Date: Monday 09 Aug 2010
Friday’s poor payrolls data was the catalyst for further US dollar weakness as the dollar index posted its 9th successive weekly decline, its worst losing sequence since 2004.
With no US data of note today the market focus will inevitably be on tomorrow's Federal Open Market Committee (FOMC) meeting and how the market perceives the outcome of this meeting will dominate sentiment this week.
It goes without saying that rates will remain unchanged at 0.25%. What will be of particular note will be the tone of the language used in the statement especially after Friday’s weaker then expected payrolls data.
It will also be interesting to see if renowned hawk Thomas Hoenig drops his opposition with respect to the “extended period” language. This on its own would certainly give the market something to chew over and suggest that the Fed may well have the appetite to take further measures to stimulate the economy if data fails to improve.
Recent comments by St. Louis Fed President James Bullard at the end of July suggested that there are rumblings amongst Fed members for possible new programs of asset purchases in the event the economy continues to stumble.
In Japan the yen has continued to gain on the back of the recent weakness in the US dollar, fuelling some concern that the Bank of Japan might consider undertaking further measures to weaken it at its rate meeting tomorrow. This seems unlikely in the short term, however if Japanese stocks continue to weaken and the yen continues towards its all time highs, that may well change.
In the UK Wednesday’s quarterly inflation report will outline the banks outlook for inflation over the next three months and its outlook for interest rates. It is unlikely to throw up too many surprises with respect to the Bank’s view on slowly declining inflation pressures and unchanged rates into 2011.
EURUSD – Friday’s break of the recent range highs saw the single currency continue its recent steady up trend, making another new high at 1.3333 and make progress towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move.
The rising trend line support from the 1st July lows at 1.2190/00 now comes in around the 1.3170 level while below that the 1.3125, 38.2% level seems to be preventing any deeper sell-off.
A break below the 1.3120 level could well see some unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.
GBPUSD – despite the slightly waning momentum the pound continues to make new highs, almost touching 1.6000 on Friday as it continues to maintain its upward momentum.
A break below Thursday’s lows around 1.5810/20 could trigger a deeper correction towards the 1.5520/50 area, otherwise the pound still looks set to break above 1.6000 towards the 3rd February highs at 1.6070, towards 1.6280, the 28th January highs.
Long term rising trend line support levels, remain around the 1.5440/50 area, from the June lows at 1.4350.
EURGBP – Fridays break back above the old 0.8315/20 neckline throws into doubt the view that the euro could re-test the 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top. Friday’s close above 0.8315/20 should now re-target the 0.8410 level, however the lack of follow through buying from Friday’s break out is a concern and if the euro slips back below 0.8300 we could yet see the move to 0.8245 after all.
With no US data of note today the market focus will inevitably be on tomorrow's Federal Open Market Committee (FOMC) meeting and how the market perceives the outcome of this meeting will dominate sentiment this week.
It goes without saying that rates will remain unchanged at 0.25%. What will be of particular note will be the tone of the language used in the statement especially after Friday’s weaker then expected payrolls data.
It will also be interesting to see if renowned hawk Thomas Hoenig drops his opposition with respect to the “extended period” language. This on its own would certainly give the market something to chew over and suggest that the Fed may well have the appetite to take further measures to stimulate the economy if data fails to improve.
Recent comments by St. Louis Fed President James Bullard at the end of July suggested that there are rumblings amongst Fed members for possible new programs of asset purchases in the event the economy continues to stumble.
In Japan the yen has continued to gain on the back of the recent weakness in the US dollar, fuelling some concern that the Bank of Japan might consider undertaking further measures to weaken it at its rate meeting tomorrow. This seems unlikely in the short term, however if Japanese stocks continue to weaken and the yen continues towards its all time highs, that may well change.
In the UK Wednesday’s quarterly inflation report will outline the banks outlook for inflation over the next three months and its outlook for interest rates. It is unlikely to throw up too many surprises with respect to the Bank’s view on slowly declining inflation pressures and unchanged rates into 2011.
EURUSD – Friday’s break of the recent range highs saw the single currency continue its recent steady up trend, making another new high at 1.3333 and make progress towards 1.3510, the 50% retracement area of the 1.5145 to 1.1880 down move.
The rising trend line support from the 1st July lows at 1.2190/00 now comes in around the 1.3170 level while below that the 1.3125, 38.2% level seems to be preventing any deeper sell-off.
A break below the 1.3120 level could well see some unwinding of stops towards support around the 1.2950 level, a break of which would open a test towards the 1.2840/50 level.
GBPUSD – despite the slightly waning momentum the pound continues to make new highs, almost touching 1.6000 on Friday as it continues to maintain its upward momentum.
A break below Thursday’s lows around 1.5810/20 could trigger a deeper correction towards the 1.5520/50 area, otherwise the pound still looks set to break above 1.6000 towards the 3rd February highs at 1.6070, towards 1.6280, the 28th January highs.
Long term rising trend line support levels, remain around the 1.5440/50 area, from the June lows at 1.4350.
EURGBP – Fridays break back above the old 0.8315/20 neckline throws into doubt the view that the euro could re-test the 0.8245 61.8% retracement level of the up move from 0.8065 to the 0.8520 double top. Friday’s close above 0.8315/20 should now re-target the 0.8410 level, however the lack of follow through buying from Friday’s break out is a concern and if the euro slips back below 0.8300 we could yet see the move to 0.8245 after all.
USDJPY – the dollar was unable the move above 86.00 early on Friday slipping back below the figure as declining yield differentials and the weak payrolls data weighed the dollar down.
Unless the dollar recovers the 87.00 level the downside scenario remains intact. The key support remains around last years lows at 84.80, a break of which would then look to target the 1995 lows below 80.00.
source:digitallook
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