ASIA/EUROPE FOREX NEWS WRAP
The US Dollar is a top performer so far this week, but the next few days are guaranteed to bring about volatility that could see the world’s reserve currency fall from near-first to last. Today, there are numerous important US data and events on the calendar, with two stalwarts in their own right: the 2Q’13 GDP report; and the Federal Reserve’s July policy announcement.
Ahead of the Fed, the US Dollar may be set up for further weakness as the 2Q’13 GDP report is expected to come in soft at +1.0% from +1.8% annualized. The report, however, isn’t an accurate indicator of the strides made in recent months in consumption trends, the housing sector, and the labor market; there was a material impact of the government’s austerity measures on overall growth.
However, with the major chunk of tax hikes and spending cuts in the rearview mirror, these fiscal headwinds should fade, paving the way for a stronger 2H’13 – a trend that the Fed will note later today. Fed policymakers are debating when to taper QE3, but also want to differentiate “tapering” from “tightening” – higher US yields have proven to be negative for the fragile housing market recovery.
The taper talk has been mostly positive for the US Dollar as it has stoked higher US Treasury yields, but currencies like the Euro and the Japanese Yen have been rather resilient in recent weeks; these two currencies should benefit should the Fed strike a dovish tone. On the other hand, with the Bank of England meeting tomorrow, a hawkish-tilted Fed could see the GBPUSD be a leader to the downside.
Taking a look at European credit, peripheral yields are softer in the wake of this morning’s Euro-Zone inflation data. The Italian 2-year note yield has increased to 1.553% (+1.1-bps) while the Spanish 2-year note yield has decreased to 1.878% (-1.0-bps). Similarly, the Italian 10-year note yield has decreased to 4.391% (-0.6-bps) while the Spanish 10-year note yield has decreased to 4.633% (-1.1-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:30 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.35% (+0.24%prior 5-days)
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TECHNICAL ANALYSIS – CHART OF THE DAY
GBPUSD – The pair is trading back to channel support that guided the pair off of the March lows, coinciding with the 23.6% Fibonacci retracement of the yearly high/low move; $1.5150/75 is eyed. A break below eyes a move to 1.5000 as former daily RSI trend support comes under pressure. Overall, the big picture calls for a move lower into 1.4225/40, the 100% extension off of the yearly high to the March low, extension drawn to the June high; the 61.8% extension at 1.4816 held as support on July 9 (low was 1.4815).
--- Written by Christopher Vecchio, Currency Analyst
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