Market Brief
The week opens in a quiet fashion after an eventless Friday afternoon and low volumes due to US holiday. In the absence of leading event/data, we expect the FX markets to trade on technicals, adjust in the continuation of important events of past week (ECB, unexpected progress in US jobs). The US Dollar opens the week in demand versus the majority of G10 and EM currencies, light flows drive the markets after the US holiday. IMF Managing Director Lagarde hinted on lower global growth prospects as investments remain weak. Lagarde pointed at risks in US, although the recovery gathers pace. The US 10-year yields gap-opened at 2.6520% (Thu’s close at 2.6383%) and remained above the 100-dma in Asia.
The JPY-crosses did little in Tokyo. Offers pre-100-dma (102.20) capped the upside in the USD/JPY, while the pair sits comfortably in its daily Ichimoku cloud cover (101.79/102.47). Decent option barriers are eyed at 102.50/55 for today expiry, yet better US yields are likely to secure the downside above 200-dma (101.81). The EUR/JPY remains offered below its strong 200-dma resistance (139.24).
In Australia, the AUD/USD consolidated losses below 0.9373 despite good performance in the construction activity in June reported by AiG; the job advertisements increased 4.3% - highest since February, according to ANZ index. As technical indicators gain momentum on the downside, we see resistance building at 0.9398/0.9400 (21-dma / optionality). The first line of short-term support stands at 0.9339/41 (Fib 38.2% on Oct’13- Jan’14 drop & 50-dma), then 0.9200/09 (May support zone). Australian employment data is due on July 10th; the unemployment rate is expected to deteriorate to 5.9% (from 5.8% in May). The AUD/NZD hit 1.0661 (2-month lows) last week, and remains offered below 1.0751 (Fib 76.4% on Oct’13 – Jan’14 pullback).
The EUR/USD made a weak start to the week. EUR/USD sold-off to 1.3576 as Europe walked in due to unexpected contraction in German industrial production in May. The divergence in Fed/ECB outlooks is likely to continue weighing on the pair. Failure to close the week above the 200-dma (1.3677) signals a short-term bearish reversal. Critical support stands at 1.3477/1.3503 (2014 low / June 5th ECB reaction low). The EUR/GBP sinks to the new low (0.79151 at the time of writing). The RSI (25%) warns of a potentially oversold EUR/GBP, light correction is eyed at 0.78950/0.79000 (lower Bollinger band). The BoE meets on Thursday and is expected to keep its policy rate unchanged at the historical low of 0.50%.
The GBP/USD successful held ground above 1.7100 post-NFPs. The pair remains comfortably in the year-to-date uptrend channel. The overbought conditions persist (RSI above 70%), short-term resistance stands at 1.7237/80 (30-day UBB / uptrend top). Key support stands at 1.7000/09 (21-dma / optionality).
This Monday, the economic calendar consists of Swiss June Unemployment Rate and Foreign Currency Reserves, German and Spanish May Industrial Production m/m & y/y, Swedish May Household Consumption m/m & y/y and June Budget Balance, Norwegian June Industrial and Manufacturing Production m/m & y/y, Canadian Building Permits m/m, June Ivey Purchasing Managers Index SA, Canadian 2Q Business Outlook Future Sales and BoC Senior Loan Officer Survey.
Currency Tech
EUR/USD
R 2: 1.3641
R 1: 1.3600
CURRENT: 1.3583
S 1: 1.3574
S 2: 1.3503
GBP/USD
R 2: 1.7237
R 1: 1.7180
CURRENT: 1.7150
S 1: 1.7103
S 2: 1.7063
USD/JPY
R 2: 103.02
R 1: 102.47
CURRENT: 102.14
S 1: 101.81
S 2: 101.24
USD/CHF
R 2: 0.9013
R 1: 0.8955
CURRENT: 0.8950
S 1: 0.8908
S 2: 0.8857