bargain? is struck. However, the damage to the USD?s reputation and reaction by credit rating agencies are much more of a certainty. There is a significant risk that the rating agencies do not find them credible and would lean towards a potential downgrade. We continue to anticipate US weakness until the August 2nd deadline.
Yesterday in Switzerland, the KoF leading indicator dropped from a recent 5-year high at 2.30 (May) to yesterdays read of 2.04 (lower than expected 2.11) is a clear indication to some of an inevitable soft-patch. While of the key rationales for a potential sell-off in the CHF was the deteriorating domestic economic conditions, the slight fall doesnt warrant any extreme CHF selling yet. The negative news came from the Sub index call ?Swiss industry?, which should be expected, since that is the area most sensitive to currency fluctuations. But on the bright side, construction's sub index, continues to surge higher (again logically due to the historical low interest rates). Overall, it needs to be clarified that any reading above 2.00 is very good. However, despite the aggressively strong CHF, and cries of hardship & demands of FX intervention from Swiss business leaders, spillover into the broader economy has been timid.
There are signs of cooling, but no signs of a cataclysmic demise which many had predicted, as Switzerland?s primary trading partners (Europe) growth falters. It?s too easy for participants to point to the CHF and extrapolate the negative effect on the domestic economy. We suspect that the moderately adjusting Swiss economy actually highlights the economic buoyancy and silences predictions for a economic collapse. With a greater security in the resilience of the economy, mid and long term trades will continue to value the CHF safe-haven status and will continue to accumulate CHF against both the USD and EUR. Here are the four quick reasons CHF will remain in demand in my book: 1) With the world's FX reserve managers holding portfolio allocations of only 0.10 in CHF, there will be further diversification into CHF. 2) Switzerland maintains a manageable 55% Debt to GDP and solid public finances, a fact always in favor when the world is worried about sovereign balance sheets. 3) Despite the EU summit bailout program and potential ?grand bargain? in the US debt ceiling debate, the EUR and USD are damaged currencies and trading will take us from crisis in Europe to crisis in US, and back-and-forth. 4) And as the Kof showed yesterday, the recent economic data has shown some deterioration but this is from a high level. With forecast of 2% and 1.7% for 2011 & 2012 is not that bad considering what other G4 nations are facing.
Another light calendar day should keep trading subdued, with US Initial jobless claims and pending home sales dominating the afternoon trading while Feds Williams and Lacker will be speaking.
Today's Key Issues (time in GMT):
07:30 SEK Unemployment rate, % Jun
07:55 EUR Germany: Unemployment change (000s, sa); (rate, %) Jul (7.0) exp / prior
09:00 EUR Final consumer confidence, index Jul
09:00 EUR Industrial confidence, index Jul -11.4 exp
10:00 GBP CBI distributive trades, total sales Jul 2.0 exp
12:30 USD Initial jobless claims, thous (4wma) 22-Jul 418 (421) prior
14:00 USD Pending home sales, % m/m (y/y) Jun -1.0 (15.8) exp
16:45 USD Richmond Fed President Lacker (FOMC voter)
18:30 USD San Francisco Fed President Williams (FOMC voter)
23:01 GBP GfK consumer confidence, index Jul -26 exp
The Risk Today:
EurUsd The pullback from 1.4500 was a blow to the growing confidence of EURUSD bulls however, indicators are pointing to further upside. Mondays break above 1.4462 (bearish trend ceiling) gives this pair a bullish tone. Initial resistance still stands at 1.4536 (27th July high), key resistance at 1.4578 (4th July high) then 1.4695 (8th June high). We view first support to be located at 1.4324 (22nd July low), 1.4282 (bullish trend floor), 1.3950 (13th July low), then 1.3837 (13th July low) which break would open up a move to 1.3732 (long term bullish trend floor).
GbpUsd Temporary retracement from yesterdays 1.6429 high, looks to be a short term correction rather than a reversal. Last week?s break of 1.6221/55 (bearish trend ceiling & 21st June high) 3-month bearish trend gives this pair a bullish feel, supported by new highs. Recent pattern of breakout, consolidation breakout etc means we should see some consolidation before the next move higher. The break of resistance at 1.6333 (25th high), has triggered a move to 1.6442 (14th June high), then 1.6558 (31st May high). We should see buyers stepping in around 1.6262 (25th high), 1.6171 (bullish trend floor), 1.6120 (21st July low), 1.6067 (8th July high) then not much noise till 1.5949 (12th July high).
UsdJpy Lots of chatter about a solo Japanese intervention, means downside should be taken cautiously. Last week?s aggressive selling that pushed the pair below the 79.70 range support has slowed down but downside pressure remains. We would be looking to sell rallies below 80.50, as the support is located at 77.57 (27th July low), then all time lows at 76.25 (17th March low). After that, the situation become difficult and we should have aggressive saber rattling if not an outright MoF intervention from the Japanese. Resistance area is located at 78.17 (27th July high), 79.03 (21st July high), 80.38 (12th July high) then 81.48 (8th July high)
UsdChf The 0.8000 handle is providing a nice base for the USDCHF. As we had expected the unwinding of USDCHF short position after of the EU summit was short lived. Below 0.8550 (16th June high & bear downtrend ceiling) we remain bearish on the USDCHF and look for opportunity to sell on rallies. Initial support is now located at 0.7996 (27th July low). After that???? Minor resistance can be seen at 0.8070 (26th July high), 0.8278 (19th June high), then 0.8331 (13th July high), 0.8404 (long term bearish downtrend ceiling), stronger 0.8551/53 (15th & 16th June high)
Resistance and Support:
| 1.6630 | 81.48 | 0.8331 |
| 1.6558 | 80.38 | 0.8278 |
| 1.6442 | 79.03 | 0.8070 |
| 1.6347 | 77.67 | 0.8013 |
| 1.6262 | 77.57 | 0.7996 |
| 1.6171 | 76.41 | 0.8000 |
| 1.6067 | 75.00 | 0.7900 |
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot
Source: http://www.fxstreet.com/technical/market-view/daily-forex-news/2011-07-28.html
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