Japanese Yen: USD/JPY Slips Below 95 as Nikkei Collapses 6 Percent

DailyFX

  • Dollar and S&P 500 Traders Face Major Trend Reversals
  • Japanese Yen: USD/JPY Slips Below 95 as Nikkei Collapses 6 Percent
  • British Pound: Despite Rally After Report, GBP/USD Yet to Break 1.5700
  • Euro Rallies to February Highs Despite Greece Troubles
  • Canadian Dollar Looks to Break Chop with BoC Financial Stability Report
  • Swiss Franc Gains, USD/CHF Hits 4 Month Low after Tax Evasion Vote
  • Gold Advances as Dollar Stumbles, Yen Crosses Retreat

Dollar and S&P 500 Traders Face Major Trend Reversals

Both the US dollar and S&P 500 futures have made ominous moves over the past 24 hours to threaten long-term trend changes. While the recent, positive correlation between the benchmark equity index and currency would seem to suggest that both are susceptible to a collapse; the change to the fundamental landscape under such seismic shifts would likely revive the ‘risk / safe haven’ dynamics that the dollar seems to have abandoned. The line in the sand both FX and capital market trader should watch for is 1,600 on the S&P 500. The combination of the 50-day moving average, seven-month channel floor and psychological appeal of a round number can draw enough attention that its failure can set off a tidal wave of pent up fears. Global market yields are just off record lows; the Federal Reserve is running short on flexibility to continually drive markets higher; growth forecasts have cooled; volatility measures are rising; and leverage (measured on the NYSE) is at a record high. These are troubling but vague conditions. What better way to bring them all to the surface than a pressured selling / deleveraging?

In a market where over-exposed market participants have to quickly unwind geared trades, there is a high risk of panic. The greater the sense of unstable markets, the more extreme the need for refuge in absolute liquidity and financial assurance. In such tumult, the deepest market, largest economy and most dependable regulations trump yield or long-term fiscal debate. And, that leads the battered back to the United States and the US dollar. However, that unflinching flight to quality must be engaged to fight the dollar’s countervailing wind: fading ‘Taper’ premium. Depending on the traditional sparks for reviving fear leaves us with a docket lacking event risk until next Wednesday’s FOMC rate decision. If we are to see a shift to risk aversion before that high-profile event, it will likely be borne from market sentiment itself.

If US equities can find a floor once again in the upcoming session, the stability could bode poorly for the greenback. Since the beginning of the month, the currency has shed gains forged under the auspices of a June tempering of the $85-billion-per-month QE3 program. The consensus now projects a September or later date for that safety net withdrawal. A significant level of premium has been extracted, but a break of 10,500 for the USDollar Index could escalate the effort. Meanwhile, the market is still showing its consciousness of the Fed’s eventual withdrawal of support. The US 10-year Treasury auction this past session drew its second lowest demand since August 2009 and volatility is trending higher.

Japanese Yen: USD/JPY Slips Below 95 as Nikkei Collapses 6 Percent

USDJPY slipped below 95 for the first time in over two months in early Asia session trading – and all it took was a six percent collapse in Japan’s benchmark Nikkei 225 equity index. The benchmark gapped lower on the open of the new trading session and extended the incredible bearish drive to an incredible 20 percent collapse in a mere three weeks. If the Bank of Japan’s (BoJ) primary goal with its stimulus regime is to revive inflation and eventually reach a 2.0 percent target, they can still find success. However, they are causing severe damage along the way. Stable financial markets is an unspoken mandate for central banks, yet the BoJ’s efforts have generated severe fluctuations. The highest, sustained level of volatility in equities since 2008 and sharp increase in JGB yields (a serious problem for the government and pension funds) is collateral damage they simply cannot endure. The only option from here is more stimulus. ‘How’ and ‘when’ are key to preventing a yen cross cave in.

British Pound: Despite Rally After Report, GBP/USD Yet to Break 1.5700

Despite better-than-expected employment data, the British pound struggled to gain its footing this past session. The statistics showed the number of jobless claims dropped by a greater-than-expected 8,600-filings and the unemployment claimant rate held at a two-and-a-half year low. Yet, the sterling sank versus NZD, AUD and CAD. There was not enough in the data to significantly alter what truly matters to pound traders: stimulus and growth forecasts. Meanwhile, a Reuters poll showed economists expect BoE’s Carney to offer guidance first thing July.

Euro Rallies to February Highs Despite Greece TroublesThe Greek government’s decision to close state broadcaster ERT seems to have had greater repercussions than officials had expected. Protests are to be expected, but rumblings of a call to dissolve the government generate enough real heat to concern euro investors that have just recently become used to market stability. This is just an attention grabber for bigger concerns in the background. The German Constitutional Court is questioning the ECB’s ability to use the OMT and 10-year sovereign bond yields are on the rise again.

Canadian Dollar Looks to Break Chop with BoC Financial Stability Report

Despite the heavy moves from AUDUSD and NZDUSD, USDCAD can’t seem to keep to a consistent trend. That is not particularly surprising as this is a pairing of two financial systems whose health often moves in tandem. We may finally find a break from the monotony of congestion around 1.0200 in the upcoming session with the Bank of Canada’s release of its Financial Stability report. We are unlikely to see much change from previous concerns, but this could be an ‘unexpected risk’ that catches the market off guard.

Swiss Franc Gains, USD/CHF Hits 4 Month Low after Tax Evasion Vote

The Swiss government took a big step towards allowing the country’s banks to surrender US client information to US regulators without breaking the nation’s banking secrecy laws after the Upper House of Parliament approved a bill with those conditions. It must still pass the Lower House, but what are the implications? Long-term, this will damage the franc’s unique position as a safe haven. However, it is a better option than the alternative. If the US were to bring suit against Swiss financial institutions for aiding tax evaders, it would likely lead to bank failures.

Gold Advances as Dollar Stumbles, Yen Crosses Retreat

A 0.8 percent advance from gold Wednesday was technically the largest advance in seven trading days, but it did little to progress the bulls’ agenda. Against tepid volume in ETFs and futures, the commodity is still wedged firmly below $1,425. Meanwhile, the ETF outflow trend has regained traction with a fourth consecutive net sale of the metal from stores since June 5th's technical net increase (a mere 480 ounces). If this alternative store of wealth is to make it back up towards $1,500, committed dollar selling is needed. Watch USDollar.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

1:00

AUD

Consumer Inflation Expectation (JUN)

2.3%

1:30

AUD

Employment Change (MAY)

-10.0K

50.1K

1:30

AUD

Unemployment Rate (MAY)

5.6%

5.5%

1:30

AUD

Full Time Employment Change (MAY)

34.5K

1:30

AUD

Part Time Employment Change (MAY)

15.6K

1:30

AUD

Participation Rate (MAY)

65.2%

65.3%

6:00

EUR

German Wholesale Price Index (MoM) (MAY)

-0.2%

6:00

EUR

German Wholesale Price Index (YoY) (MAY)

-0.4%

7:15

CHF

Producer & Import Prices (MoM) (MAY)

0.0%

0.2%

7:15

CHF

Producer & Import Prices (YoY) (MAY)

0.1%

-0.1%

12:30

CAD

Capacity Utilization Rate (1Q)

80.7%

12:30

CAD

New Housing Price Index (MoM) (APR)

0.1%

12:30

CAD

New Housing Price Index (YoY) (APR)

2.0%

12:30

USD

Advance Retail Sales (MAY)

0.4%

0.1%

12:30

USD

Retail Sales Less Autos (MAY)

0.3%

-0.1%

12:30

USD

Retail Sales Less Auto & Gas (MAY)

0.3%

0.6%

12:30

USD

Retail Sales "Control Group" (MAY)

0.3%

0.5%

12:30

USD

Initial Jobless Claims (JUN 7)

346K

12:30

USD

Continuing Claims (JUN 1)

2952K

12:30

USD

Import Price Index (MoM) (MAY)

0.0%

-0.5%

12:30

USD

Import Price Index (YoY) (MAY)

-2.6%

14:00

USD

Business Inventories (APR)

0.3%

0.0%

17:00

USD

US to Sell 30-Year Bonds (Reopening)

22:30

NZD

Business NZ PMI (MAY)

54.5

22:45

NZD

Food Prices (MoM) (MAY)

0.2%

GMT

Currency

Upcoming Events & Speeches

EUR

European Banking Authority (EBA) Board Meeting

EUR

Greece Unemployment (1Q)

7:10

EUR

ECB's Joerg Asmussen Speaks on Euro Economy

8:00

EUR

European Central Bank Monthly Report

12:15

GBP

BoE's Paul Tucker Speaks on U.K. Economy

14:30

CAD

BoC Publishes Financial System Review

15:30

EUR

ECB's Benoit Coeure Speaks on Euro Economy

EUR

ECB's Jens Weidmann Speaks on Euro Economy

23:50

JPY

Bank of Japan Meeting Minutes

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

15.0000

2.0000

10.7000

7.8165

1.3650

Resist 2

7.5800

5.8950

6.1150

Resist 1

12.9000

1.9000

10.2500

7.8075

1.3250

Resist 1

6.8155

5.8300

5.9365

Spot

12.8336

1.8926

10.0887

7.7642

1.2538

Spot

6.5510

5.6019

5.7784

Support 1

12.0000

1.6500

9.3700

7.7490

1.2000

Support 1

6.0800

5.6075

5.7400

Support 2

11.5200

1.5725

8.9500

7.7450

1.1800

Support 2

5.8085

5.4440

5.5000

INTRA-DAY PROBABILITY BANDS 18:00 GMT

Currency

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

GBP/JPY

Resist. 3

1.3426

1.5775

97.98

0.9354

1.0277

0.9597

0.8016

130.44

153.09

Resist. 2

1.3398

1.5743

97.62

0.9328

1.0257

0.9565

0.7987

129.96

152.59

Resist. 1

1.3369

1.5710

97.27

0.9302

1.0236

0.9534

0.7958

129.49

152.08

Spot

1.3311

1.5646

96.56

0.9250

1.0196

0.9471

0.7901

128.54

151.08

Support 1

1.3253

1.5582

95.85

0.9198

1.0156

0.9408

0.7844

127.59

150.08

Support 2

1.3224

1.5549

95.50

0.9172

1.0135

0.9377

0.7815

127.12

149.57

Support 3

1.3196

1.5517

95.14

0.9146

1.0115

0.9345

0.7786

126.64

149.07

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

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