Consolidation on Majors ahead of G8 Meeting

The Yen gained broadly on Monday. The dollar hit a five-week low against the yen as fallout from last week’s grim U.S. jobs data unnerved investors who had bet on an improving world economy. The Dollar briefly hit a two-week high against the Euro but gave up gains as the Dow and S&P 500 staged a late return to positive territory. The market mood, though, remained cautious. The USD was down 0.8 percent at 95.30 Yen after hitting a five-week low of 94.66 Yen. Markets recovered from the lows set early in the London session as US equities ground out small gains on the back of a slightly better than expected US services ISM number and a good performance by defensive stocks leading into the 2nd qtr earnings season. The Australian dollar, the biggest gainer among major currencies this year as investors crept back into higher-yielding, higher-risk assets, was steady at 0.7960 just before the Reserve Bank of Australia’s monthly policy meeting. The RBA was widely expected to keep rates on hold at 3 percent, among the highest short-term rates of developed economies and one of the reasons for the Aussie’s nearly 13 percent surge against the U.S. dollar this year.

[B]News and Events:[/B]

The Yen gained broadly on Monday. The dollar hit a five-week low against the yen as fallout from last week’s grim U.S. jobs data unnerved investors who had bet on an improving world economy. The Dollar briefly hit a two-week high against the Euro but gave up gains as the Dow and S&P 500 staged a late return to positive territory. The market mood, though, remained cautious. The USD was down 0.8 percent at 95.30 Yen after hitting a five-week low of 94.66 Yen. On the back of a weak session for Asian and European equities risk currencies were sold aggressively with GBP and AUD both testing and breaking the bottom of recent ranges only to grind back over the course of the NY session to finish largely unchanged. Markets recovered from the lows set early in the London session as US equities ground out small gains on the back of a slightly better than expected US services ISM number and a good performance by defensive stocks leading into the 2nd quarter earnings season. Asian stocks edged up slightly this morning but struggled after a slide the previous day, while the yen held gains against higher-yielding currencies as investors doubt the speed of the global economy’s recovery. The dollar was mostly steady and has held its ground in the past few weeks as riskier assets have stumbled, with the U.S. currency favored as a safe haven when market players strike a cautious footing. The dollar was little changed at 95.36 yen, while the Euro drifted sideways at 1.3960. The New Zealand dollar, which has surged along with its Australian counterpart despite a much weaker economy and record low interest rates, was steady at 60.60 yen after hitting a five-week low of 59.30 yen on Monday. The Australian dollar, the biggest gainer among major currencies this year as investors crept back into higher-yielding, higher-risk assets, was steady at 0.7960 just before the Reserve Bank of Australia’s monthly policy meeting. The RBA was widely expected to keep rates on hold at 3 percent, among the highest short-term rates of developed economies and one of the reasons for the Aussie’s nearly 13 percent surge against the U.S. dollar this year.

[B]Today’s Key Issues (time in GMT):[/B]

09:30 GBP Industrial Production (MoM) MAY 0.20% vs. 0.30%
09:30 GBP Industrial Production (YoY) MAY -11.30% vs. -12.30%
09:30 GBP Manufacturing Production (MoM) MAY 0.20% vs. 0.20%
09:30 GBP Manufacturing Production (YoY) MAY -11.80% vs. -12.70%
11:00 EUR Factory Orders MoM (sa) MAY 0.50% vs. 0.00%
11:00 EUR Factory Orders YoY (nsa) MAY -31.20% -37.10%
22:00 USD ABC Consumer Confidence JUL -51 vs. -51

[B]The Risk Today: [/B]

[B]EurUsd:[/B] Risk reduction and a slow unwind of bullish sentiment following the break and close below trendline support last week point to a neutral/negative near-term outlook this week. While capped below 1.4040 we are expecting the downside of the range to be probed but the wider 1.3720 to 1.4200 range is likely to hold for at least this week and possibly next.

[B]GbpUsd:[/B] Cable snap-backed sharply yesterday despite breaking down out of the 1.6180 to 1.6600 range. However, with daily and weekly momentum charts pointing to a major top we suspect the downside will be revisited again this week.

[B]UsdJpy:[/B] Heavy pressure breaks below 94.88, now focus on 94.45 near-term ahead of 93.86 key support. Key resistance at 97.19.

[B]UsdChf:[/B] USD/CHF is locked between trendlines at 1.0630 and 1.1020. Until price moves closer to this large range, relatively random price action makes this is one market we are happy to avoid for the time being.

[B]Resistance and Support:[/B]

By[B] Loic Bondiguel [/B]- ACM Advanced Currency Markets, Geneva, Switzerland