ASIA/EUROPE FOREX NEWS WRAP
The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) continues to build on its rebound from its lowest level since June 26, as market participants’ fears regarding dovish jawboning from the head of the Federal Reserve have been soothed following round one of his testimony in front of Congress.
While the prepared remarks for the two days of questioning were released early and sunk the US Dollar due to their dovish tilt, the Q&A portion of the questioning resulted in US Dollar strength – a trend that has become more common at these gatherings. Today, with the remarks having been released and the US Dollar already a top performer, it is possible that further gains may be likely as the morning progresses.
Elsewhere, the British Pound is working on its second consecutive day of leadership following more strong data from the 2Q’13. Although hope for stronger growth was diminished after the official Industrial and Manufacturing reports for May were released, better than expected consumption figures in context of rising prices suggests that economic activity may indeed be improving.
Nevertheless, British Pound strength may be short lived. From the onset, the intention of Bank of England Governor Mark Carney has been to clarify policy and be more transparent; the introduction of forward guidance was intended to help in the pursuit of this goal. And the goal is to let market participants know that UK interest rates will be kept lower for the foreseeable future. Yet the reaction seen in the Sterling says that ‘no additional easing’ from Carney equates to ‘tightening.’ The BoE will take note and recalibrate quickly, which should weaken the British Pound in due time.
Taking a look at European credit, strength in peripheral debt, as German yields have eroded more than US yields, has resulted in only a modestly weaker Euro. The Italian 2-year note yield has decreased to 1.668% (-4.9-bps) while the Spanish 2-year note yield has decreased to 1.920% (-7.9-bps). Similarly, the Italian 10-year note yield has decreased to 4.437% (-5.3-bps) while the Spanish 10-year note yield has decreased to 4.634% (-8.1-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:50 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.19% (+0.16%prior 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: No change: “with back-to-back Hammers on the daily chart amid price recovering the 50% retracement of the July low/high, it appears that a retest of the critical 1.3175/245 zone may be necessary before another dip. This zone has been approached but not yet broken, indicating that that “short-term price action is thus biased lower unless $1.3200/10 is breached.Overall, a [weekly] close below 1.2800 tentatively triggers the broader H&S pattern, whose measured move points to a return to the June 2010 lows near 1.1875. A break of 1.3175/245 puts 1.3300 and 1.3400/20 in focus.”
USDJPY: No change as prices have ranged the past five days: “The rejection of the 76.4% Fib retracement at ¥101.35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. …longs preferred into early next week. Indeed, the 50% retracement of the June low to July high at 98.75 held as support and the pair has already bounced higher; a run at 102.00 shouldn’t be ruled out this week. A daily close below 98.75 negates this bias; a move to 97.00 would be anticipated on a reversal lower.”
GBPUSD: While the ‘big picture’ move towards $1.4225/40 is underway, the first Fibonacci extension objective at 1.4850/53 was reached and has produced a rebound. Resistance found at 1.5170/80 (21-EMA, 23.6% Fib January high to July low) broke earlier, biasing price higher into 1.5275/300 (July highs, 55-EMA). A rebound could see the pair back up towards 1.5390/400 (38.2% Fib), which has proven to serve as both support and resistance since April.
AUDUSD: No change: “Despite chopping around and through said level, the AUDUSD has more or less held the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie...A Bullish Broadening Wedge may be forming at the lows as a base; 0.9750/75 would be the target on a close above 0.9415.”
S&P 500: No change: “Now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60. Gains have accelerated, with the S&P 500 achieving the 88.6% Fib retracement at 1672/75 overnight; a test of the yearly and all-time high at 1687.4 shouldn’t be discounted yet.1640 is key support for bulls.”
GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192.” It should be noted that the rally off of Friday’s low has produced a maximum of +10.02% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.
--- Written by Christopher Vecchio, Currency Analyst
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