Australian Dollar Finds Little RBA Support For Reversal

Just shy of breaking to fresh three-year highs, the Dow Jones FXCM Dollar Index (USDollar) stalled once again short of 10,875 resistance. While the greenback has drifted higher despite the meandering of risk-based sentiment trends, it seems the escalation to a full-steam bullish run for the benchmark currency requires a more committed drive from the fundamental backdrop. A full-scale risk aversion shift would certainly hit the necessary pitch to throttle the reserve currency into the next gear, but such fears are difficult to engage without the tapping into stimulus expectations. The June ISM Manufacturing report made an attempt to alter the Taper timetable. However, the stronger-than-expected 50.9 headline reading was offset by the first pessimistic reading on the sector’s labor conditions since September 2009. Jobs fears can push back the stimulus taming, but Friday’s NFPs carry more weight in this area – and there is Thursday’s holiday to worry about as well.

Australian Dollar Finds Little RBA Support for Reversal, Rally
The Aussie dollar’s tenuous rebound hit a wall this morning when the Reserve Bank of Australia (RBA) maintained policy and their dovish guidance following the official meeting. Through Monday, the Australian currency advanced against every one of its major counterparts - even posting an exceptional 1.6 percent rally from the otherwise stubborn AUDJPY. By many accounts – fundamental and technical – the currency is short-term oversold and prone to correction. Yet, that transition seems to be sabotaged at every turn. Filling in for the stabilization for risk, the RBA offered commentary that clearly spoke to the bears. Beyond the simple reiteration that there remains further scope for easing, the central bank continues to target the AUD. The group said the currency is still expensive even after a 10 percent drop and may further decline.

Euro: Does 1.3075 or 1.3000 Break First?
There was plenty of headline and data for the euro to follow through the opening session of the trading week. Yet, it wasn’t enough to break the world’s most liquid pair – EUR/USD – from a tight range between the confluence of the 50, 100, 200-day moving averages at 1.3075 and the psychologically-significant 1.3000 floor. On the data side, an updated manufacturing activity report for the Euro-area nudged up the 48.8 reading; but this indicator has reported net contraction (sub-50) since July 2011. More pertinent perhaps to Thursday’s ECB rate decision, the May jobless rate printed below forecasts though still a record high; while inflation estimate rose back up to a 1.6 percentpace. The troubled labor situation has long presented a strong argument for more proactive policy support from the ECB, but rebounding inflation pressures renew the wait-and-see approach. From the newswires, discussion continues on whether Greece can continue without further support. The government missed its objectives on setting 12,500 jobs to a mobility scheme and selling public assets to meet stimulus requirements. This jeopardizes an €8.1 billion tranche of aid for August. Such themes will take months to play out, but this EUR/USD break will come much sooner.

Japanese Yen: Tankan Report Reinforces BoJ Stimulus Drive
Japanese policy officials are finding early – and perhaps questionable – evidence to support the notion that their drastic strategies of the past months are paying off. Last week, improvements in national inflation, retail sales, manufacturing activity and employment data for March supported the argument that ‘Abenomics’ and the Bank of Japan’s (BoJ) open-ended stimulus program were supporting growth and quashing deflation. Yet another indicator was offered Monday morning in the form of the 2Q Tankan business activity report. The 4-reading for the large manufacturing report was the first positive report since 3Q 2011 while the 5.5 percent pickup in investment plans was a strong beat and remarkable reversal from the steep contraction previously. These statistics certainly speak to success with policy programs, but that actual negates the need for further escalation of Japan’s yen devaluing efforts. Is the current pace hearty enough to override risk trends?

British Pound Finds Little Volatility on Carney’s First Day at BoE
The man dubbed the ‘central bank rock star’ is now in control of the Bank of England. Governor Mark Carney’s first official business day at the head of prestigious policy authority passed with few fireworks. After only three days in command, the transplant from Canada will have to deliberate on how he can balance lackluster growth with persistent inflation pressures. Deputy Prime Minister Nick Clegg reiterated the government’s readiness to support ‘flexible’ monetary policy – in other worlds tolerate inflation for additional stimulus support. Those trading the pound must assess how intense speculation is for Thursday’s central bank decision and wear the bias lies. The tumble through the opening quarter of 2013 no doubt found heavy influence on speculation of BoE stimulus. Yet, the MPC’s 6-3 vote to hold is clear.

Canadian Dollar: Looking to Trade Data for Greater Volatility
The Canadian dollar struggled to find the same risk-positive traction that the Aussie and kiwi dollars experienced this past session. With a 10-year government bond yield that is a mere 2 basis points higher than the sterling and three-month money market rate less than half that of the ‘investment currency’ duo, the loonie struggles to enjoy the spoils of a risk-based move unless there is serious momentum behind the drive. Looking for volatility, data is likely to elicit more action for the Canadian currency. In the upcoming session, the Canadian trade balance for May is due. The country is expected to record its 17th consecutive deficit with a C$700 million shortfall. For a country that generates much of its strength through external demand (exports), this is not an encouraging fundamental series.

Gold Posts First Back-to-Back Advance in Three Weeks…The Turn?
Big moves often kick off with small changes in the market. For gold, this past Friday’s hold of $1,200 was a first step to be joined by the more modest 1.5 percent advance measured this past session. While in the context of the record-breaking 23 percent collapse in prices through the second quarter, this may seem an insignificant, it nevertheless represents the first back-to-back daily advance in over three weeks. For many opportunistic speculators, this is reason enough to pursue the aggressive reversal theorem – corrections following big trends are often aggressive. However, we have encountered too many false starts for gold over the past months to be so easily drawn in. Despite the bounce, gold is barely off its three-year low set just last week. Meanwhile, positioning reflects futures speculators holding the lowest net long position in 8 years, ETF holdings hit a fresh 3 year low (65.71 million ounces). Even the SSI shows a modest 1.5 to 1 long interest on a volatile pair…