Date: Thursday 15 Jul 2010
Last nights publication of the latest FOMC minutes revealed for the first time the concerns the Federal Reserve has with respect to the stuttering US economic recovery, though to be fair the contents shouldn’t really have been a surprise given how poor the recent economic data has been. As if to emphasis that point yesterday’s US June retail sales saw the second successive monthly fall dropping by 0.5%, twice as bad as analysts had expected though not as bad as the May figure.As a result Fed officials have trimmed growth forecasts, not only for this year but also next year as well. The range for GDP was revised down from 3.2%-3.7% to between 3.0% and 3.5%. The meeting also discussed the possibility of employing additional stimulus measures if conditions continued to deteriorate.
As a result the US dollar has continued to lose ground against a basket of currencies on the back of lower treasury yields.
The release of Chinese Q2 GDP growth figures overnight showed the Chinese economy slowing down with growth moderating to 10.3%, slightly lower than expectations, but in line with the authorities intentions to take some of the heat out of the recent expansionary pressures of the past few months, which should preclude any further fiscal measures in the short term, but could also mean decreased demand for commodities throughout the rest of the year.
Sterling has remained well supported in the last 24 hours as unemployment figures came in much better than expected, while the ILO Unemployment rate number dropped from 7.9% to 7.8%, while the euro has been mixed on the back of slightly weaker CPI pressures, concerns about the high level of borrowing by Spanish banks from the ECB as it hit a new record high in June, jumping by over 25% from the figure in May. On the plus side Portugal was able to sell some short and medium term bonds albeit at slightly higher yields.
Markets will be looking particularly closely at a raft of new US data this afternoon with the release of industrial production for June which is expected to come in flat while weekly jobless is expected to decline modestly to around 450k from last weeks 454k. Inflationary pressures are also expected to be virtually non existent with producer prices for June expected to decline month on month to -0.1%, while the year on year figure is expected to drop to 3.1%, from last months 5.3%.
EURUSD – another day and another new high yet the Euro continues to push on as it slowly makes headway beyond the key 1.2750 level. A new high of 1.2778 saw the Euro slip back below 1.2750. A successful close above here would target the inverse head and shoulders price target objective around 1.3200.A failure to overcome the 1.2750 resistance on a daily close could well see the Euro fall back towards the support around 1.2550, a break of which would re-target last weeks lows around 1.2480. To continue the upward momentum of recent days these lower support levels need to hold to push above yesterday’s highs. There is also interim support around yesterday’s lows at 1.2680.
GBPUSD – the pound continues to gain ground against the dollar breaking the highs at 1.5230/40 yesterday and spilling over just short of 1.5300 and just short of the 1.5305/10 trend line resistance from the 17th November highs at 1.6880.
A break of this trend line could well see 1.5345 which is the 50% retracement of the down move from the 2010 peaks at 1.6460 to the lows at 1.4230. Above that we have the resistance around the April highs at 1.5520.
The pivotal support on the downside remains around 1.5080/90.
EURGBP – the euro continues to struggle anywhere near the 0.8400 level and while this resistance holds the bearish scenario remains intact but only just for now. The euro should continue to find support around the 0.8320/30 area, a break of which would target 0.8250.
USDJPY – the dollar continues to bounce between the support around the 88.00 level and the resistance and this weeks high around 89.15/20. The risk remains for yen weakness and a re-test towards 89.20, a break of which would re-target the 90.00 area. A drop back below the 88.00 level would re-target the downside risk of a move back towards 86.80.
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