The last 24hrs in the FX markets have been quite volatile, while other assets classes have been relatively stable, hinting to further volatility ahead for FX traders. Commodities like copper and crude are now close to or breaking yearly highs, equity markets continue to storm forward and the yield curve carries on steepening. Currently the rally in risky assets has stalled in front of the always important NFP release today. The market expects the smallest decline in payrolls since October at -520k vs. -535k prior reading.
[B]News and Events:
When the smoke cleared, not much really happened at yesterday’s much hyped Central Bank announcement. In fact, we would venture to say that the day’s only real fireworks occurred when rumors spread of the resignation of PM Gordon Brown and/or Alistair Darling. The GBPUSD fell from 1.6400 to 1.6090 on the false news. The once untouchable Sterling has now taken on a decidedly bearish tone. Yesterday’s aggressive selling highlights the nervousness surrounding the currency. Remember while analysis� spun clever tails to rationalize why the cable was strengthen when the S&P downgraded the counties outlook. But in reality perhaps the GBP should be punished along side the USD for fiscal and monetary irresponsibility (just ask Merkel). The EURUSD traded virtually on 1.4200 all night, there seems to be little impetus for a higher EURUSD. The head and shoulders formation we’re seeing is setting us up for a reversal trend to at least 1.4050 (next crucial support) and the NFP’s could bring the impetus for further dollar gains. The last 24hrs in the FX markets have been quite volatile, while other assets classes have been relatively stable, hinting to further volatility ahead for FX traders. Commodities like copper and crude are now close to or breaking yearly highs, equity markets continue to storm forward and the yield curve carries on steepening. Recapping yesterday’s BoE, ECB and BoC rate announcements, all left rate unchanged. The most interesting development was Trichet’s attempt to add detail to the ECB eur60bn covered bond purchase program. Perhaps sensing the markets request for an exit strategy (which Bernanke slightly touched on this week), Trichet went out of his way to stress that the ECB would develop one when the economy turned around. We are concerned that in order to appease certain EU politicians the ECB might trample the fragile recovery. Currently the rally in risky assets has stalled in front of the always important NFP release today. The market expects the smallest decline in payrolls since October at -520k vs. -535k prior reading. Interestingly the range of forecast on Bloomberg is tight which will means a surprise in either direction should have significant repercussion in the FX markets. USD trading is still counter intuitive with a US negative number positive for the USD and vise versa…
Today’s Key Issues (time in GMT):[/B]
07:50 EUR ECB President Trichet speaks
08:30 GBP Producer input prices, % m/m (y/y) May 0.7 (-8.3) exp, -1.0 (-5.0) prior
08:30 GBP Producer core output prices, % m/m (y/y) May 0.4 (2.4) prior
08:30 GBP Producer output prices, % m/m (y/y) May 0.4 (-0.4) exp, 0.6 (1.2) prior
11:00 CAD Unemployment rate, % May 7 8.3 exp, 8.0 prior
00:00 CAD Net change in employment, thous May -42.5 exp, 35.9 prior
12:30 USD Change in non-farm payrolls, thous May -550 exp, -539 prior
12:30 USD Unemployment rate, % May 9.2 exp, 8.9 prior
12:30 USD Average hourly earnings, % m/m (y/y) May 0.2 (3.1) exp, 0.1 (3.2) prior
12:30 USD Hours worked May 33.2 exp, 33.2 prior
19:00 USD Consumer credit, $ bn Apr -6.0 exp, -11.1 prior
[B]The Risk Today: [/B]
[B]EurUsd:[/B] correction yesterday remains above crucial 1.4050 level which points to a constructive and healthy up-trend for the time being, however the rounded top formation points to a strong trend reversal, crucial test at 1.4150. While range will continue for the time being NFP�s today may provide the impetus needed for a true breakout. Initial resistance at 1.4200 and 1.4269 with a cap at 1.4340 � however our mid-term view points to a 1.4450 target to the upside. On the downside initial support stands at 1.4150 with crucial floor in at 1.4050.
[B]GbpUsd:[/B] The strong correction yesterday hit the 1.6080 lvl on rumors of a reigm change in the uK. While the bullish trend remains this has put some weight to the retracement theme and has refocused the pair to the downside in the very near term. Initial support stands at 1.5915.
[B]UsdJpy:[/B] We have seen the pair trade and consolidate into a wedge formation in recent sessions as markets toyed with risk averse sentiment for sometime. If risk aversion continues to plague sentiment the Yen will erase the dollar�s recent gains. Initial support stands at 96.30 with a floor in at 95.53. On the upside 97.20 (daily cloud resistance) is the crucial test for gains with a target at 99.56 via 97.25.
[B]UsdChf:[/B] General trend is still very much bearish as retracement fails at 1.0695, however strong dollar impetus may shift bias long (medium term) if we manage to break 1.0750 which would aim for 1.0956. This said all signs point to the mid to long-term target being parity. Initial support at 1.0644.
[B]Resistance and Support:
By[B] Peter Rosenstreich [/B]- ACM Advanced Currency Markets, Geneva, Switzerland