FX markets have settled into a comfortable range ahead of Thursday�s central bank announcements and Friday�s NFP. The market moving event this morning came from New Zealand, as Fonterra�s (the countries largest dairy cooperative) last online auction results pushed milk prices up a whopping 26% and caused the NZD to strengthen across the board. And from Canada, verbal wrangling continued, as Canada’s Finance Minister Flaherty warned the markets that recent appreciation of the CAD had not gone unnoticed and measures could be taken to its current direction. The most important news in the US should be the ADP employment change data, which is expected to show a lesser job loss reading, which could give some hope to recovery measures being taken ahead of the Non-farm payroll data due on Friday, along with the unemployment rate expectation.
[B]News and Events:[/B]
FX markets have settled into a comfortable range ahead of Thursday�s central bank announcements and Friday�s NFP. Risk correlated trades were basically unchanged, while equity markets in Asia and Europe are flat. We doubt even today historically volatile ADP report can break these consolidations patterns we are seeing across FX. The market moving event this morning came from New Zealand, as Fonterra�s (the countries largest dairy cooperative) last online auction results pushed milk prices up a whopping 26% and caused the NZD to strengthen across the board. And from Canada, verbal wrangling continued, as Canada’s Finance Minister Flaherty warned the markets that recent appreciation of the CAD had not gone unnoticed and measures could be taken to its current direction. As expect, the USDCAD rallied on the news, reaching 1.0780. Clearly, there is a growing concern among officials in the commodity bloc that continued currency appreciation could significantly hurt their fragile recovery. Today, the important news to note would be house prices in the UK where positive data would boost the already faltering housing markets and give some hope to the economy. The most important news in the US should be the ADP employment change data, which is expected to show a lesser job loss reading, which could give some hope to recovery measures being taken ahead of the Non-farm payroll data due on Friday, along with the unemployment rate expectation. Tomorrow, the BoE is expected to hold rates steady at 0.50%, which is in line with market forecasts… It is most likely that the central bank will adopt a “wait and see” approach, following the aggressive measures taken in the form of asset purchases over the last several months. A key indicator suggesting that any additional quantitative easing would occur on a much more conservative scale is the 150bln Sterling quota for gilt purchases, which has not been met… Fulfilling the quota for gilt purchases will probably happen before any additional monetary policy action will be announced and this is supportive of the GBP. The UK economy remains under pressure, with rising unemployment at 7.6% vs. 7.4% estimated. Other leading indicators such as a negative GDP of -0.8% and industrial production at -11.9% pose significant challenges for UK policymakers and the deployment of further quantitative easing may prove detrimental to the long-term outlook in region.
[B]Today’s Key Issues (time in GMT):[/B]
07:58 EUR Final Services PMI, index Jul 45.6 exp
07:58 EUR Final Composite PMI, index Jul 46.8 exp
08:28 GBP Services PMI, index Jul 51.8 exp
08:30 GBP Industrial production, % m/m (y/y) Jun 0.0 (-11.4) exp
08:30 GBP Manufacturing output, % m/m (y/y) Jun -0.1 (-12.1) exp
09:00 EUR Retail sales, % m/m (y/y) Jun 0.3 (-2.3) exp, -0.4 (-3.3) prior
12:15 USD ADP payrolls (chg, k) Jul -350 exp, -473 prior
14:00 USD Factory orders, % m/m (y/y) Jun 0.5 (-24.1) exp, 1.0 (-22.9) prior
14:00 USD ISM non-mfg composite, index Jul 48.0 exp, 47.0 prior
22:45 NZD Employment % q/q Q2 -0.8 exp, -1.1 prior
22:45 NZD unemployment rate % Q2 5.6 exp, 5 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] As mentioned yesterday, consolidation is the name of the game for a day or two in anticiption of Friday’s Non-Farm Payroll numbers. EUR USD has found resistance at the trend channel at 1.4430 / 45 and somehow picked up support from a one off high back in December 08 at 1.4379. The prior breakout level at 1.4338 still remains as the major support level and 1.4291 just below there but for intraday players there is a nice range between 1.4379 and 1.4430 / 45 that should provide some easy pickings for 50 pips or so until the ADP number this afternoon.
[B]GbpUsd:[/B] Looking again at the longer term picture it is easy to see why 1.7029 is such a big hurdle to clear and at the same time why it was so easy to get there after clearing 1.6663. There is huge RSI divergence on the daily chart suggesting that the move was completely stop related and the pair looks like it is unlikely to catch a strong bid until it retests the break out level back down at 1.6663. The sweet spot for the medium term bulls is all the way back down at 1.6272 and for the shorts 1.7029 is looking attractive with the short sweet spot at 1.7309 which, as mentioned before, is a 50% retracement of the entire 2 year down move and the last of the 2 year downtrend channels. Intraday traders expected to play yesterdays range between 1.6890 and 1.7005.
[B]UsdJpy:[/B] The pair is getting a little congested now between the 4 week uptrend and the 2 year downtrend channel. The long entry level highlighted yesterday at 94.44 was followed by a swift move to 95.42, just slightly above the resistance at 95.29 but still not making a new high against the earlier move in the Far East overnight (95.46). Long buying now anticipated at 94.78 but upside remains capped until we break that high from yesterday so expect intraday trading between the two levels, 94.78 and 95.30 / 45.
[B]UsdChf:[/B] Typical of USD CHF, range bound action is back in play with intraday buyers of the pair (and potentially the SNB) at 1.0578 and the prior breakdown level at 1.0632 still providing good supply, building a short term resistance level. Only a move back above 1.0654 could give the USD bulls any hope of getting back into the old ranges. To the downside a move below yesterdays low at 1.0563 and the 2008 closing low at 1.0556 could be very costly for the SNB and those riding their coat tails but the support is extremely significant. If it does go then the next major level is 1.0325. Intraday, expect 50 or 60 pips rangebound action between 1.0573 and 1.0632
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland