Yesterday as the USD was suffering from an uneventful day, the major figure on tap the U.S. Existing Home Sales which came close to forecast at a 5.99mn pace in May, dropping by -0.3% over the month. However, more ominous was the rise in the inventory of homes for sale which spiked up to 8.9 months from 8.4 months in April. This would appear to have been driven by sellers waiting for the better months to attempt to sell but at nearly 9 months’ inventory, the downward pressure on prices will be gathering momentum and should test the industry further over the coming months.
There was another minor report from the Chicago Fed, which published its National Activity Index which was mildly improved to -0.22 in May from -0.30 the prior month ,however it is the 5th consecutive negative number. The key range is between -0.7 and +0.7 and thus the numbers are fairly steady but to the downside of the range and indicates a steady Fed policy which having a positive effect on the Greenback and may cause the USD to slightly strengthen against the majors, however if today’s figures will be weaker than expected a significant reduction of the USD all over the board is expected.
And that just about summed up the overnight session which saw the Dollar constrained into a tight range, but ending towards the low of the range. This is in line with the medium term forecast of a weakening Dollar and the numbers beginning to emerge have been less than favorable which indicates that we must wait a little longer for the Fed’s forecast of an upturn in H2 to emerge. Given the weakness in the housing market becoming more apparent this drag could last for a little while yet. Most likely we shall see the Dollar decline to my medium term targets by the end of July, possibly the beginning of August at which time the market should move into neutral mode over the summer doldrums.
We at the ForexYard dealing room expect an upcoming drop of the greenback within the next couple of days.
There was only one tidbit of news from the Euro-zone and it was confined to the German GFK consumer confidence survey. Although standing as the only pertinent survey for the European economy, the report had positive undertones and helped to establish at least a thin direction in the market heading into afternoon trading. It seems that consumers have remained increasingly confident compared to the previously noted pessimism by regional businesses. The consumer confidence report for the month of July fared far better, rising above expectations and printing an 8.4 for the German economy. Notably improvements were most seen in the index subcomponent measuring consumer demand, as the sector jumped to positive territory marking 9.1points. Next up for Euro bulls, French housing starts and Italian business confidence. However, given the blatant dollar overtones for the week, the bits of economic data will mean little in tomorrow’s session.
German consumer confidence rises to 8.4 in July, The recent figure is an improvement over the 7.4 seen in the month of June and spells further upside in the Euro currency as speculation is already pricing in a string of rate hikes by the ECB. The Euro Zone economy is interesting, when despite a run of softer economic data over the past weeks, the German consumer confidence continues to improve. Note that the July number is surveyed in early June but is labeled July since it purports to give a feel for consumer intentions in the following month. The EUR seems to be ranged trading and to gather some new forces however it is unlikely that a strengthening will ordered the EUR currency in the upcoming week.
Pound bulls were out in full force following expectations, and subsequently powerful speculation, that BOE Governor Mervyn King will maintain his hawkish stance when policy makers meet again in July. Even beyond that, speculation is now emerging that interest rates may have to extend out to another rate hike, helping the benchmark rate to climb above 6% as inflationary pressures continue to rise in the UK economy. Ultimately, the bullish notion is likely to remain in the market, helping to keep the pound sterling below the 2.0000 level.
The Japanese yen was supported throughout the overnight session following the news that interest rates may well be increased again in the Chinese economy. These two economies are very separated in economic and governmental policies, and when they are intertwined on the basis that when risk aversion hits, Chinese markets trend lower and yen carry trades are unwound.
We need to keep notice that a better visual can be read in the February 27th global rout as equity markets around the world were emptied out, helping the yen. As a result, with the Bank of Japan likely out of the picture for the moment, yen momentum will be established by market risk and not by the Japanese monetary policy. However, this week’s theme may be slightly different as economic data is in full force for the world’s second largest economy. Should figures be optimistic for a rate hike in September, yen favoritism may very well build on fundamental justification. Well, it seems that JPY strengthening won’t be surprising anyone.
[B]Technical News [/B]
On the 4 H chart we notice that the bullish trend might running ahead. The volatility increased, especially after the US dollar continued to weaken against the EUR with the EURUSD trading up to 1.3473 highs. The price should continue to move upwards in a range of 1.3400 to 1.3515. As it stands, the bullish pressure will continue to gather momentum on the EUR USD today as well.
On the 4 H chart, a rising wedge (bullish) is forming which may imply a continuation of the bullish momentum. It’s recommended to time the entrance into market with short term charts, 1.9980 seems like a strong entry point. At the moment, GPB/USD is trading in the 1.9930 to 2.0025 range. The volatility is high and we should expect to see bullish pressure on the GBP today. The uptrend should continue to the 2.0035 resistance level.
Yesterday The US dollar weakened against the Yen, the USD traded down to 123.43 lows. USD JPY is in a downtrend supported by 1H exponential moving averages. The volatility is low. Bollinger bands are tightened. We should expect to see today a continuation of the bearish configuration. 1H, 4H Elliott pattern imply that the USD/JPY will continue to gather momentum. The target is expected at 123.05
The USD CHF is in a bearish configuration. The volatility is decreasing. USD CHF moves without trend and swings around exponential moving averages (EMA 50 and 100). Bollinger bands are tightened. 1H, 4H Elliott pattern imply a continuation of the bearish pressure. The target is expected at 1.2240
[B]The Wild Card
On the 4 H chart, a decreasing wedge (bearish) is forming which may imply a continuation of the bearish momentum, the volatility is high. 0.6720 seems like a strong entry point. At the moment, EUR GBP is being traded around 0.6700 to 0.6780 range, and we should expect to see today bullish pressure on the EUR GBP. The forex downtrend should continue to the 0.6700 and the price should find a resistance below this level.