Major European equity markets are now trading higher, as we are seeing a slight correction in risk appetite. In Australia unemployment rate continued to creep higher to 5.8% although lower then the markets expectation of 5.9%. Two currencies pairs that we are specifically monitoring are the EURCHF and USDJPY for signs of offical intervention. The scheduled highlight of the trading day will be the BoE rate decision. It is universally expect that the MPC will hold the bank rate at 0.50%, speculation is swirling around whether the BoE will expand its assets purchasing program.
[B]News and Events:[/B]
Major European equity markets are now trading higher, as we are seeing a slight correction in risk appetite. With this shift (which we expect is temporary) all the usually suspects are trading higher. Gold and Crude wti are both currently higher, trading at $915.44oz and $61.20bll, respectively. And in the FX markets, our risk barometers EURJPY has reversed sharply off yesterday’s 127.03 daily low, while the AUDUSD is benefiting from better unemployment data and rally in commodity prices. The recent sell off in risky assets was created without any major events or news, but rather the sudden erosion of the global recovery story. This swift change in sentiment will demand that we keep our trades nimble as today’s correction could easily turn into a full blown trend reversal. Two currencies pairs that we are specifically monitoring are the EURCHF and USDJPY due to the fact that the currently trading level are making officals nervous. Clearly, the SNB has not just given up on its deflation defence through FX intervention and the hastily decline to 1.5135 will surely make SNB Chairman Roth uncomfortable. The last thing Japan’s economy needs right now (given the sluggish growth and negative inflation forecasts) is a stronger JPY, but that just what the markets is giving it. Even if you discount rumours of large option barriers being penetrated, amplifying the JPY move higher, that still doesn’t negate the overall trend in JPY-cross. With the USDJPY at 93.10, we need to begin considering the BoJ tolerance levels. Japanese officials have already begun to make comments on recent FX movements. However, these statements have had little effect. We expect that it is highly likely, should the USDJPY stay below 93.00/50, that Japanese officials will aggressively verbally intervene. The scheduled highlight of the trading day will be the BoE rate decision. It is universally expect that the MPC will hold the bank rate at 0.50%, speculation is swirling around whether the BoE will expand its assets purchasing program. Currently there are compelling arguments on both sides. In short, those against expansion mention that there is a natural lag in economic indicators (and fragile signs that a bottom has been reached) that has yet to fully register past QE. Those for further expansion, choose to focus on the slow bank lending and downside risk of the economy. In our view, a pause in purchase would halt stimulus at a vital moment, a mistake Japan made in the 90�s and one that the BoE will not risk. Overall, the markets generally penalize a currency for taking a unconventional monetary policy path and should the MPC vote to expand we should see a weaker Sterling.
[B]Today’s Key Issues (time in GMT):[/B]
00:00 EUR Global: G8 meeting to be held in Italy (to 10/7)
08:00 GBP ECB monthly bulletin published Jul
08:30 GBP Trade balance, � bn May -6.7 exp, -7.0 prior
12:00 ZAR BoE MPC Bank Rate decision, % Jul 0.50
12:00 USD Manuf. Production, % y/y (nsa) May -16.8 exp, -21.6 prior
12:30 USD Initial jobless claims, thous (4wk mvg avg) 04-Jul 610 (617) prior
13:00 USD Fed Governor Duke (FOMC voter) speaks at an FDIC conference
14:00 MXN Wholesale inventories, % m/m (y/y) May -1.0 (-7.4) exp, -1.4 (-6.2) prior
14:00 JPY CPI, % m/m Jun 0.20 exp, -0.29 prior
23:00 Corporate goods price index, % y/y Jun -5.4 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] A sideways consolidation day is the trend, or lack of. Thusrsday we should be seeing the single currency comfortably in it’s 1.3825 to 1.4050 range. A relatively calm instrument at the moment given the moves elsewhere
[B]GbpUsd:[/B] Moving averages show cable to be mildly bearish, but its a grind lower. We are in a wide range, but see risk to the downside and in the medium term the 1.5800 level to slow the slide, on top 1.6370 the top. On the day see 1.6260 to provide the cap and 1.6000 the low
[B]UsdJpy:[/B] Yesterday saw the USDJPY break out of its previous range that has remained intact for the past five months. Once 94.00 gave way conclusively the head and shoulders formation gave way to the downside. We see a continuing support for a strong Japanese currency, and further if we stay below the 94.00 area we see a much lower usdyen in the upcoming months
[B]UsdChf:[/B] A sideways moving, rangebound USDCHF sits in it’s two months old 1.1020 to 1.0630 zone. We see unexciting price action and choose to avoid this pair until a concerted move in either direction is seen. There is a small trendline which comes in at 1.0780/85 which could provide small intraday support.
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland