Thursday, July 29, 2010

Currencies Round up - US data weighs on risk appetite


Date: Thursday 29 Jul 2010
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US durable goods orders for June were the latest set of economic data to disappoint coming in at -1% against an expectation of 1% and look to have prompted some light profit-taking on recent capital moves in to riskier assets.

The Federal Reserve in its beige book also pointed to a spluttering recovery with sluggish housing and weak consumer demand and this has also weighed on sentiment.

In Asian markets the Reserve Bank of New Zealand today followed India’s lead on Tuesday by raising interest rates by 0.25% as Asian economies take steps to address inflationary pressures within their recovering economies. The move caused the Kiwi to slide back, a classic case of buy on rumour sell on fact as the move was pretty much expected in most quarters, but the fall was exacerbated by the announcement that future rate rises would be slower in pace due to concerns about future growth.

The pound continues to remain strong despite Bank of England governor Mervyn King’s attempt to pour cold water on the recent UK Q2 GDP numbers in his testimony yesterday to the Treasury Select Committee. Fellow monetary policy committee member Andrew Sentance’s concerns about future inflation acted as a good counterweight to King’s more dovish tone and kept the pound well bid on dips, as the pound hit its highest level against the dollar since mid February, and could well head towards 1.5900 in the next week or so.

The focus for this week remains on tomorrow’s Q2 US GDP figures as economic data seems to be telling a different story to Q2 earnings data. Before that though we have the weekly jobless numbers which are expected to decrease slightly to 460k from last weeks surprise increase to 464k.
EURUSD – the lack of any follow through on euro rallies above 1.3000 continues to concern for the test towards the 1.3125 38.2% Fibonacci level. However, while above the 1.2950 area the risk still remains for this long awaited test higher. A break of 1.2950 would then open a test towards the 1.2840/50 level. A break below last Friday’s lows around 1.2840/50 re-targets the 1.2730/40 area.
GBPUSD – another day and another new high, the pound touched 1.5636 as it looks to push towards 1.5870 the 61.8% retracement level of the down move from 1.6880 to the May lows at 1.4230. The cable needs to hold above the 1.5520/50 support area in the near term to prevent a deeper downward correction towards the 1.5330/40 area, but with momentum starting to become a little stretched there is a possibility we could see some sharp pullbacks in the interim.
Long term trend line support levels, remain around the 1.5250/60 area, from the June lows at 1.4350.
EURGBP – It's pretty much as you were on the euro here, stuck in a range between the pivotal resistance at 0.8400/10 area and the support around the 0.8320 area.
There does however appear to be a head and shoulders top building up here over the last 2 weeks with a horizontal neckline at 0.8315 which could produce a significant move.
Only a break back above the 0.8400/10 level diminishes the risk of a downside correction.
A break below the 0.8315 neckline targets 0.8240, and then 0.8100, while 0.8410 caps.
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USDJPY – the failure yesterday to overcome the 88.00/10 level keeps the focus solidly on further yen gains in the short term and also keeps up the pressure on the Bank of Japan with respect to monetary policy. A close above here would signal dollar gains back towards 89.20/30.
While on the downside the 86.25 support remains the key obstacle towards further yen gains towards last year’s yen highs at 84.80. A break above 88.00/10 would re-target the 89.20/30 level while a break of 84.80 would look to target the 1995 lows below 80.00.

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