Daily Forex Market overview by IFC Markets

[Akriti]

EUR/USD Mixed on Improved PMI Data in EZ and US, US Dollar Higher

European PMIs positively surprised market participants on Wednesday with EZ Manufacturing PMI rising above 50 for the first time since July 2011, providing an early indication that recession could come to an end. European stocks closed yesterday in positive light with FTSE 100 rising by 0.35%, DAX up by 0.78% and CAC gaining 1.01%. The Euro versus the US dollar initially advanced as high as 1.3253 following PMI releases but then came down again as US data positively surprised as well markets.

US Manufacturing PMI stood at 53.2, higher than expected at 52.5 and that supported the greenback in two ways, firstly due to its direct positive effect and secondly through increasing chances of FED tapering its bond buying program. In addition, US New Home Sales increased by 497k in June, more than anticipated and up from revised 459k, further supporting the greenback. Eventually the EURUSD dropped to 1.3177, as the US dollar was gaining power, early on Thursday though the currency pair retraced to 1.3211. We observe continuous improvement in US fundamentals and that could easily refresh speculation of FED reducing asset purchases lifting its currency value. Moreover, technically speaking on the 4-hour chart the US dollar Index found support around the 61.8% of the 80.51 to 84.73, at 81.90, therefore since technicals and fundamentals coincide we expect the greenback to gain ground against its major counterparties in the following trading.

The Aussie against the US dollar was sliding yesterday, falling from resistance at 92.96 as Chinese sluggish HSBC PMI data indicated lower economic activity in its most important trading pattern,followed by US dollar strengthen, the pair was pushed to fresh weekly lows at 0.9133. The British pound against the US dollar it has been in sideways trading between 1.5393/1.5300 with preliminary GDP data for the 2nd quarter coming out today, expected to increase by 0.6%, higher than previous 0.3%. Lower growth than 0.6% would weigh on sterling and the lower barrier at 1.5300 could be penetrated shifting focus to next support at 1.52.

 

[Akriti]

Japan’s CPI on Its Path to 2%, Eyes Turn on Next Week FED Decision

Japanese inflation data indicated that National CPI excluding Food increased to 0.4% for the month of June, higher than expected at 0.3%, also National CPI excluding Food and Energy released higher than expected and better than previous month but still remains negative at -0.2%. Despite improvement in inflation and being on the right path for achieving 2% target set by Bank of Japan, NIKKEI 225 dropped by 2.68%. The Japanese Yen though strengthened as the BOJ stimulus program appears successful with chances for further monetary steps decreasing. Thus the USD/JPY retreated to 98.62 weighing on NIKKEI since they have been previously positively correlated. The pair is expected to move towards 2-week low at 98.28 amid intraday bias remains to the downside, testing daily reversal neckline.
More: http://www.ifcmarkets.com/en/market-overview/show/1470

 

[Akriti]

All Eyes on FED, ADP Report and GDP Data, FX Market Remains Mostly Flat

We wouldn’t be so wrong if we say that the trading week starts from today. On Monday and Tuesday the majority of FX pairs were barely changed and today’s US ADP report, US GDP and FOMC are expected to wake up major pairs. Except the GBP/USD that dropped to downside boundary at 1.5220 this week and the AUD/USD returned to almost 3-year low at 0.9031, the rest of greenback’s major peers remain in flat channels.

The ADP report would reveal some clues about jobs creation in July providing an early signal for usually the most volatile economic release, the Non-Farm Payrolls on Friday.
[link deleted]

 

[Akriti]

Greenback Pares Earlier Losses Due to Unexpected Dovish FED Tone

The Federal Reserve as it was expected left key rate unchanged at 0.0-0.25% and the asset purchases the same at $85b per month. At its FOMC statement, the FED said that inflation is persistently below 2% target and that could place at risk the economic performance and stands prepared to increase or reduce asset purchases to keep monetary accommodation appropriate. In general, it used the same language like in previous meetings, disappointing investors that were expecting it to sound more hawkish than the previous meeting.
[link deleted]

 

[Akriti]

Greenback Gains Ground Ahead of NFP Report

The US dollar on Thursday and early on Friday gained against the most of its peers due to ISM Manufacturing PMI released at 55.4, stronger than forecasts at 52.1 and surprisingly better Jobless Claims. The FED decided not to touch on asset purchases program giving a dovish tone on its statement on Wednesday but there is an extra focus now on economic data until next meeting. Early signs indicate that macros are going to be nicely improved. Next major release is for US Non-Farm Employment for July expected to increase by 184K. The US dollar index after finding support at 81.38 climbed back to previous resistance at 82.12 and breached that during US session rising as high as 82.43, ahead of the NFP the index is more likely to remain unchanged.

[link deleted]

 

[Akriti]

Risk Sentiment Worsens as CHN Markit Composite PMI Displays Contraction

Early on Monday’s opening currency markets participants appear less willing to take risk, with the USDJPY falling to 98.38 as traders prefer a safer currency. After Friday’s disappointing US NFP the greenback kept its downside bias, losing against its major counterparties with the US dollar index falling to 81.80 after drawing a resistance at 82.43. Moreover, the HSBC Market PMI Services for July stood at 51.3 the same like in June, indicating expansion in July since it is above 50, defying global concerns over Chinese weakening economic activity. However at Markit report Composite PMI signaled a contraction in July, also it is said that business decreased and the Services PMI remained unchanged due to profit margin squeeze, meaning prices dropped to support demand. The latter added pressure on risk appetite inducing further traders to abandon riskier assets, as a consequence NIKKEI 225 closed lower by 1.44%.

Elsewhere Australian Retail Sales disappointed displaying zero change in June while it was estimated to increase by 0.4%. In addition, Reserve Bank of Australia is deciding tomorrow about its monetary policy and is forecasted to hold its key interest rate at 2.75%, however for June Unemployment rate increased to 5.7% and CPI remained low at 0.5% while Housing sector showed weakness. RBA Governor the previous Tuesday said that investments in mining are going to fall meaning that its contribution to growth will drop and for that reason would like to see pick-up in other sectors like in business and housing sector which were weakening. Due to the latter there is some speculation for a rate cut to 2.5%. Earlier today the Aussie against the US dollar dipped to support at 0.8847 but now is bouncing up, currently at 0.8902. We highly anticipate RBA’s decision considering that is most likely to hold key rate unchanged however we are concerned about recent negative data and slight dovish comments by Glenn Stevens, RBA’s Governor.

 

[Akriti]

RBA Cut Key Rate to 2.5% Still AUDUSD Gains Ground

The Reserve Bank of Australia cut key rate by 0.25% to a new record low at 2.50%. At its statement the RBA though did not sounded as dovish as expected providing some support for its currency. More specifically Glenn Stevens said that growth has been a bit below trend over the past year, unemployment rose while inflation remained low providing space for rate cut. Lastly said for forward guidance, the policy would be adjusted as needed to foster sustainable growth after assessment of the outlook with inflation consistent with its target. Indicating that RBA does not plans to ease further this level of accommodation. Still, market participants have been expecting more dovish comments by RBA and that could explain AUD/USD advancement from 0.8904 to 0.8988. In contrary Aussie Trade surplus was at 600 million in June, lower than expected but higher from previous month trade surplus, while House price Index surprisingly increased by 2.4% in June from 0.8% the previous month.

The greenback was weighed by rumors that traders start to doubt for the reduction of FED asset purchases in September due to weaker job creation in July. Specifically the US dollar index retreated to support at 81.71 but then recovered and currently is trading at 81.90. Same story with the USD/JPY who dipped to downside hurdle at 97.85 and then rose back at 98.55. All that affected by Asian shares negative trading, like Hang Seng falling by 0.97% due to US indices weaker trading, giving a lift to the Japanese Yen but then risk sentiment improved as RBA cut key rate.

Elsewhere, the British pound strengthened versus the US dollar as Services PMI rose to 60.2 for July, up from 56.9 the previous month and well above estimated 57.4 reading. There is a key resistance around 1.5400 and could limit recent upside momentum, at the moment the GBP/USD is steady between 1.5377/1.5315 ahead of Manufacturing and industrial Production data releases.

 

[Akriti]

USD/JPY Declines on FED Comments, Sterling Steady Ahead of Inflation Report

The US dollar is losing ground against the Japanese Yen as equities were under pressure on comments that FED would reduce asset purchase facility. In addition the Bank of Japan starts today its two day meeting and is mostly expected to maintain the same course. US indices closed lower last night with Asian indices following the same direction, NIKKEI 225 dropped substantially, by 4.00% closing below 14,000, Hang Seng also declined by 0.93%. As a virtue of that traders were abandoning equities and placing their money in safer places like Yen. Earlier on Wednesday we saw the USD/JPY breaching key support at 97.57, triggering more sell orders and driving the pair to more than a month low at 96.82.

With eyes now turning to Bank of England Governor, Mark Carney’s first speech and Inflation Report, the British pound is in steady trading between 1.5390/1.5315 after advancing from 1.5102 to its recent cap.

In the previous month UK has released a series of stronger than anticipated data like growth in 2nd quarter was 0.6%, PMI improved greatly in July against June readings. Moreover, yesterday releases indicated upbeat statistics for UK Manufacturing and Industrial production while inflation stands at 2.9% still well above BOE target at 2.0%. Thus we do not expect steps toward further easing of monetary policy since growth is on the right path and inflation remains high.

Nonetheless, we are eager to know about Mark Carney’s plans on forward guidance and thresholds to be set for stepping back of the current highly accommodative monetary stance. The GBP/USD is currently near a key resistance around 1.5410 and is likely to advance above that should the BOE Governor sound less dovish than expected given recent improved macroeconomic data.

 

[Akriti]

JPY Strengthens as BOJ Holds Policy, Aussie Surges on Increased Chinese Imports

The Bank of Japan at its monetary statement announced that will continue with quantitative and qualitative monetary easing for as long is needed to achieve inflation of 2% with CPI data signaling that is on the right path as inflation turned positive in June. BOJ maintained current monetary stance of increasing monetary base by 60-70 trillion Yen per annum, as well as key rate at record low level of 0.0-0.10%.

The Japanese Yen strengthened against its major counterparty with the USDJPY pair drawing a resistance earlier at 96.82 and falling to fresh 1 ½ month low at 96.11. The downtrend is well established with recently supportive data for the Yen, thus we would expect lower levels in the intraday but we will minimize exposure before US Jobless Claims.

Chinese Trade Surplus narrowed to $17.8B in July but that was due to increasing Imports by 10.9% and Exports by 5.1%. Aussie was well underpinned by CNY Trade data as its major trader counterparty is China. The AUDUSD corrected higher to 0.9086 with intraday bias being bullish we would expect the pair to go up to 61.8% of 0.9282 to 0.8847, at 0.9116.

Yesterday Bank of England Governor, Mark Carney, introduced policy guidance with knock out criteria for safekeeping price and financial stability. Inflation was in June at 2.9% and is expected to cool down to 2.0% in 18-24 months while growth outlook was upgraded by BOE amid recent improved GDP data and confidence indicators. Concerning Policy Guidance, monetary stance would not tighten unless unemployment rate reduce below 7.0% threshold while asset purchases could increase if warranted. Unemployment rate is currently at 7.8% and projected to drop to 7.3% in 2-year time. However that relation between monetary policy and unemployment rate will be “knocked out” if firstly, inflation in 18-24 months is estimated to be above 2.5%, second inflation expectations are not well anchored and third financial stability is threatened. In our opinion BOE is becoming more effective in setting monetary policy with accommodative stance remaining unchanged that has a positive impact on sterling value. The GBPUSD edged up to 1.5530, overpassing key resistance at 1.5415 and could go up to 1.56.

 

[Akriti]

Risk-on Weighed on US Dollar Value Late on Thursday, Steady Trading Early on Friday

Currency markets have been rather quiet with major pairs extending into tight sideways early on Friday. On Thursday risk appetite was supported by increase in Chinese imports and later on the day US Jobless Claims barely changed. Claims stood at 333K the previous week up compared to 328K two weeks ago and 3,000 lower than anticipated with no impact on markets.

Global indices have been in positive ground indicating improved risk sentiment. The US dollar index eased yesterday to 80.84 as investors were looking for higher yielding currencies while on Friday morning made technical correction to resistance at 81.05. Chinese CPI reading was below expectations providing room for its government to enhance stimulus, in addition Chinese Industrial Production increased by 9.7% in July, more than expected at 9.0% and higher than previous month at 8.9%. Still CNY Retail Sales were slightly weaker than expected offsetting some of risk-on that CPI and Industrial Production created. We could expect risk sentiment to drive US dollar index lower, however looking at technical levels the index approached key support at 80.50 and that does not offer much space for further bearish development.

Elsewhere, the euro against the greenback surged yesterday late in the evening to more than 1 ½ month high, we are focusing on this pair as prices have reached a key resistance at 1.3414. We consider that level key cap on upside bias as it is the upper boundary of the 1.3414/1.2758 wide range, thus in our view prices would at least make a correction. The British pound versus the US dollar continued its rising trend lifting to fresh monthly high but again key resistance at 1.56 is expected to contain positive momentum.

 

[Akriti]

Risk-on drives USDJPY to 98.33, Upbeat French and German GDP Lift Euro

US Shares last night closed in positive ground reflecting investors improved risk sentiment after US Retail Sales excluding auto sector rose by 0.5% in July, beating estimates of 0.4% increase. Asian shares followed at the same momentum with NIKKEI 225 advancing by 1.32% underpinned as well by Shinzo Abe’s yesterday comments that could cut corporate tax. The USDJPY has been in a bullish development rising to 61.8% Fibonacci level of 99.90 to 95.79, at 98.33. As of writing it spiked slightly above 98.33 and we would expect the pair to continue higher should it maintain ground above that key resistance.

The greenback value appreciated as expectations are increasing towards FED withdrawal from current $85B level of asset purchases in the next meeting amid more indications add that recovery is solid. In addition, corporate earnings have been in general stronger than projected reinforcing speculation of reducing bond buying program. The US dollar index rebounded to resistance at 81.84 yesterday on a 3-day surging buoyed by key support at 80.84.

In the European continent, cheerful GDP data kept coming as the French GDP figure displayed an increase of 0.5% up from expectations at 0.1% for the second quarter, beating previous quarter reading of -0.2% and becoming positive after 2-year time. Followed by German GDP report indicating 0.7% increase, above expectation of 0.6% expansion in the 2nd quarter and up compared to previous quarter 0.1% growth. The Euro against the greenback was well underpinned and recovered back to resistance at 1.3276. Against the British pound the Euro retraced to 0.8595 from 0.8556. Looking ahead, Euro-zone GDP release later today is likely to beat estimations further backing the Euro, also traders are focusing UK Job data.

 

[Akriti]

US Dollar Lower on Tapering Uncertainty, Major Counterparties Strengthen
Overnight the greenback was weighed by dovish comments of St. Louis FED member James Bullard. He said that FOMC must see more macroeconomic data of the 2nd quarter of 2013 ahead of any monetary decision. In addition, he stressed that policy makers should not base their decision to reduce pace of asset purchases on future forecasts but on recent growth data. Recent macroeconomic data have been weak in last quarters while forecasts are optimistic with projection performance being poor in last years. Concerning inflation he added that the FED would not normally taper asset purchases with inflation below target. Investors stepped back on expectations for reducing the monthly $85B of asset purchases at the next meeting with the US dollar index falling back to 81.38 from recent peak at 81.84.

Greenback’s weakness helped the GBPUSD to retest its yesterday session high at 1.5545 and we would expect the pair to rise to 1.5570 should the resistance at 1.5545 is breached. Moreover, the British pound surged on Wednesday amid stronger than expected Claimant count report and on BOE meeting minutes. The Euro was also advancing versus the US dollar, reaching as high as 1.3309 and then consolidating back to 1.3286, the currency pair was backed by uncertainty on FED asset purchases and on recent Euro-zone GDP upbeat data. Euro zone entered into growth figures for the first time after the 3rd quarter of 2011.

Lastly, we saw the USDJPY falling back to 97.56 and that is mainly because of two reasons. First, like the most major counterparties of the US dollar they are strengthening on concerns about FED tapering. Secondly corporate tax-cut hopes faded as the government spokesman and Finance minister devalued its importance. Japanese stock index, NIKKEI, retreated by 2.12% to 13,752.94 and the Yen strengthened on risk aversion as well as on profit taking. Technically the USDJPY found resistance at 61.8% of the 99.90 to 95.79, at 98.33 and resumed its downside. For that reason, we consider the 95.79 to 98.33 a corrective move with prices likely to head lower to next support at 96.86.

 

[Akriti]

US Dollar Loses Previous Gains as Mixed Data Created Tapering Uncertainty

The US dollar jumped yesterday on better than expected Jobless Claims as people claiming unemployment benefits dropped to 320K the previous week much lower than 334K expected and down from 335K two weeks ago. US claims were coupled with CPI release indicating that all item 12-month to July inflation increased to 2.0% from 1.8% as expected and the core inflation rose to 1.7% from 1.6% in June.

Therefore the US dollar initially was supported by upbeat jobs report, with the US dollar index surging to 81.88 but then uncertainty on asset tapering came back to markets pushing the index lower to 81.06. Weaker than projected US Industrial production and disappointing Philadelphia Manufacturing index also made the US dollar heavier. Chances were increased in favor of asset tapering with treasury yields rising, the 10Y bond rose from 2.71% to 2.77% and the 5Y bond from 1.48% to 1.54%.

The Euro increased to as high as 1.3360 as the US dollar was losing value and now consolidated to 1.3335. Looking ahead Euro zone CPI figures are going to be released today , expected to remain mostly unchanged and that could impact EURUSD in terms of ECB monetary decision.

The British pound against the greenback had one more reason to gather value, the UK Retail Sales increased surprisingly more than projected by 1.1% in July up from 0.2% the previous month. Positive data keep coming in for the British pound that advanced to $1.5650, rising to fresh 2-month high. we would expect the pair to climb to key resistance at 1.5753 where the upper boundary of a long term wide range is located. Looking ahead, US Housing news later today could increase volatility though in US dollar’s counterparties.

 

[Akriti]

Currencies Almost Unchanged on Monday Morning Trading

FX markets are steady today with majors opening around the same level like ending on Friday night. The Euro against the greenback is fluctuating around 1.3320 just below the top of 1.3398/1.2755 long term wide range. The greenback retreated on Friday amid weaker than expected US Housing data. US indices also closed lower on Friday on risk averse and on uncertainty on FED asset tapering. On Wednesday investors would focus on US FOMC minutes of the 31st July meeting for further clues regarding FED’s intentions on September meeting.

Japanese equities were positive in today’s trading after Exports increasing by 12.2% in July compared to 7.4% in June, however Imports also increased by 19.6% in July up from 11.8% in June, widening adjusted Trade deficit to ¥944.0 bln from ¥663.7 bln the previous month. The USDJPY drew a support line at 97.35 and rose back to resistance at 97.80. The Japanese aggressive monetary policy seems to have a positive effect on inflation that became positive in the last reading but does not seem capable to achieve 2% target. Moreover, the GDP latest figure slowed to 0.6% down from 0.9% in the previous release. Adding to that Moody’s reviewed the economic growth of Japan as credit negative.

Elsewhere, the British pound remains firmly near 1.5650 against the US dollar with no major releases to expect this week for the sterling apart the 2nd estimate of quarterly GDP on Friday. The greenback versus the loonie expands into 1.0358/1.0292 sideways with traders looking towards Retail Sales on Thursday. Lastly, concerning Euro zone Manufacturing and Services PMI reports on Thursday would reveal further indications for growth prospects.

 

[Akriti]

US Dollar Index Steady Ahead of Minutes, Aussie Loses on Dovish RBA Minutes

Again during overnight we saw the US dollar index changing slightly by falling from 81.30 to 81.15. Recently there have been talks on who is going to be the Fed chairman with Larry Summers and current Vice Chairman Janet Yellen the most likely candidates. Chances are rising for the former adviser of Obama who previously expressed his concerns on inflation risks and sounded hawkish on the 6.5% unemployment threshold. As a result of that US 10 Year bond yields have been advancing to more than 2-year high at 2.88.

The Australian dollar against the greenback kept falling and was weighed additionally by RBA minutes of the August 6 meeting. RBA has also decided on that day to cut key rate to 2.50% from 2.75% and at its considerations for Monetary Policy said that “growth is below trend pace” and “inflation remained low”. Also added that “inflation outlook might afford some scope to ease policy further” sounding more dovish and making the Aussie heavier. The AUDUSD is falling further as of writing breaching support at 0.9058 and heading to next support at 0.90, followed by 161.8% extension of 0.9058 to 0.9219, at 0.8959.

Elsewhere, the USDJPY retreated lower weighed by falling Equity indices around the globe, the pair dipped to support at 97.16. The US S&P 500 dropped by 0.59%, the Dow Jones also dropped by 0.47% and then were followed by Asian stocks with NIKKEI 225 losing 2.63% and Hang Seng down by 1.87%. Thus, traders sought for a safer currency like the Japanese Yen. Uncertainty on US asset tapering is increasing volatility and for that reason FOMC minutes of the 31st July meeting are highly anticipated.

 

[Akriti]

US Dollar Heavier on Cautious Trading Ahead of FOMC Minutes

The greenback eased against its major counterparties in yesterday evening trading ahead of FOMC meeting minutes tonight. The US dollar index drew a support line at 80.72 and then scaled back to 81.03 on short covering. US equities managed to close mostly in positive light, S&P 500 was up by 0.38%, Dow Jones dropped by 0.05% and NASDAQ advanced by 0.68%, with stocks underpinned by stronger than estimated earnings.

Asian equities were under pressure early in their session with Hang Seng and Shanghai composite being in negative territory. NIKKEI 225 was losing earlier as investors were cautious ahead of FOMC meeting as well as on reports that Japan’s government raised the Fukushima severity of the leak to Level 3 in an 8 level international scale. However the NIKKEI recovered back previous lost territory to close higher by 0.21% on Haruhiko Kuroda comments that the Bank of Japan has the capacity to enhance further monetary policy. The USDJPY also dropped to support at 96.90 as investors were buying safer Japanese Yen but then as NIKKEI started recovering the pair retraced up to 97.65.

The common currency spiked above the top of the longer term range at 1.3417 against the US dollar but the daily candlestick of Tuesday did not close above the top of the range with prices returning back to 1.3410. Sideways trading prevails at the moment in the EURUSD and could go lower on technical weakness or could to remain like that until the release of the FOMC meeting minutes tonight. Market participants are expecting Fed monthly bond buying program reduction in September which is currently sized at $85. It is speculated that the Fed would decrease asset purchases to $75 bln per month but further clues are anticipated to be revealed tonight. Also it is expected that the Fed once more would stress out that asset purchases and interest rates would follow a separate path with interest rate projected to remain at record low levels until 2015.

 

[Akriti]

US Dollar Rises on Minutes, Risk-on Amid Stronger CNY Manufacturing PMI

FOMC Minutes release of the meeting on the 30-31 July revealed that the members recognize labor improvement and that inflation could pose risks on financial stability. Also, the Commitee stated that is ready to change “the pace of its purchases to maintain appropriate policy accommodation”. That meeting was before unemployment rate drop to 7.4%, and that further increased expectations that the asset purchases would reduce in September meeting.

The US dollar strengthened after the release of FOMC minutes since the market participants were more convinced that the FED would slow down the pace of bond buying, likely to tighten its monetary policy for the first time since July 2007. Again the FED reassured that the other tool for performing monetary policy, the interest rate, would remain at record low at 0-0.25% for as long as unemployment rate is above 6.5% and inflation projection for 1-2 years no more than 2.5%. The US dollar index rose to resistance 81.49 maintaining an upside bias after drawinf a support line at 2-month low around 80.72.

The Euro remained under selling pressure against the greenback retreating to 1.3330, while on Tuesday trading inched above upper level of the 1.3414/1.2755 longer term range but then quickly retreating, creating the what is called in technical terms “bull trap”.

In Asian trading, equity indices started with losses as risk appetite worsened due to minutes revealing that the FED is going to cut stimulus should further signs of improvement appear in the US economy. However, Asian stocks rebounded due to HSBC Flash Manufacturing PMI rising more than projected and above 50 mark for the first time since April, lifting risk appetite. The USDJPY was underpinned by both the increasing expectations that FED would tighten stimulus and the improved Manufacturing PMI for China, advancing to 98.31 from 96.90, ahead of key resistance at 98.60.

 

[Akriti]

Yen Weakens as Risk Sentiment Improves Driving Yen Crosses Higher

The Japanese Yen weakened further against its major counterparts as stronger PMI data from China, Europe and US suggested that expansion prevails in global economy lifting risk appetite, thus investors abandoned the safety of the Yen. Furthermore, US 10 year treasury yields rose to new high at 2.89% indicating that investors move their money out of bond markets to riskier assets as asset tapering expectation is growing among market participants. All that underpinned US equities last night followed by NIKKEI 225 that close higher by 2.21%, helping USDJPY to breach resistance at 98.63 yesterday and surging earlier today to 99.10.

In addition, the EURJPY penetrated the resistance at 130.97 yesterday and rose to 132.33 as Japanese Yen was weakening further. Yen crosses bias is turning bullish on recent data as well as on speculation that Haruhiko Kuroda BOJ governor could take further stimulus measures because inflation is still well below target and growth was less than projected in the 2nd quarter. We consider though the USDJPY is overextended and near major resistance at 100 in the intraday with the EUJPY also close to top of the longer term range at 132.75. Thus we are cautious that pairs may consolidate in the immediate term but next week fundamentals could drive them above their upside limitations.

Elsewhere, we saw the EURUSD bouncing up to 1.3371 from 1.3297 on profit taking as the US Jobless Claims were disappointing inducing the greenback to make a correction. Early today final GDP figure for Germany confirmed growth and we expect the EURUSD to consolidate between 1.3371/1.3343 tight zone, because both currencies’ fundamentals are supportive. Aussie pulled back to resistance at 0.9044 yesterday on Chinese PMI and is consolidating currently near 0.90. USDCAD strongly advanced from 1.0358 to 1.0542 most likely to go up to 1.0604 before we see some profit taking. Main events today are 2nd estimate UK GDP, CPI figures for Canada, US New Home Sales and Jackson Hall Symposium second day.

 

[Akriti]

Steady Start of the Week with Major Currency Pairs in Sideways Trading

Currency market started the week steadily with most of the pairs fluctuating in sideways zones. The greenback has been barely changed on Monday morning with the US dollar index remaining around 81.33 while on Friday evening dropped sharply from 81.56 to 81.18 on disappointing housing data. US New Home Sales decreased to 394K in July, substantially more than expected and down from 455K the previous month. The latter could weigh further on the greenback however expectations that asset purchase facility would reduce on FED September 18 meeting, underpins the US dollar.

At the Jackson Hole Symposium academics referred to asset tapering saying that the FED should reduce the $45 bln monthly treasury purchase and continue the $40 bln monthly mortgage purchase. Treasury yields rose to record peak at 2.90% on speculation of cutting down asset purchases on September and as Lawrence Summers gains chances for Bernanke successor as FED Chairman.

Concerning Europe, the common currency against the greenback recovered back to resistance at 1.3408 on Friday to ease back early on Monday around 1.3379. Later on the week Euro zone Unemployment Rate would be released expected to remain unchanged at 12.1% and CPI to drop to 1.4% from 1.6%. Recent data revealed that Germany, Europe’s largest economy is increasing its growth rate and PMI data are improving further, strengthening recovery. Regarding monetary policy of ECB, on one side has low inflation, providing some room for further easing however on the other side recent upbeat data offset that chance. Technically the Euro was limited by daily top of the range at 1.3451 and moved to support at 1.3297, currently found resistance at the 61.8% of 1.3451 to 1.3297, at 1.3393 and thus we consider corrective move has ended.

Lastly, the USDJPY drew resistance at 99.10 near major psychological resistance at 100 and turned its bias to the downside, falling to support at 99.41. BOJ governor’s comments that highly aggressive monetary policy starts to show results as job sector improves and inflation expectations appear to rise with no risk to financial stability, eliminated speculation for further monetary easing inducing the Yen to recover. Thus we consider the USDJPY could breach the support at 98.41 falling lower towards downside boundary at 97.76.

 

[Akriti]

US Dollar in Sideways, Aussie Negative Bias Resumes, German IFO Expected to Improve

The greenback did not move much from yesterday; it was volatile during Durable Goods Orders release on Monday but mainly the US dollar index remains in 81.44/8.18 short-term tight range. US Durable Goods Orders dropped by 7.3% in July, much more decline than anticipated at 3.0% while in June Orders rose by 3.9%. The US dollar index dipped suddenly from 81.44 to 81.24 but then quickly recovered back its losses and extended further into previously mentioned sideways zone.

There is much of discussion about asset tapering and recently the NABE survey indicated that only 10% of its responders expect that FED would begin lowering asset purchase program at the 3rd quarter of 2013 while 39% expect that in the 4th quarter of 2013. Thus, traders are cautious at their trading; we believe that the current market price for the US dollar incorporates asset tapering on Sep. 18. Should that expectations fade the greenback would lose value and perhaps could revisit support at 80.72.

The Japanese Yen strengthened on risk averse after the weaker US Durable Goods Orders report. US indices closed in negative ground followed by Asian indices with NIKKEI225 closing lower by 0.69%. In addition, NIKKEI was weighed by Japanese government strongly supporting implementation of Sales-Tax increase from 5% to 8% in April 2014. The USDJPY dropped to key support at 98.04 and as of typing bounced slightly up, currently at 98.18.

The Aussie against the US dollar is falling towards support at 0.8932, below that level follows the 3-year low at 0.8850. Previous week meeting minutes revealed that RBA is willing to further reduce interest rates below 2.50% as the economy goes through a transition period. The mining sector significant role to growth declines, according to Governor Glenn Stevens, with demand from other parts of the economy expected to improve as Aussie depreciates.

Looking ahead, investors are focusing on German IFO business climate expected to increase to 107.1 for August from 106.2 in July. Recent European data revealed that Eurozone is on the right path to recovery supporting the common currency. One more positive sentiment indicator today, would further support the Euro and likely to drive it back above 1.34 against the US dollar.