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The steady, and dovish, monetary policy of the Reserve Bank of Australia (RBA) served the Aussie with little support in this week’s market as most participants await news from China and New Zealand to determine the direction of the AUD relative to its Pacific neighbors. It appears any negative news in Australia, or a rate hike by either China or New Zealand, will push the Aussie into a tailspin as risk aversion takes hold.
The US dollar was seen increasing late yesterday as traders began to seek shelter following speculation that China may pursue a more hawkish monetary policy due to rampant inflation. The EUR/USD was seen moving towards 1.4380 yesterday while the GBP/USD was inching towards 1.6030.
The news so far has sent several traders into a risk aversion shift, helping to lift the value of the USD as riskier currencies like the EUR took a dive. Assisting this shift was a dismal retail sales report out of the euro zone arriving five hours prior to US data which revealed sluggishness in US factory orders and as commodity values dipped on a decline in demand outlook.
With another heavy news day expected today, traders are sure to see heightened volatility. Most significantly, the US economy will be publishing its ISM Non-Manufacturing PMI inflationary report. Should today’s news disappoint, there is a possibility that more investment will get pushed towards the safety of the greenback, driving USD values higher.
The British pound (GBP) was seen trading only mildly lower yesterday following news of stable growth in the island economy’s service sector. Against the US dollar (USD) the pound was seen trading somewhat bearish in late trading as shifts into safe-haven investments pulled money out of the Cable and into other stores of value. The EUR/GBP, however, was more mixed as news affecting both currencies was centered on uncertainty.
While the pound was seen flattening out against the EUR yesterday, it appears to have moved mildly lower against the greenback and continues to see sideways price action versus the Japanese yen. Today’s housing data will not likely affect currency values in Britain significantly enough to warrant interest, but traders will want to keep track of how such sectors grow or contract considering their longer-term implications.
The report published earlier this week on British housing highlighted expectations for a continued rise in home purchases and construction spending through the summer months. Should today’s Halifax HPI come in as expected, or better, the joint data releases may prove positive for the pound as investors find reason to go long on the UK’s real estate market.
The Australian dollar (AUD) was seen trading hesitantly versus most other currencies yesterday after news began to shift many traders back into risk averse assets. The Aussie has been a top performer these past several months considering many traders bank on a strengthening of the AUD due to a rise in Chinese demand for Australian raw materials.
However, yesterday’s news appears to have moved many investors towards safe-haven assets, which tends to result in a weaker Aussie. The steady, and dovish, monetary policy of the Reserve Bank of Australia (RBA) served the Aussie with little support in this week’s market as most participants await news from China and New Zealand to determine the direction of the AUD relative to its Pacific neighbors. It appears any negative news in Australia, or a rate hike by either China or New Zealand, will push the Aussie into a tailspin as risk aversion takes hold.
Crude Oil prices dropped sharply towards $93.60 a barrel Tuesday as sentiment appeared to favor a downturn in global industry alongside a slump in demand for the black gold. Data releases out of Britain and China yesterday were driving many investors back into safe haven assets as most reports suggested a surprise downtick in growth among global industrial output and consumer spending; with dismal consumer confidence reading these past few days from the major economies of the West.
As investors sought safety, the value of crude oil, which has been seen plummeting all week, fell to a monthly low of $93.50 a barrel. A sudden jump in dollar values due to this week’s risk averse environment has helped many investors ram up their short-taking positions on physical assets. Should Crude Oil sentiment hold steady this week, oil prices may continue to fail to find support near current prices.
A bullish engulfing pattern on the weekly chart does not bode well for further declines in the pair. Combined with rising weekly and daily stochastics, a case can be made for additional gains in the EUR/USD. The first resistance level the pair should face is 1.4700 off of the June high and a move above here and the pair would encounter selling pressure at the May high of 1.4940. Should the pair fail to move outside the upper line of the triangle consolidation pattern at 1.4515 the EUR/USD would encounter support at 1.4440 and the lower leg of the triangle which comes in at 1.4130.
The monthly chart shows potential declines for sterling. Falling stochastics point to additional losses in the pair. Traders could be looking for the GBP/USD to decline to 1.5650, a level that offers long term support. Both the 20-month moving average comes in near this area but more importantly this is where the falling trend line from the 2007/2008 highs comes in and sterling could see a technical bounce in this area. This level has further significance as it coincides with the October 2010 lows on the daily. To the upside resistance is found at 1.6150, the top of the current consolidation pattern as well as the previous trend line from the May 2010 low at 1.6280.
A triangle consolidation pattern has formed on the daily chart with the legs forming from the May high and the June low. Judging from the long term trend the USD/JPY would be expected to break lower where support comes in at 80.25. A break here would likely test 79.70 and 79.55. However, a move higher may also be in the cards and a break above the initial 81.10 resistance would target 81.75.
After forming a base near the 0.8300, the pair has risen to test its falling trend line from the February high which comes in at 0.8535, not far from the resistance level at 0.8550. Further resistance awaits the pair as the 50-day moving average. A breach here and the pair could unravel to the mid-May low at 0.8750.
Regular readers of this article may have noted the recent focus on the EUR/CHF. Following a 4% rebound from its all-time low the pair retraced 38% of its April to June move before turning sharply lower at this key technical level. As such, forex traders may want to be short on the pair with stops above 1.2350.
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The euro is down after Europe woke up to news that Moody’s cut Portugal’s credit rating by four levels to junk status below investment grade, capping last week’s rally in risky assets. An interest rate increase by China fueled the euro selling environment.
Euro zone Q1 GDP came in as expected at 0.8% and German factory orders handily beat expectations but markets were firmly focused on yesterday’s downgrade by Moody’s, the first major rating agency to label Portugal’s credit rating below investment grade. The euro quickly fell and retraced 50% of its move that began with last Monday’s low. Worries of contagion into Ireland and Spain have also dragged down European equities with the DAX down -0.30% and the FTSE 100 lower by -0.78%. The pressure is on the euro a day before the ECB is expected to hike interest rates by 25 bps tomorrow as the ECB once again attempts to prove its inflation fighting reputation. But now growth is lagging in the euro zone and yesterday’s PMI data showed a slowing services sector, a negative for the euro. EUR/USD initial support is 1.4340 with the next test at the rising support line from the May 23rd low which comes in today at 1.4140.
The other story this morning was the 25 bps interest rate increase by the People’s Bank of China, the central bank’s third rate hike this year. The one-year deposit rate now stands at 3.50% and the one-year lending rate was also lifted 25 bps to 6.56%. Talk of a hard landing in China is possible as inflation pressures continue to rise. In May inflation registered 5.5% though China has made it a goal to take inflation back down to 4%. The interest rate hike could weigh on the dollar block currencies (AUD, NZD) that rely on China for much of its growth.
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The rebound in the “risk-on” trade ended yesterday with a resumption of the European debt crisis. Moody’s was the spoiler in both the morning hours and the North American session after it downgraded Portugal’s government bond rating to junk, snapping a 5-day wins streak for US equities and sending the euro lower. Today’s US services PMI is the headline event and a disappointing number may help to shift market sentiment in favor of the USD.
Today’s Economic Data Events:
GBP – Halifax HPI m/m – 07:00 GMT
Actual: 1.2%. Expectations: 0.1%. Previous: 0.1%.
Yesterday’s UK services PMI data provided some short term relief for cable but the warm fuzzy feeling did not last long. This morning’s surprise jump in UK housing prices was largely ignored by market participants with USD strength the winner in early European trading as the GBP/USD is testing yesterday’s low at 1.5990. A break here will target the March low at 1.5930.
EUR – German Factory Orders – 10:00 GMT
Expectations: 0.7%. Previous: -0.6%.
The euro has been pressured after Moody’s warned of impairment charges for banks rolling over Greek debt and the selling of the euro intensified following the downgrade of Portugal’s bond rating to junk status. Weak euro zone growth is anticipated in the near-term and is expected to slow after additional interest rate increases by the ECB which will likely come tomorrow. EUR/USD support is 1.4340 followed by the rising support line from the May 23rd low which comes in today at 1.4140. Resistance is this week’s high at 1.4580.
USD – ISM Services PMI – 14:00 GMT
Expectations: 53.9. Previous: 54.6.
A disappointing PMI will likely support USD buying and threaten last week’s rally in US equity markets that is already beginning to show signs of weakness. Yesterday the S&P 500 snapped a 5-session win streak with a -0.13% decline.
JPY – Core Machinery Orders m/m – 23:50 GMT
Expectations: 3.1%. Previous: -3.3%.
The dollar has been firming versus the yen but the pair maintains its current range. This is despite improving Japanese data releases that show the economy may be rebounding from the earthquake and tsunami faster than previously expected. The 81.25 level looks to cap any USD/JPY appreciation while the rising support line off of the June low will likely contain any declines at 80.40.
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USDJPY is facing 81.26 resistance. Further rise would likely be seen after a minor consolidation, and next target would be at 81.60-81.80 area. Key support is at the uptrend line on 4-hour chart, as long as the trend line support holds, uptrend from 79.69 will continue. Only a clear break below the trend line could indicate that the rise from 79.69 is complete, then another fall towards 78.00 could be seen.
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The value of Russia’s ruble (RUB) against the US dollar (USD) felt its first decline in over a week this morning as oil prices came tumbling yesterday. With oil being the leading export-driven revenue in Russia, its value tends to have significant effect on the nation’s currency values; which is why traders saw the USD/RUB and EUR/RUB move upwards by about 0.2% after a jolting downturn in oil values was witnessed Monday evening.
A mild decline, granted, but the suddenness of the move had forex traders eyeing commodity pricing data ahead of a turbulent news week. Bloomberg analysts highlighted China’s central bank statement that it would maintain a “prudent” monetary policy to address its inflationary concerns as a key driver in the decline of oil prices yesterday.
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The move is expected to dampen oil demand in the US and China, which speculators have taken as a cue to sell the black gold. Russian currency values were not the only thing affected, moreover. Russian government bonds also fell, dropping the ruble Eurobond yield by approximately one basis point. Should oil prices continue to falter, ruble traders may continue to see some bearishness.
The Reserve Bank of Australia (RBA) held their short-term interest rates steady at 4.75% this morning, meeting analyst expectations. The value of the Australian dollar (AUD) was largely affected in a bizarre neutral fashion. The currency appears to be holding off on significant shifts as news from its neighbors comes in over the next few days.
Analysts are speculating that a fall in Chinese yuan (CNY) values may drop the Aussie, as could a hike in New Zealand’s interest rates. But for now the Aussie seems to be holding its recent losses in anticipation of a further decline. Forex traders looking for a gamble may see this as an opportunity to jump into a new trend before it really takes off.
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Economic data released out of the local economy in Switzerland lately has shown a rising sluggishness affecting several sectors. Monday’s publication of retail sales data showed a sharp downturn in consumer spending, as well as domestic demand for retail goods.
Expectations for Thursday’s inflationary CPI data are also set to reveal a 0.1% decline in growth. The news has done little to affect the value of the Swiss franc (CHF), however, as traders continue to flock to the Swissie as a store of value during the choppy trading sessions of these past several days.
Sweden's Riksbank raised its benchmark repo rate by 25 basis points to 2.00% from 1.75% previously. The Bank said: “The Swedish economy is growing at a good rate, although international developments are marked by uncertainty,”. On inflation, the Bank noted: “Consumer price inflation is high at present as a result of rising mortgage rates. Underlying inflationary pressures remain low, but are expected to increase as economic activity strengthens.”
