Thursday, July 22, 2010

Currencies Round up - Bernanke comments blunt risk appetite


Date: Thursday 22 Jul 2010
Fed Chairman Ben Bernanke’s Humphrey Hawkins testimony served to put the skids under risk appetite, and sparked a sharp rise in the dollar late last night after he stated that the economic outlook remains “unusually uncertain”, though he was at pains to rule out the likelihood of a double-dip recession.

He also indicated that the Fed would take further policy actions if needed and repeated that rates would stay low for an “extended period”. Bernanke also cited concern over the housing market and unemployment which would weigh on recovery.

The US dollar rose sharply on this and the single currency started to unwind some of its recent gains.

However, these euro declines were already underway in any case, after Portugal struggled to get away €1.25bn worth of one year bills. The bid to cover was 1.3 while the yield more than doubled from the previous issuance, highlighting the still fragile investor sentiment surrounding euro zone peripheral nation’s finances.

Concern about the rigorousness of the bank stress tests also weighed on sentiment after the chairman of the National Bank of Greece announced that his bank would pass the stress test without any problems, causing many to question how stressful they could be if Greek banks were able to pass them without any talk of write-downs or loan losses.

The pound also took a bit of a hit after the June Monetary Policy Committee minutes showed that members discussed increasing the £200bn worth of quantitative easing, on concerns that growth prospects had deteriorated a little.

In any event they voted 7-1 to leave rates unchanged, with Andrew Sentance unsurprisingly voting again for a rate hike on the basis that inflation looks set to remain high for some months.

UK data out today includes June retail sales, with expectations of a month on month rise of 0.6%, while in the US we should see whether Bernanke’s concerns over housing and unemployment remain well founded, with the release of weekly jobless claims, where the expectation is for a rise to 445k from last weeks 429k.
While in the housing market existing home sales for June are expected to show a decline of 9.9%.
EURUSD – yesterday’s failure to push back towards 1.3000 saw the single currency start to slide back, breaking below this weeks lows at 1.2840, and head lower overshooting 1.2750/60 area, bouncing from lows of 1.2735. Unless we get a recovery back above the 1.2850 area in the short term, then the risk is we get a deeper correction towards 1.2550, via 1.2680, which would delay any move to the 1.3125 level, which is the 38.2% retracement of the down move from the highs at 1.5145 to the 1.1880 lows.
GBPUSD – the pound continued to fall yesterday making a new low of 1.5125 as the dollar starts to regain some of its recent lost ground. The failure to regain and hold above 1.5300 is a concern for the overall scenario of a test towards 1.5610 which is the 61.8% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230.
The trend line support levels now coming into play between 1.5110 and 1.5150, from the June lows at 1.4350 need to hold to maintain the momentum of the recent gains, other wise we could be looking at further losses towards 1.4980.
EURGBP – the failure to overcome 0.8520/30 saw an unwinding of some long euro positions and saw the single currency break back below the previous breakout level around the 0.8400/10 area, touching 0.8378 before rebounding. The failure of this area to hold even on an intraday basis is a concern, and makes it unlikely that we could see the move towards 0.8610, which would be a 50% retracement of the down move from the 0.9150 highs to the June lows at 0.8068. A move above 0.8440 is needed to stabilise, otherwise we could well be headed back towards the 0.8320/30 level. 


USDJPY – the dollar still appears to be in a broad range play here, but the continued decline in US yields and increased risk aversion continues to push the yen higher from the 88.00 resistance towards the recent lows around 86.25, as the market looks for a break out of the recent range. However the likelihood remains of a test towards last year’s yen lows at 84.80 while the 88.00/10 resistance area caps the market despite concern about possible Bank of Japan intervention. A break of 84.80 would look to target the 1995 lows below 80.00.



No comments: