Market analysts can�t stop doubting the recent risk rally, specifically in the equity markets yet risk appetite continues to grind higher. Global equity markets and commodities continue to head higher, while the USD & JPY remains under pressure. Yesterday saw US new homes sales improve and along with decline in housing inventories suggests that the housing market has bottomed and signals potential improvement ahead for housing. Overnight, RBA’s Stevens added fuel to the positive AUD sentiment stating, �domestic downturn may not prove to be serious; can imagine more upside risks to balance downside one�. On the docket today, markets will be watching US consumer confidence, which has the possibility to break above 50 and cause renewed USD selling.
[B]News and Events:[/B]
The lack of new information has created a challenging task, to say something interesting. Market analysts can�t stop bad mouthing the recent rally, specifically in the equity markets yet risk appetite continues to improve. Global equity markets and commodities grind higher (along with risk corrolated fx trades), while the USD & JPY remain under pressure. Roughly 25% of the S&P500 are expected to report earnings this week, yet so far 70-80%, which have reported, have beaten earning expectations. This suggest the possibility of a dismal earning season and a sudden shift in sentiment, on missed earnings are highly unlikely. Yesterday saw US new homes sales improve and along with decline in housing inventories hints that the housing market has bottomed and signals potential improvement ahead for a critical factor in the US recovery story. From a technical standpoint markets are looking very interesting. Leading the way is the S&P, which is now testing 982 (2009 highs), which puts the focus on 1000. The EURUSD and GBPUSD are approaching significant horizontal resistance at 1.4340 and 1.6745, respectively. The best FX performers are the commodity currencies with the AUD leading the charge. Overnight, RBA’s Stevens added fuel to the positive AUD sentiment stating, �domestic downturn may not prove to be serious; can imagine more upside risks to balance downside one�. Markets are now predicting the next move by the RBA will be higher, giving the AUD one of the highest interest rate in the G10 (next resistance 0.8383). The USDCAD is currently breaking horizontal support at 1.0795. Last week, BoC Governor Carney expressed reservation when CAD was trading around 1.080 / 85. However, recent remarks by Canadian Cabinet ministers and the BoC statement seem more at ease with the CAD’s strength. The powerful combination of market momentum and risk appetite with a splash of higher oil should give the CAD boost it needs to test parity. On a side note, the US-China Strategic Economic Dialogue continues today. The market had been vigilant for any Chinese comments on the USD and their desire for an alternative global reserve currency. However, the rhetoric surfacing is more likely to make for the �Feel Good� meeting of the Summer. On the docket today, markets will be watching US consumer confidence, which has the possibility to break above 50 and cause renewed USD selling.
[B]Today’s Key Issues (time in GMT):[/B]
03:00 AUD RBA Governor Stevens speaks on challenges for economic policy
07:30 SEK PPI, % m/m Jun 0.4 (2.3) exp
07:30 SEK Retail sales, % m/m (y/y) Jun -0.5 exp
10:00 GBP CBI distributive trades, reported sales Jul -12 exp, -17 prior
13:00 USD S&P/Case-Shiller 20-city home prices , % y/y May -17.9 exp, -18.1
14:00 USD Consumer confidence, index Jul 49.3 exp, 49.3 prior
16:35 USD FRB of San Francisco President Yellen (FOMC voter) speaks on the outlook for the economy and community banks
22:00 USD Part 2 of town hall-style meeting with Fed Chairman Bernanke airs on PBS’s The NewsHour with Jim Leher
[B]The Risk Today: [/B]
[B]EurUsd:[/B] The uptrend remains fully intact for EUR USD and the 1.4250 level seems to be neither here nor there, as support nor resistance ,confirming the one directional outlook for the pair. 1.4338 is still a major level to clear and while the pair is doing its best to reach and test that level, the intraday RSI is still downtrending and is a slight cause for concern. Daily RSI and stochastic remain bullish but as we mentioned yesterday a close above daily RSI 65 would be a welcome confirmation to attack 1.4338 with some sort of conviction.
[B]GbpUsd:[/B] And again!..1.6555 has capped the advance this morning with the pair overbought intraday and still struggling to show signs of confirmation on daily momentum indicators. The 2 year downtrend is now sub 1.6600 so expect further resistance in the short and medium term. Relative to some of the riskier USD trades, cable seems to be having a lengthy summer holiday.
[B]UsdJpy:[/B] As mentioned yestrday, 95.29 appears to have a little more on the supply side than the prior resistance at 94.60 / 78 and the stochastics had turned a little bearish. After attempting a break at 95.384 yesterday afternoon the market has pulled back this morning to test the 94.78 support where it has failed and triggered stops at 94.59. The next real support level short term is 94.39 / 44 which coincides with one of the lower uptrend channels established over the last few weeks. Expect short term bounce trades throughout the day on sub 60 minute time frames.
[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 in the form of range traders positioning themselves alongside the SNB at 1.0633 (major support) and locking in an easy 70 pips profit at 1.0707, although the good news for the bulls is that the bid seems to have moved higher to 1.0654 and the real resistance up to 1.0739. Range bound action continues, with 1.0633 as MAJOR support but with the RSI holding firm above the 40 mark on all short term times frames one can expect further attacks on 1.0707 and above.
[B]Resistance and Support:[/B]
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland