With Asian and European equity markets trading higher, it seems like prophecies predicating a risk correction might have to wait another week. This week�s US economic data in US new homes sales, consumer durable good orders and the advanced estimate of US GDP are expected to come in line or above consensus, which will be supportive for risky assets While a majority of the markets attention will be focused on earnings and economic data, US-China Strategic Economic Dialogue, Fed Reserve Chairman Bernanke’s PBS town hall and US Treasury note auctions will also grab the FX market’s interest.
[B]News and Events:[/B]
With Asian and European equity markets trading higher, it seems like prophecies predicating a risk correction might have to wait another week. Overall, the events of this week are not expected to rock the risk correlated trade boat, although signs of a potential reversal are growing clearer. AUD continues to catch a bid on the 2 week uptrend and is now approaching the Long Term cup and handle breakout at 0.8237 - 0.8250. Expecting long entries again on the uptrend and a raft of short stops in the 0.8250 region. Gold prices remained range bound, after surging from $937oz to $955oz last week. Corporate earnings will shift this week to industrials and after the last two weeks of better than expected reports, participant will probably discount any missed earnings. This week�s US economic data in US new homes sales, consumer durable good orders and the advanced estimate of US GDP are expected to come in line or above consensus, which will be supportive for risky assets. While a majority of the markets attention will be focused on earnings and economic data, US-China Strategic Economic Dialogue, Fed Reserve Chairman Bernanke’s PBS town hall and US Treasury note auctions will also grab the FX market’s interest. In regards to US-China Strategic Economic Dialogue, markets will be listening for any comments on the USD and China�s view on potential alternative global reserve currencies. However, given that this is the inaugural meeting, we expect both sides to play very nice. Overall, this week, participants will be watching and building a case for any cracks in the recent rally in risk appetite. Right now, the only people not calling the rally �irrational� are those properly positioned. And while we don�t see any singular event disrupting the recent trend, there are signals to be worried about. First, is the failure of the EURUSD top break the 1.4300 barrier, despite the massive surge in equity and oil prices last week. Second, is the CFTC statistics that EUR positions have nearly doubled over the last week, reaching the highest levels since March 2008, which also corresponds to the EURUSD peak. Third is our belief that economic and corporate data have been artificially inflated by monetary and fiscal stimulus, while benefiting from depressed forecasts. Overall, we expect risk appetite to stay buoyant, and USD and JPY (watch for a disappointing JP industrial production figure) selling to continue this week.
[B]Today’s Key Issues (time in GMT):[/B]
06:00 EUR German Import prices, % m/m Jun 0.5 (-11.2) exp
06:00 EUR Germany GfK consumer confidence, index Aug. 3.0 exp
07:30 SEK Trade balance, SEK bn Jun 9.5 prior
08:00 EUR M3, % y/y (3mma) Jun (4.0) 3.5 prior
08:00 EUR Private sector loans, % y/y Jun 1.8 prior
08:30 GBP BoE publishes Asset Purchase Facility Quarterly Report for Q2
12:00 NBH interest rate announcement, % 28 Jul 9.50 prior
14:00 USD New home sales, thous. saar Jun 354 exp, 342 prior
14:30 BoI interest rate announcement, % 30 Jul 0.50 prior
22:00 USD Part 1 of town hall-style meeting with Fed Chairman Bernanke airs on PBS’s The NewsHour with Jim Leher
22:45 NZD Trade balance NZD bn nsa Jun 0.215 exp, 0.858 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] This morning the Euro is making another fresh breakout attempt against the USD and having attacked the upside on more occasions than the downside in recent days, the appetite for risk seems to remain well intact. Look for a clear move above last week’s high at 1.4291 to give the bulls steam and as mentioned so much lately 1.4338 remains the key level for any extended rally. RSI divergence still remains intraday and on the daily chart a clearance of RSI 65 would be some good confirmation for the bulls
[B]GbpUsd:[/B] Patience must be wearing thin for those waiting for the cable breakout. 1.6550 has been tested 4 times in as many days so the rangebound action continues with a significant ceiling above there at 1.6663 thereafter. A break and close above these levels should see huge momentum to the upside but for now the only real action is intraday. Daily stochastic have turned short term bearish for the GBP but 1.6381 and 1.6272 should provide a floor.
[B]UsdJpy:[/B] Last weeks consolidation allowed the pair to break higher through the 94.60-800 level with high conviction and stops quickly propelled the market to 95.291 where the supply side is potentially much larger. Medium term the trend continues to be up with the top of the 2 week uptrend channel now approaching 95.80 where the pair should be met with more resistance. There is a distinct feel of momentum players trying their luck and seeing how far it will take them, with trailing stops on for protection, but they should be aware of the near 3 year downtrend coming over the top at 96.75.
[B]UsdChf:[/B] Friday we got the breakout we had been looking for through 1.0707 and up to 1.0765. The cap on momentum continues to come from range traders, positioning themselves alongside the expected SNB location at 1.0633 (major support) and locking in an easy 70 pips profit at 1.0707. Range bound action continues with 1.0633 as MAJOR support but expect further attacks on 1.0707 and above. A break of 1.0633 would see huge stops being triggered and a likely lead to frantic action by the SNB.
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland