Markets witnessed a slight reversal in risk appetite yesterday, suggesting that perhaps the current risk rally is running out of steam. In the Asian session, reports that two major Chinese banks were capping their lending for 2009 lead to concerns that the engine of the global recovery might attempt to reign in expansion. We expect the sentiment trade to depend heavily on today�s US durable good orders. Markets are anticipating a weak headline and decent core figure, which we believe will be supportive of risk taking and, therefore, equity markets. In the evening, the RBNZ is universally expected to hold rates at 2.50%, so the focus will be on the accompanying statement.
[B]News and Events:
Markets witnessed a slight reversal in risk appetite yesterday, suggesting that perhaps the current risk rally is running out of steam. From a fundamental standpoint there wasn�t really much to point the finger at. In the US session, economic data was mixed with Conference Board consumer confidence index falling short of expectations printing at 46.6 vs… 49.0 exp. And in the Asian session, reports that two major Chinese banks were capping their lending for 2009 lead to concerns that the engine of the global recovery might attempt to reign in expansion. Asian equity indexes followed the US lower, with EM powerhouse Shanghai index taking a big hit down 5.01%. Risk correlated trades were sold off and USD gained, as traders partly covered their massively short positions. The AUD, with the highest correlation to China, dropped sharply from 0.8260 to 0.8170. From a top down technical standpoint most of the USD crosses were attempting to break significant levels and were showing seriously over stretched positions. Specifically, the EURUSD was only 30 pips away from year high resistance at 1.4340, before sharply correcting to 1.4115. Overall, the lack of real drivers and lack of a follow through on yesterday’s sell-off makes us suspect that it�s not the risk reversal markets are buzzing about, but only a temporary pullback before a run at new highs. Currently, European stocks are in positive territory and losses in commodities have moderated. We expect the sentiment trade to depend heavily on today�s US durable good orders. Markets are anticipating a weak headline and decent core figure, which we believe will be supportive of risk taking and, therefore, equity markets. In the evening, the RBNZ is universally expected to hold rates at 2.50%, so the focus will be on the accompanying statement. Two questions haunt NZD traders: first will the RBNZ ease off their easing monetary policy language (following the lead of the RBA) and/or will they attempt to verbally intervene to weaken the NZD which they have stated could hobble NZ fragile recovery. Because of our belief in the current risk rally, we are looking for buying opportunities on dips, specifically in AUD and NZD.
Today’s Key Issues (time in GMT):[/B]
00:00 PLN NBP interest rate announcement, % 30-Jul 3.50 prior
08:00 EUR ECB Bank lending survey published
08:30 GBP BoE mortgage approvals, K Jun 47.0 exp
08:30 GBP BoE net mortgage lending, � bn Jun 0.6 exp
08:30 GBP BoE net consumer credit, � bn Jun 0.3 exp
08:30 GBP BoE sectoral breakdown of M4 and M4 lending Jun
09:30 ZAR CPI, % y/y Jun 8.0 prior
12:30 USD Durable goods new orders, % m/m (y/y) Jun -0.5 (-25.0) exp, 1.8 (-23.5) prior
12:30 USD Core capital goods orders, % m/m (y/y) Jun 4.7 (-22.3) prior
12:30 USD FRB of New York President Dudley (FOMC voter) speaks on "Factors Driving U.S. Economic Growth and Inflation"
18:00 USD Fed Beige Book published
21:00 NZD RBNZ rate decision % Jul 2.50 exp / prior
22:00 USD Part 3 of town hall-style meeting with Fed Chairman Bernanke airs on PBS’s The NewsHour with Jim Leher
23:50 JPY Industrial production, % m/m Jun 2.4 exp, 5.7 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] Yesterday’s concern over the downtrending RSI turned out to be of great importance as the pair failed to move higher with any conviction and sellers stepped in, taking advantage of the poor technical set up for the bulls. Since then we have now moved back into the range bound territory between 1.4111 / 38 and 1.4240 and are now looking at the inverse picture of yesterday with bullish RSI divergence on the 60 minute chart (13:00 European Time). We mentioned last week a sweet spot for longs at 1.4051 which should see huge bids from the longer term players if reached, but for now expect range bound trading between the two levels, 1.4111 as a floor and 1.4240 as a ceiling. 1.43387 remains the key level to be broken on the upside.
[B]GbpUsd:[/B] At last cable received some long overdue action and the bears took advantage of the 2 year downtrend pressure at 1.6600 sending the pair to the lower range support at 1.6381 (day low of 1.6390). After a solid bounce in Asian trading up to 1.6467 the pair is now testing the 1.6381 level once again which coincides with the 2 week uptrend channel. Stochastics and RSI on the 60 minute are over sold at 24.6 and 38.8 respectively so the level should hold intraday with first resistance at 1.6435 and 1.6437 thereafter. A break of the 1.6381 support and uptrend could send the pair to 1.6272 in quick fashion.
[B]UsdJpy:[/B] A similar set up on USD JPY where the long term downtrend and resistance was becoming laborious. However, after looking like we would test 93.86 the pair showed intraday bullish RSI divergence this morning whilst simultaneously approaching the 3 week uptrend and in turn sent it in a straight line through all resistance towards the major failure level of yesterday at 95.29. Expect MAJOR intraday resistance at that level with intraday momentum indicators getting overbought and a flurry of selling from those caught in the pair from yesterday. Medium term the trend remains up so keep an eye on 94.447 as a long entry.
[B]UsdChf:[/B] We mentioned yesterday the bulls should find some comfort in the range moving up a level and the range bound action has now diminished on an intraday basis with the pair breaking higher to the major resistance at 1.0817. There is a whole heap of noise between 1.0817 and 1.0891 and looking at this newly established 7 day uptrend 1.0817 also marks the top of that move. Short sellers anticipated to show the hands at this level on the first sign of weakness and support from the bulls can be expected back down at 1.0707 and 1.0739.
[B]Resistance and Support:
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland