Yesterday, the S&P closed above 1000 for the first time since the financial crisis began. As expected, the US GDP on Friday and corporate earnings releases (UK banks) had investors rushing into risk correlated assets. RBA holding rates steady at 3.00%, as was universally expected. However, the central bank shifted from an easing bias to a neutral tone in the accompanying statement. However, today we are seeing European equity heading south and US futures are pointing to a lower open. Correspondingly, commodities are also coming off their intraday highs as markets brace for a short term correction. Today the important news would be the Personal Income and Spending readings from the US where the Income data .
[B]News and Events:[/B]
Trend of risk appetite remains intact, although we are seeing a slight pullback today. Yesterday, the S&P closed above 1000 for the first time since the financial crisis began. As expected, the US GDP on Friday and corporate earnings releases (UK banks) had investors rushing into risk correlated assets. US ISM surprised to the upside yesterday, which sent the USD and JPY lower, as good news for the US is still bad news for the USD. The EURUSD posted new 2009 highs and is on course to test its Dec 09 peak near 1.4715/20. The USDCHF is looking to trade below 1.0590, which will be decidedly USD bearish. However, today we are seeing European equity heading south and US futures are pointing to a lower open. Correspondingly, commodities are also coming off their intraday highs as markets brace for a short term correction. After today’s short pause in risk correlated asset buying, we expect to continue upwards, which will keep safe haven currencies like the USD and the JPY under pressure. Today’s news from Australia should be mid term supportive for the AUD. First was the RBA holding rates steady at 3.00%, as was universally expected. However, the central bank shifted from an easing bias to a neutral tone in the accompanying statement. At this meeting, the RBA removed the statement, “the outlook for inflation allows some scope for further easing of monetary policy.” But they also hinted that rates would stay low for an extended period of time stating “…period of sluggish (growth)” and “and growth is likely to firm into 2010.” While the markets 30bp of hikes in 2009 seems slightly over optimistic, we expect the bet is not far off. Second was the Australian Treasurer Swan announced that restrictions on foreign investment into Australia will be reduced. The AUD traded higher in the Asian session, but as the core driver in FX is still risk appetite, waning demand of risky assets send the AUD and commodity currencies lower. Today the important news would be the Personal Income and Spending readings from the US where the Income data is expected to decline by 1% (the most since 2005) and the spending levels to rise for the second straight month by 0.3%, although with consumers saving more, a drop in data cannot be ruled out which could bring in a wave of risk aversion.
[B]Today’s Key Issues (time in GMT):[/B]
07:00 NOK Manufacturing PMI, index Jul 48.7 prior
07:15 CHF CPI, % m/m (y/y) Jul -0.6 (-1.1) exp
08:28 GBP Construction PMI, index Jul 45.1 exp
08:30 GBP BoE publishes Q2 analysis of bank and building society deposits from and lending to UK residents
09:00 EUR PPI, % m/m (y/y) Jun) 0.1 (-6.6) exp
12:30 USD Personal income, % m/m (y/y) Jun -1.0 (-0.8) exp
12:30 USD Personal spending, % m/m (y/y) Jun 0.2 (-2.1) exp
12:30 USD Core PCE price index, % m/m (y/y) Jun 0.2 (1.7) exp
12:30 USD PCE price index, % m/m (y/y) Jun) (0.2) exp
13:30 USD Fed Board Governor Tarullo testifies before a Senate Banking Committee hearing, "Strengthening and Streamlining Prudential Bank Supervision."
14:00 USD Pending home sales, % m/m (y/y) Jun) 0.6 (2.9) exp
23:01 GBP Nationwide consumer confidence, index Jul � 58 exp
[B]The Risk Today: [/B]
[B]EurUsd:[/B] After breaking out of the 1.4338 level that we have discussed for the last week or so, the pair has rallied up to the mid trend channel with almost zero resistance to 1.4445. On the 4 hour chart the RSI has broken the short term downtrend and made a new high yesterday so everything is still looking rosy for the bulls. Expect long buying at 1.4338 and 1.4290 with 1.4240 likely to put a floor under any pullbacks. Intraday trend is looking for a pullback with short term and medium term trends still to the upside. .
[B]GbpUsd:[/B] After breaking one of the 2 year downtrend channels at 1.6663 we anticipated some sideways movement yesterday before breaking the 1.6751 level and making a direct move to 1.7029. As has been so frequently recorded throughout this bear market, in both FX and equities, the moves have been much faster than the market anticipated and yesterday we saw some of the same with little consolidation and a very swift move to 1.7004. The very last part of the move has signaled some divergence on the 1 hour RSI and stochastics so a pullback can be expected (as with all the dollar pairs) but the uptrend is still fully intact so expect 1.6751 and 1.6663 to provide a floor intraday with long entry at those levels in size.
[B]UsdJpy:[/B] After a fairly eventful couple of days of increased risk appetite, perhaps some of the more boring action in USD JPY has left it open to being the pair with most trading opportunities from hereon in. The medium term uptrend is intact and there is no sign of being oversold nor overbought so from here the current level looks mildly attractive (95.00) with 94.78/90 highlighted as the 4 week uptrend long entry point.
[B]UsdChf:[/B] Short entry highlighted yesterday at 1.0720 / 39 was followed by a savage sell off in USD CHF sending it below the level where the SNB have previously been seen defending CHF strength. the 1.0632 level was wiped out in one fell swoop and this morning’s action is confirming that breakdown with a retest of the level followed by yet more selling of the pair. One thing to note here is a massive RSI divergence building so any shorts should be keeping stops tight around the move back into rangebound territory at 1.0632 +
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland