The dollar recovered across the board yesterday, with only the NOK gaining slightly vs the US currency. The shift in sentiment was particularly impressive given that Friday’s Commitment of Traders (COT) report had shown that speculative traders switched to being long EUR last week after five weeks of being short. There was no particular trigger for the rally. Market reports attributed it to enthusiasm ahead of today’s retail sales figures for July. The headline figure is expected to be up 0.3% mom, a deceleration from +0.4% mom in Jun, but the so-called “control group” (excluding petrol stations, auto dealers and building materials) is forecast to power ahead at +0.4% mom vs only +0.1% the previous month. That figure might reassure investors about the health of the US economy and help to confirm that the Fed is likely to begin tapering off its quantitative easing at its September meeting. Also, the NFIB small business optimism survey is forecast to rise to 94.5 from 93.5.
The strength of the dollar vs all three commodity currencies was particularly impressive given the continued recovery in sentiment towards China. Gold rallied strongly, South African stocks hit a new high for the year and Chinese ETFs in the US gained as much as 3%. Yet the AUD was the second-worst performing G10 currency vs USD (after JPY). What all of this suggests to me is that in fact sentiment towards the dollar has not disintegrated anywhere near as much as I had thought. If the US currency can gain in these conditions, then there is still widespread demand for it. It’s way too early to throw in the towel on the long dollar trade. In fact, this pullback could be a good opportunity for dollar bulls to get back in.
Other indicators out today include the ZEW current situations index for Germany, which is expected to rise to 12.0 from 10.6, with the expectations index expected to rise to 39.9 from 36.3. An improvement in the German indices would tend to confirm that the Eurozone economy is bottoming out and could help to keep EUR/USD near the top of its trading range. Similarly, EU industrial production is forecast to be up 0.9% mom in June, a turnaround from -0.3% mom in May, with the yoy rate of change finally breaking into positive territory at +0.3% vs a 1.3% yoy decline in the previous month. This figure would corobborate the message of the ZEW index about the Eurozone economy bottoming, something that we should learn more about tomorrow when the Eurozone Q2 GDP figure is released. Meanwhile, UK CPI for July is forecast to be flat mom, which would bring the yoy rate of change down slightly to 2.8% from 2.9%. That could weaken GBP a bit.
The Market
EUR/USD
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• EUR/USD moved lower during yesterday’s trading session, penetrating to the downside the lower boundary of the uptrend channel and currently testing the psychological level of 1.3300. A clear break below that level should lead the pair towards the next support at 1.3231. Despite the fact of the lower boundary’s penetration, the price is trading near the 20-period moving average on our four-hour chart, but remains above the 200-period moving average, confirming that it is still trading in a bullish territory.
• Support: Support is found at the 1.3231 level, followed by the 1.3175 and 1.3066 respectively.
• Resistance: The only resistance level identified on the short-term horizon (4hour chart) is the recent highs at 1.3416. The next in line are 1.3525 and 1.3705, found from the daily chart.
USD/JPY
USD/JPY" width="1731" height="807" />
• USD/JPY moved higher during yesterday’s trading activity after testing twice the 95.75 support level. The price managed to pull back and return into the channel, as we mentioned in yesterday’s comments, approaching the 97.67 resistance level. We expect the bulls to face a major hurdle at that level, since we consider it a strong technical level over the short term. On the long term horizon it is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is the 95 area where the neckline of the daily “head and shoulders” formation lies, followed by the 93.73 level.
• Resistance: Resistance levels are at 97.67, followed by the 100 (psychological level), 100.84 and 101.52.
GBP/USD
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• GBP/USD moved lower during yesterday’s trading session, approaching the 1.5431 support level. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and might take us towards the 1.5300 area. Currently, the pair remains above the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431, 1.5201 and 1.5102.
• Resistance: Resistance is identified at 1.5569 followed by the 1.5674 and 1.5752 levels.
Gold
• Gold moved higher during yesterday’s trading activity, remaining above the blue downtrend channel, currently trading near the 1347.27 resistance level. The 20-period moving average managed to cross above the 200-period moving average, favoring the bulls’ expectations. However, on the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus is still moving in a downtrend.
• Support: Support levels are at 1320.78 (previous resistance) followed by the 1271.88 and 1245.03.
• Resistance: Resistance levels are at 1347.27, 1376.73 and the 1423.60 (June highs).
Oil
• WTI moved sideways during yesterday’s session, making minor moves and remaining above the 105.70 level. The pair is moving in a trading range between the 102.62 and 108.96 boundaries and a penetration of one of them should give us clear indications about the next trending direction, despite the fact that price remains above the 200 moving average.
• Support: Support levels are at 102.62 followed by the 100.80 and 97.85.
• Resistance: Resistance levels are 107.53 and the recent highs of 108.85. The next in line resistance level is identified from the weekly chart at 114.43.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
The strength of the dollar vs all three commodity currencies was particularly impressive given the continued recovery in sentiment towards China. Gold rallied strongly, South African stocks hit a new high for the year and Chinese ETFs in the US gained as much as 3%. Yet the AUD was the second-worst performing G10 currency vs USD (after JPY). What all of this suggests to me is that in fact sentiment towards the dollar has not disintegrated anywhere near as much as I had thought. If the US currency can gain in these conditions, then there is still widespread demand for it. It’s way too early to throw in the towel on the long dollar trade. In fact, this pullback could be a good opportunity for dollar bulls to get back in.
Other indicators out today include the ZEW current situations index for Germany, which is expected to rise to 12.0 from 10.6, with the expectations index expected to rise to 39.9 from 36.3. An improvement in the German indices would tend to confirm that the Eurozone economy is bottoming out and could help to keep EUR/USD near the top of its trading range. Similarly, EU industrial production is forecast to be up 0.9% mom in June, a turnaround from -0.3% mom in May, with the yoy rate of change finally breaking into positive territory at +0.3% vs a 1.3% yoy decline in the previous month. This figure would corobborate the message of the ZEW index about the Eurozone economy bottoming, something that we should learn more about tomorrow when the Eurozone Q2 GDP figure is released. Meanwhile, UK CPI for July is forecast to be flat mom, which would bring the yoy rate of change down slightly to 2.8% from 2.9%. That could weaken GBP a bit.
The Market
EUR/USD
EUR/USD" width="1727" height="803" />• EUR/USD moved lower during yesterday’s trading session, penetrating to the downside the lower boundary of the uptrend channel and currently testing the psychological level of 1.3300. A clear break below that level should lead the pair towards the next support at 1.3231. Despite the fact of the lower boundary’s penetration, the price is trading near the 20-period moving average on our four-hour chart, but remains above the 200-period moving average, confirming that it is still trading in a bullish territory.
• Support: Support is found at the 1.3231 level, followed by the 1.3175 and 1.3066 respectively.
• Resistance: The only resistance level identified on the short-term horizon (4hour chart) is the recent highs at 1.3416. The next in line are 1.3525 and 1.3705, found from the daily chart.
USD/JPY
USD/JPY" width="1731" height="807" />• USD/JPY moved higher during yesterday’s trading activity after testing twice the 95.75 support level. The price managed to pull back and return into the channel, as we mentioned in yesterday’s comments, approaching the 97.67 resistance level. We expect the bulls to face a major hurdle at that level, since we consider it a strong technical level over the short term. On the long term horizon it is forming a possible Head & Shoulders pattern (daily chart), which will be confirmed if the pair breaks below the 95 area.
• Support: Support is the 95 area where the neckline of the daily “head and shoulders” formation lies, followed by the 93.73 level.
• Resistance: Resistance levels are at 97.67, followed by the 100 (psychological level), 100.84 and 101.52.
GBP/USD
GBP/USD" width="1729" height="806" />• GBP/USD moved lower during yesterday’s trading session, approaching the 1.5431 support level. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and might take us towards the 1.5300 area. Currently, the pair remains above the 200-period moving average, providing bullish indications. On the long term (daily) chart is moving sideways in a trading range between the 1.4811 and 1.5597 boundaries.
• Support: Support levels are at the 1.5431, 1.5201 and 1.5102.
• Resistance: Resistance is identified at 1.5569 followed by the 1.5674 and 1.5752 levels.
Gold
• Gold moved higher during yesterday’s trading activity, remaining above the blue downtrend channel, currently trading near the 1347.27 resistance level. The 20-period moving average managed to cross above the 200-period moving average, favoring the bulls’ expectations. However, on the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus is still moving in a downtrend.
• Support: Support levels are at 1320.78 (previous resistance) followed by the 1271.88 and 1245.03.
• Resistance: Resistance levels are at 1347.27, 1376.73 and the 1423.60 (June highs).
Oil
• WTI moved sideways during yesterday’s session, making minor moves and remaining above the 105.70 level. The pair is moving in a trading range between the 102.62 and 108.96 boundaries and a penetration of one of them should give us clear indications about the next trending direction, despite the fact that price remains above the 200 moving average.
• Support: Support levels are at 102.62 followed by the 100.80 and 97.85.
• Resistance: Resistance levels are 107.53 and the recent highs of 108.85. The next in line resistance level is identified from the weekly chart at 114.43.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY