Yesterday’s moderate rally in risk-correlated FX trades is starting to stall on word that an unscheduled EconFin meeting in Brussels has failed to reach an agreement on a bailout to Greece (no official statement was released). The Finance ministers will re-convene again on 19-20 of June to see if the deadlock issue of if and how the private sector will be involved can be resolved.
EURUSD fell from 1.4498 to 1.4360 while USDCHF rallied from 0.8356 to 0.8501. While Europe is struggling to find a solution to its latest problem, Moody’s isn’t helping by announcing this morning that they are putting three major French banks (Credit Agricole, BNP Paribas and Societe General) on review for potential downgrades. The rating agency then issued the ominous warning that they “may take similar actions on other banks with direct exposures to Greece in the coming weeks, if it considers that their ratings may be inconsistent with the potential impact of a Greek default or restructuring.”
In Australia, the RBA’s Stevens seemed to have reiterated the central bank’s slightly hawkish tone and had traders dreaming of a reenergized tightening bias. AUDUSD charged to 1.0715 on the statements but since then has corrected slightly. Given the current strength of the AUD; regional tightening, a decline in commodity boom, plus restraint in fiscal and monetary policy – we are less hawkish than the market and don’t expect the RBA to move just yet. While the interest rate differential should keep the currency supported, we suspect the upside is limited as least ‘til China releases the breaks.
The CHF has recently shed its role as a second tier currency pair, discussed primarily during periods of risk aversion. With breathtaking appreciation against the USD and EUR traders are clearly taking it seriously (although we generally do a good job over covering). Investors trading the EURCHF will be watching events on Thursday carefully. First will be Swiss Q1 industrial production followed by the SNB’s quarterly Monetary Policy Assessment. It’s universally expected that we won’t see any change in the 3m CHF labor target (0.00-0.25%) so the focus will be on the accompanying press conference. Industrial Production in Q4 saw a significant increase as export demand prompted heavy capital expenditures so it will be interesting to see if the uber-strong CHF has eroded the pace of IP.
As for tightening, the slight dip in Q1 GDP, combined with a rapidly appreciating CHF and baseline inflation reading will keep the SNB sidelined. In fact, the SNB is swimming in dangerous water with few tools really at their disposal. With Strong domestic demand, a growing bubble in real-estate, ultra-cheap funding and add significant capital inflows from their risk averse neighbors (plus an already strong franc), most central banks would have a tough time navigating. Pressure is mounting for the SNB to act, but what can they honestly do? We will be listening for any remarks on strategies to manage the domestic economic and ballooning housing market yet any hint of going toward a tighten policy (or mildly hawkish tone) will immediately transfer through to further CHF appreciation. Strong fundamentals including a perpetual current account surplus, safe-haven status with an interest rate kicker, what more could a currency trader ask for. While Swiss exporters moan about the strong CHF there is little the SNB can to. The SNB paid a heavy price in attempting to protect the “SNB Put” at the mid-1.4000 lvls and are unlikely to take the same risk. At the most, we envision some old school verbal intervention however; any knee jerk EURCHF buying should be faded as the longer term prospects of the CHF look good.
For today, US data markets are anticipating falls in Industrial Production and Capacity Utilization, it will be interesting to see if the market will momentarily look away from events in Europe to address the worrying signs in the US (as they did yesterday with retails sales). Sensational summer headlines will continue to dominate directional trades and sentiment will remain in flux – although risk is clearly skewed to the downside for both the USD and EUR. A slew of important US economic indicators to be released today should highlight that the US’s fragile recovery is suffering. In addition, the fast approaching US debt ceiling crisis is just around the corner. EURUSD traders are truly caught between a rock and a hard part, so we advise all to try and play the ranges.
09:30 GBP Average weekly earnings Prior 2.3 Exp 2.3
09:30 GBP Core Average weekly earnings Prior 2.1 Exp 2.1
09:30 GBP Claimant Count Prior 12.4 Exp 6.9
09:30 GBP ILO Employment rate Prior 7.7 Exp 7.8
10:00 EUR Industrial Production Prior 0.0 M/M 5.7 Y/Y Exp -0.2 M/M 5.0 Y/Y
13:00 EUR Bini Smaghi Speaking on risk management in central banking
13:20 USD Tarullo speaking
13:30 USD CPI Prior 0.4 M/M 3.2 Y/Y Exp 0.0 M/M 3.4 Y/Y
13:30 USD Core CPI Prior 0.2 M/M 1.3 Y/Y Exp 0.2 M/M 1.4 Y/Y
13:30 USD Empire Manufacturing Index Prior 11.9 Exp 14.0
14:00 USD Tic Data Prior 24.0 Exp 35.0
14:15 USD Industrial Production Prior 0.0 Exp 0.2
14:15 USD Capacity Utilization Prior 76.9 Exp 77.0
15:00 USD NAHB Housing Index prior 16 Exp 16
22:00 CAD Carney Press conference post address to the Vancouver board of trade.
00:30 Reuters Tankan Prior -9/-4
The Risk Today: EurUsd EURUSD’s rebound rally at the start of this week finally came to a grinding halt yesterday; as the pair peaked at 1.4498 and then quickly began to fall back lower. With the choppy summer months in full swing (notorious for treacherous sideways trading), this may simply be the start of a 1.4300-14500 range; however, should we break below 1.4309 (1 Jun low), then it seems more likely we see a resumption of the broader downtrend, and should then focus on a challenge to 1.4258 (30 May low) and 1.4149 (100-day moving average). In the meantime, the topside is thick with sellers; first resistance stands at 1.4450-60 (upper edge of our downtrend channel), then 1.4550 (10 Jun high), 1.4653 (9 Jun high), and 1.4696 (7 Jun high).
GbpUsd GBPUSD definitely looks like a currency pair that has already succumbed to the summer’s sideways trading lull; but the magnitude of each oscillation still offers decent opportunities for profits to be made, even if a concerted trend isn’t in place. For now, the range ceiling is 1.6472 (7 Jun high) so we would be happy entering short positions up around 1.6450, and aiming for a target in the mid-1.62 area. On the flipside, the range floor is seen at 1.6216 (10 & 13 Jun lows), so we’d look to scale into longs around 1.6240. Should we witness a breakout to the downside, next supports stand at 1.6133 (25 May low) and then the critical 1.6060 support (24 May low). If the breakout occurs to the topside,next resistance comes into play at 1.6498 (1 Jun high) and 1.6574 (4 May high).
UsdJpy USDJPY experienced a minor sell-off yesterday, but an afternoon recovery has brought us back up to the mid-80 levels –pretty much exactly where we were yesterday morning. At present, we still view the price action as a corrective rally within a broader downtrend; but the upper edge of the downtrend channel is now not that far off, at 80.60-65. Should we manage to break higher, next resistance levels above are seen at 81.01 (3 Jun high), 81.33 (2 Jun high), 81.78 (31 May high), 82.79 (27 Apr high), 83.27 (18 Apr high), and 83.79 (15 Apr high). Our base case scenario is that the pair ascends no further than 80.70-81.00 (so that would be a great area for short entry), and then we resume our focus on the downside. Nearest supports are seen at 80.00 (psychological support), 79.57 (5 May low), 78.26 and (17 Mar low), before the all-time low 76.40.
UsdChf Like USDJPY, USDCHF experienced a surprise sell-off yesterday (to lows of 0.8349), but managed to turn around its fortunes and has now surged to fresh highs of 0.8500. What is more, there is a bullish engulfing candlestick visible on the daily chart which does suggest that the bulls are now tightening their grip on this pair. The next major levels of resistance to watch will be 0.8547 (31 May high), 0.8595 (rebound highs seen 27 May), and 0.8734 (26 May high). Should we resume a downtrend, the key support will be the all-time low 0.8328 (seen on 6-7 Jun), then below there we are wholly reliant on psychological supports like 0.8300, 0.8200 etc.
Similar Posts:
- Lack of Agreement Triggers EUR Weakness
- Riksbank Hikes Rates, Swiss Franc Surges To All-Time Highs vs. Euro
- German Growth Rejuvenates EURO
- Hawkish Fed Comments Signal A Key Shift In Sentiment
- FX Traders Waiting for Tomorrows ECB Meeting
