US is mostly lower this morning on what seems to be just profit-taking or position-squaring on recent moves. The biggest gainers overnight were the biggest losers yesterday, namely NOK and SEK. The across-the-board rally in European stocks yesterday gave rise to some optimism that the recent sharp drop in some currencies has been overdone, and few of the majors have dropped as much as NOK. But Norwegian stocks were up nearly 3% yesterday, double the rise in European stocks as a whole, leading to outperformance of the currency. SEK dropped vs EUR and NOK after Sweden reported a 2.6% mom decline in industrial production in May, but still managed to gain against the dollar. I would not put too much emphasis on sharp movements in such thinly traded currencies, though. By contrast, AUD and NZD were the only major currencies to lose ground vs USD, because of the fall in the National Australia Bank (NAB) business confidence to -8 in June from -4 and a rise in Chinese inflation to 2.7% yoy from 2.1%, which could encourage the Chinese government to take further steps to cool the economy. AUD and NZD were the currencies that benefitted most from the Fed’s QE program and we think they are the ones where the dollar has the most room to rebound. We remain negative on both of them.
The positive action in European stocks yesterday only underscores how central banks are calling the tune. Actually, the main news out of Europe was negative yesterday: German exports collapsed and industrial production was sharply lower, calling into question the ECB’s forecast of a Eurozone recovery in 2H. The 9.6% plunge in German exports to the Eurozone shows that Germany cannot isolate itself from the problems in the rest of the region. Yet the DAX was up 2.1% as investors listened to ECB President Draghi reaffirm his commitment to keep rates low. What this suggests to me is that investors in Europe, like the US, are putting their faith in the central banks. With growth prospects in Germany fading, the ECB is likely to have to push even harder on its monetary policy to keep these hopes alive. That means moving further and further down the road of forward guidance, probably moving into conditional guidance that sets specific conditions for exiting monetary policy (as the Fed has done). This means to me further EUR depreciation to come. Ditto for GBP.
After yesterday’s disappointing German industrial production figure for May, expectations cannot be that high for today’s UK IP figure, which rarely outperforms Germany. It’s expected to show a small rise of +0.2% mom vs +0.1% in April, while manufacturing production is expected to rise 0.4% mom, a turnaround from -0.2% mom in May. But even that would bring the yoy figure only to -1.6%, down from -0.6% yoy in April. That would not really encourage anyone to think that the UK economy is turning up convincingly and so I would consider it probably GBP-negative. The UK visible trade balance for May continues deeper into disaster territory, including services, the total trade deficit is expected to be approximately unchanged from April at GBP -2.6bn. That should be GBP-neutral. In the US, the National Federation of Independent Businesses (NFIB) small business optimism survey is expected to show a small increase, following rises in consumer confidence. That could help the dollar further, although an early release of part of the survey showed no increase in jobs, which may be disappointing.
The Market
EUR/USD
EUR/USD" width="1791" height="797" />
• EUR/USD had a solid rebound in the 1.2855 – 1.2860 area before breaking out to find significant resistance at 1.2875, the 50% retracement level of the rally from July 2012 to February 2013, despite the smaller-than-expected German trade surplus, the surprise deterioration in Eurozone investor confidence and the below-consensus German industrial production for May. The pair retraced from resistance, however, as the US consumer credit change came in at a 6-month high, beating expectations by more than 50%.
• The pair may struggle to move higher given the noteworthy resistance in the 1.2900 – 1.2920 area, above the current resistance level of 1.2875. Having already violated 1.2855 support, there does not seem to be any difficulty to move towards 1.2800 again, unless the euro rebound continues in the absence of any significant data from the Eurozone and the US today.
USD/JPY
USD/JPY" width="1790" height="795" />
• USD/JPY had a pretty technical day yesterday, retracing from 101.35 resistance, finding support at the well-tested 100.80 level, as the dollar was weakening across the board yesterday.
• The rebound today, as the Nikkei managed to extend its upward opening gap, is moving the pair yet again towards 101.35 resistance with notable resistance thereafter in the 101.75 – 101.95 area. A breakout may rocket the pair towards 102.50 resistance. Support is found at 100.80, which today may also act as trendline support. Further support comes at 100.40.
GBP/USD
GBP/USD" width="1789" height="795" />
• GBP/USD managed to rebound from 1.4850 support, breaking out from 1.4920 resistance, turning it into support, with a retracement from 1.4950 materialising despite the beat by the RICS housing price balance indicator. With a plethora of UK data to be released today, including industrial and manufacturing production and the trade deficit, as well as the NIESER GDP estimate for Q2, traders are bound to follow sterling, particularly since most of the data forecast a deterioration.
• Resistance above 1.4950 is seen in the 1.5015 – 1.5040 area, which sees the May lows as well as trendline resistance. Support below 1.4920 comes at the 4-month lows of 1.4850, with a breakdown seeing key support then at 1.4700.
Gold
• Gold’s rebound from the plunge following Friday’s NFP figure was furthered overnight on account of a larger than expected increase in Chinese consumer prices.
• The strong momentum on the RSI and the Stochastic oscillator on multiple time periods may extend the rebound towards the $1257 - $1259 resistance area, with a break of that level seeing resistance near the $1267 - $1269 area. Thereafter, strong Fibonacci resistance is located at $1285. Tested price support is currently found in the $1241 - $1244 area as well as at $1234.
Oil
• WTI retraced from the significant Fibonacci resistance found at $103.80, the 61.8% retracement level of the crash in oil prices during the second half of 2012. Crude, however, found support at $102.10 as the turmoil in Egypt has yet to subside.
• The pair seems to be consolidating in the $102.95 - $103.25 area, with strong resistance at $103.80. A breakout from this Fibonacci level sees further resistance at $104.50 and $105.45. Support today is likely to come higher at $102.30.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
The positive action in European stocks yesterday only underscores how central banks are calling the tune. Actually, the main news out of Europe was negative yesterday: German exports collapsed and industrial production was sharply lower, calling into question the ECB’s forecast of a Eurozone recovery in 2H. The 9.6% plunge in German exports to the Eurozone shows that Germany cannot isolate itself from the problems in the rest of the region. Yet the DAX was up 2.1% as investors listened to ECB President Draghi reaffirm his commitment to keep rates low. What this suggests to me is that investors in Europe, like the US, are putting their faith in the central banks. With growth prospects in Germany fading, the ECB is likely to have to push even harder on its monetary policy to keep these hopes alive. That means moving further and further down the road of forward guidance, probably moving into conditional guidance that sets specific conditions for exiting monetary policy (as the Fed has done). This means to me further EUR depreciation to come. Ditto for GBP.
After yesterday’s disappointing German industrial production figure for May, expectations cannot be that high for today’s UK IP figure, which rarely outperforms Germany. It’s expected to show a small rise of +0.2% mom vs +0.1% in April, while manufacturing production is expected to rise 0.4% mom, a turnaround from -0.2% mom in May. But even that would bring the yoy figure only to -1.6%, down from -0.6% yoy in April. That would not really encourage anyone to think that the UK economy is turning up convincingly and so I would consider it probably GBP-negative. The UK visible trade balance for May continues deeper into disaster territory, including services, the total trade deficit is expected to be approximately unchanged from April at GBP -2.6bn. That should be GBP-neutral. In the US, the National Federation of Independent Businesses (NFIB) small business optimism survey is expected to show a small increase, following rises in consumer confidence. That could help the dollar further, although an early release of part of the survey showed no increase in jobs, which may be disappointing.
The Market
EUR/USD
EUR/USD" width="1791" height="797" />• EUR/USD had a solid rebound in the 1.2855 – 1.2860 area before breaking out to find significant resistance at 1.2875, the 50% retracement level of the rally from July 2012 to February 2013, despite the smaller-than-expected German trade surplus, the surprise deterioration in Eurozone investor confidence and the below-consensus German industrial production for May. The pair retraced from resistance, however, as the US consumer credit change came in at a 6-month high, beating expectations by more than 50%.
• The pair may struggle to move higher given the noteworthy resistance in the 1.2900 – 1.2920 area, above the current resistance level of 1.2875. Having already violated 1.2855 support, there does not seem to be any difficulty to move towards 1.2800 again, unless the euro rebound continues in the absence of any significant data from the Eurozone and the US today.
USD/JPY
USD/JPY" width="1790" height="795" />• USD/JPY had a pretty technical day yesterday, retracing from 101.35 resistance, finding support at the well-tested 100.80 level, as the dollar was weakening across the board yesterday.
• The rebound today, as the Nikkei managed to extend its upward opening gap, is moving the pair yet again towards 101.35 resistance with notable resistance thereafter in the 101.75 – 101.95 area. A breakout may rocket the pair towards 102.50 resistance. Support is found at 100.80, which today may also act as trendline support. Further support comes at 100.40.
GBP/USD
GBP/USD" width="1789" height="795" />• GBP/USD managed to rebound from 1.4850 support, breaking out from 1.4920 resistance, turning it into support, with a retracement from 1.4950 materialising despite the beat by the RICS housing price balance indicator. With a plethora of UK data to be released today, including industrial and manufacturing production and the trade deficit, as well as the NIESER GDP estimate for Q2, traders are bound to follow sterling, particularly since most of the data forecast a deterioration.
• Resistance above 1.4950 is seen in the 1.5015 – 1.5040 area, which sees the May lows as well as trendline resistance. Support below 1.4920 comes at the 4-month lows of 1.4850, with a breakdown seeing key support then at 1.4700.
Gold
• Gold’s rebound from the plunge following Friday’s NFP figure was furthered overnight on account of a larger than expected increase in Chinese consumer prices.
• The strong momentum on the RSI and the Stochastic oscillator on multiple time periods may extend the rebound towards the $1257 - $1259 resistance area, with a break of that level seeing resistance near the $1267 - $1269 area. Thereafter, strong Fibonacci resistance is located at $1285. Tested price support is currently found in the $1241 - $1244 area as well as at $1234.
Oil
• WTI retraced from the significant Fibonacci resistance found at $103.80, the 61.8% retracement level of the crash in oil prices during the second half of 2012. Crude, however, found support at $102.10 as the turmoil in Egypt has yet to subside.
• The pair seems to be consolidating in the $102.95 - $103.25 area, with strong resistance at $103.80. A breakout from this Fibonacci level sees further resistance at $104.50 and $105.45. Support today is likely to come higher at $102.30.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY