Month: July 2011

This afternoon’s publication of US industrial production came out below forecasts, growing a dismal 0.2% in June. As reports reveal persistently nagging declines in growth, US confidence levels are expected to decline.

The reports from the University of Michigan (UoM) are expected later this afternoon and could underline this relative decline. Forecasts have the UoM Prelim Consumer Sentiment report growing by a small amount, but given recent slowdowns in industry and manufacturing, as well as the looming fear of a debt default, may have dragged this indicator lower. The result will likely be a turn to safe-havens; helping to lift the value of the US dollar (USD) prior to the week’s close.

The fleeting idea that manufacturing was regaining its foothold was set back today as the Empire State Manufacturing Index revealed a downturn. The index moved from last month’s sharp decline to a somewhat lesser decline.

Forecasts had expected the index to move back into positive territory this month given news that manufacturing was on the rise globally once more. But the persistent bearishness has darkened the landscape a bit as many view the index’s afternoon reading as a sign that more sluggishness may be impending.

The US Bureau of Labor Statistics today published the second set of inflationary data in as many days, this time covering the consumer price index (CPI), as compared with yesterday’s producer price index (PPI). The contradictory data from the CPI readings this afternoon is in line with similar figures regarding PPI and Retail Sales from yesterday.

Basically, the report shows the value of the more volatile price instruments undergoing a downshift while the core figures which exclude these volatile items reveals modest growth. The Core PPI and CPI numbers both revealed modest increases of 0.3%, which has helped solidify the commentary by Fed Chairman Bernanke that another round of easing may get delayed as more data rolls in.

July 15 (Bloomberg) — Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore, talks about global currencies. Henderson also discusses Europe’s sovereign debt crisis, Federal Reserve monetary policy and the U.S. credit rating. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

July 15 (Bloomberg) — Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, talks about corporate bonds and Treasuries. Brady also discusses Federal Reserve monetary policy, the negotiations between the White House and congressional leaders to raise the debt ceiling, and Asian economies and financial markets. He speaks with John Dawson on Bloomberg Television’s “First Up.” (Source: Bloomberg)

Another week passes and the European debt crisis still remains unsolved. An intensification of the situation was seen this week as bond vigilantes set their sights on Italy as Italian 15-year bonds climbed to 5.9%, a level where some fixed income analysts believe the Italian debt burden would become unstable. As Europe fails to address the situation with a sense of urgency, market participants will not likely bury their heads in the sand.

The European elite are back at the drawing board attempting to craft a solution to the Greek debt crisis that will avoid a credit event, something the ECB has been adamant about. But Germany is in no such hurry to settle given the German and Dutch insistence on the bondholders taking a haircut. Germany appears willing to delay the issue and sees no need to meet until a feasible plan has been organized. At this time Greece looks to be fully funded due to additional EU/IMF funding but as the crisis carries on the possibility that additional nations’ bonds will come under pressure increases, much in the way Italy has this week.

Moving to the other side of the pond Obama put the ball in the corner of the Republicans when he walked out of the last debt ceiling negotiations and S&P has officially put the US on a rating watch as the August 2nd deadline creeps nearer. However, the market did not send the USD lower in response to the news. Yields in the US 10-year yield continue to trade below 3%, showing market expectations are for a shoe string deal to be hatched before the deadline. Rather FX participants have chosen to focus on the possibility of QE3, (see Wednesday’s price action) or a lack there of (see Thursday’s price action). Despite today’s headline inflation number which contracted by -0.2%, core CPI rose actually rose by, 0.3%, and should put the issue of QE3 to bed barring any subsequent market shock or dramatic downturn in US growth or unemployment numbers.

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July 15 (Bloomberg) — Richard Iley, chief economist for Asia Pacific excluding Japan at BNP Paribas SA, talks about regional economies and central banks’ monetary policies. Iley also discusses the U.S. economy and Federal Reserve monetary policy. He speaks in Hong Kong with Rishaad Salamat on Bloomberg Television’s “Asia Edge.” (Excerpt. Source: Bloomberg)

The euro initially moved lower as stocks moved into the red amid worries prior to the release of European bank stress tests.

The test is administered by the European Banking Authority which will examine the levels of sovereign debt held on the trading books of 91 European banks. One may be skeptical of the testing as it only examines debt that banks currently hold as available for sale. The stress tests will not look at bonds that are not held for sale, therefore the test may miss a large part of the exposure European banks may have to peripheral European sovereign debt that could face a haircut. Nevertheless previous European bank stress tests have helped to build market confidence and this case should be no different. Short-term resistance for the EUR/USD comes at 1.4200 and a break here could target the 100-day moving average at 1.4290.

Movement in the majors has quieted as traders look towards US CPI at 12:30 GMT. The dollar will likely bounce higher should the core report show higher than the 0.2% rise as expected.

Sterling is down versus the dollar and the euro. A speech later by BOE MPC member Paul Tucker, considered a hawk on inflation, may talk up the need for addressing inflation concerns. However, sterling’s direction may be subject to events in Europe and in the US. Cable has resistance at 1.6240 from the falling trend line off of this year’s high.

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By ForexYard

With a moderately heavy US news day expected Friday, dollar traders should be anticipating some exciting currency movements brought about by heightened liquidity. Beginning at 13:30 GMT, the US will be releasing its nominal and core CPI figures to fill in the consumer side of its inflationary reports this week. Shortly thereafter it will publish its Empire State Manufacturing Index, its Capacity Utilization Rate, Industrial Production, and Preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations reports.

Economic News

USD – US Dollar Gains as Bernanke Notes Delay in Potential Easing

The US dollar was seen trading higher yesterday as traders began to reevaluate the recent dip in USD values from statements the Fed may institute another round of quantitative easing. The EUR/USD was seen meeting resistance near 1.4100 yesterday and plummeted towards 1.4055 in late trading. Commentary from Fed Chairman Ben Bernanke revealed the sentiment that the Fed may not yet be ready to undergo additional easing as conditions were not dire enough to warrant such an implementation.

The series of PPI and retail sales data released yesterday painted a relatively weak picture for the US economy’s growth; but growth is shown to be occurring nevertheless. Both reports saw variance between the nominal reading and their partnered core data. Nominal PPI shrank by 0.4% while the core reading witnessed a 0.3% expansion. Likewise, the nominal reading on retail sales witnessed 0.1% growth whereas the core reading saw 0% change from the previous month.

With a moderately heavy US news day expected Friday, dollar traders should be anticipating some exciting currency movements brought about by heightened liquidity. Beginning at 13:30 GMT, the US will be releasing its nominal and core CPI figures to fill in the consumer side of its inflationary reports this week. Shortly thereafter it will publish its Empire State Manufacturing Index, its Capacity Utilization Rate, Industrial Production, and Preliminary University of Michigan (UoM) Consumer Sentiment and Inflation Expectations reports.

EUR – EUR Bearish as Fed Easing Move Stalled

The euro was seen trading lower yesterday in light of statements suggesting a wait-and-see approach adopted by the US Federal Reserve regarding another round of quantitative easing. Following yesterday’s CPI reports in the euro zone, traders appeared more concentrated on news out of the US to determine values, and we’ve seen a retracement of the USD versus its primary currency counterparts as a result of this sentiment.

While interest rate differentials between the US and Europe came into view this past week, the higher yielding assets like the GBP and EUR appear positioned to lose significant value as traders choose to focus on growth concerns and sovereign debt. The growth in risk aversion may have many investors choosing to store their value in lower yielding currencies, like the USD and JPY.

As for Friday, the euro looks to be anticipating an evaluation of its recent downturn against the other major currencies with mild bias to the downside. The euro zone will be publishing a few economic events on today’s calendar. Traders should try and follow the significant publication emanating from the US economy today, however, as a heavy string of reports is expected this afternoon.

JPY – JPY Seen in Ascent as Traders Seek Store of Value

The Japanese yen (JPY) was seen trading higher versus most other currencies yesterday after news began to shift many traders back into safe-haven assets. The yen has been a top performer these past several months considering many traders bank on the Japanese carry trade during times of intense risk appetite and move towards the JPY in times of risk aversion, making it an appealing currency in these recent times of ominous reports.

The JPY was in a position to make solid gains yesterday after Federal Reserve Board Chairman Ben Bernanke commented that the US central bank would delay undertaking another round of easing. Moves toward riskier currencies, however, failed to materialize as a string of industrial output and inflationary reports in the euro zone have pushed many investors away from the region and into safe haven assets. As such, traders appear to be anticipating a mild uptick in the JPY prior to this week’s close.

Oil – Oil Price Dips Below $96 a Barrel

Crude Oil prices dipped yesterday, reaching as low as $95.60 in late trading. Interest rate differentials have dropped from sight while industrial output and inflationary data revealed mild weakness in Europe and this has so far led several large investors and analysts to consider a shift away from the EUR and physical assets in exchange for the safety of the USD and JPY.

As investors sought safety, the value of crude oil, which has been seen holding steady most of the week, dipped to a weekly low of $95.60 a barrel. A sudden jump in dollar values due to this week’s risk sensitive environment has helped many investors move hesitantly away from assets like oil. Should Crude Oil sentiment hold steady this week, oil prices may continue to take losses going into the week’s final hours.

Technical News

EUR/USD

After a false breakout higher from the triangle chart pattern the EUR/USD is approaching the rising support line off of the May low at 1.4160. Falling daily and monthly stochastics suggest the next move will be to the downside. A break here and the next major support is found at 1.3970. The 200-day moving average at 1.3905 may also prove supportive. Below this key technical mile marker the rising trend line from the 2010 May low comes in at 1.3710 and traders may see buying interest at this level. To the upside the July 7th high at 1.4370 could be supportive, as well as the falling resistance off of the May and July highs at 1.4530. A close above the June high at 1.4700 would likely signal a shift in momentum to the upside.

GBP/USD

Cable is caught in a 220 pip range as the pair struggles to stay above its 200-day moving average and its initial support at 1.5910. A move lower and the next support to enter the picture stands at the late January low of 1.5750, not far from the 38% Fibonacci retracement from the 2010 May to 2011 April move. Support is also found at 1.5650 which has served as both support and resistance in October and in December of last year. The consolidation pattern is capped at 1.6140 where the neckline from a head and shoulders pattern rests. For traders who are not yet short this would be a point from which to sell a potential rally. The head and shoulders reversal chart pattern shows a measured move which could take the GBP/USD lower to 1.5370.

USD/JPY

A series of higher highs and lower lows has created a bullish channel on the daily chart but the pair will likely remain locked in a range that has contained the USD/JPY since early June. A number of resistance levels will provide ample opportunities to sell into any gains, a play that is in-line with the long-term trend. The top of the channel is found at 81.50 and is close to the 100-day moving average. Additional resistance is located at the May high of 82.20 and the falling trend line from the 2007 high comes in at 82.80. The bottom of the channel could prove to be supportive at 80.45 but a break here could test the May low at 79.50.

USD/CHF

The daily chart provides an interesting technical picture for the Swissie. The pair is flirting with its 50-day moving average at 0.8550, a technical indicator the pair has not traded above since February. A potential head and shoulders bottom reversal may also be forming with the neckline falling from the mid-June highs and the high from July 1st. A measured move from the pattern suggests potential gains of 260 pips and a reversal would likely target the mid-May lows at 0.8755 and the March 16th spike lower which is also a Fibonacci retracement target at 0.8845.

The Wild Card

Gold

The developments in Europe and the threat of a downgrade of the US credit rating have boosted the safe-haven appeal of gold. Yesterday price of spot gold made a new all-time high but the commodity snapped an 8-day consecutive win streak when the price pulled back from $1,594, just off of the $1,600 psychological resistance level. Forex traders should be eyeing this price as the next target with support at $1,558.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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