Daily Commentary: Dollar Falls Against Most Currencies

The dollar collapsed last week, falling against almost every currency we track. It only managed to eke out a small gain against the IDR and INR. Several currencies managed gains of over 2%. The selling finally petered out during New York trading and the EUR, JPY and GBP failed to make new highs for the week. The notable trend on Friday was the strength of the commodity currencies as the change in sentiment caused by last week’s signs of a rebound in the Chinese economy in July. The surprisingly strong import figures on Thursday were followed on Friday by higher-than-expected industrial production, lending and broad money supply growth, which have caused a recovery in sentiment to commodities. Basic materials was the only S&P 500 sector to gain on Friday, and the S&P 500 metals and mining index was up 6.1% over the week. The CAD demonstrated the importance of this global driver, as a weak employment report initially sent USD/CAD higher but the pair quickly returned to the lows. The big question then is whether the Chinese import story is for real and, if so, now long it will last.

The highlight this week will be Q2 GDP data. Japan started the week off overnight with somewhat disappointing growth of 2.6% qoq annualized, vs 3.6% expected. While the economic surprise index for Japan remains quite high, demonstrating that indicators are tending to exceed market expectations, it is coming down as analysts become more optimistic and unfortunately the data becomes somewhat weaker.There are no other major indicators scheduled for today.

For the rest of the week, the focus will be on Tuesday, with the US retail sales, Eurozone industrial production and the ZEW indices, and Wednesday, with the 2Q GDP figures for the Eurozone and many of its economies, as well as the Bank of England minutes. Those will be required reading to learn just how the MPC came up with that disastrous decision to hedge their forward guidance with so many caveats that they sent interest rates up, not down. Thursday sees UK retail sales and US CPI and IP, while US housing starts are out Friday. There are no major central bank meetings this week.

The Market

EUR/USD
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• EUR/USD moved lower during Friday’s trading session, currently testing the lower boundary of the uptrend channel. Therefore, we consider this move as a pullback before price continues its upward move. The pair is trading near the 20-period moving average on our four-hour chart, but is still above the 200-period moving average, confirming that price is trading in a bullish territory. Currently price is near the psychological level of 1.3300. A downward penetration of it should lead us towards the 1.3185 level.

• Support: Support is found at the psychological level of 1.3300, followed by the 1.3185 and 1.3058 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
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• USD/JPY moved sideways during Friday’s trading session, penetrating downwards the 61.8% retracement level and testing the lower line of the downtrend channel. We expect the price to pull back and return into the downtrend channel, continuing its downward momentum, also confirmed by the bearish cross of the 20-period moving average below the 200-period moving average. 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 Friday’s session, after failing to overcome Thursday’s recent high. We consider that this is a correction of the uptrend (marked by the blue uptrend line) and might take us towards the 1.5308 area. Currently, the pair remains above both the 20-period and 200-period moving averages, 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: The pair is near the 1.5528 followed by the 1.5674 and 1.5752 levels.

Gold

• Gold moved higher during Friday’s trading activity, penetrating the upper boundary of the blue downtrend channel and the 1320.78 resistance level. The 20-period moving average has reached the 200-period moving average and a bullish cross might occur during the next trading periods. It seems that gold is moving higher due to the negative correlation with the USD, although in fact that correlation is not as strong as some would believe; for EUR/USD for example it’s only 36%, down from a peak of 57% back in 2008. 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 continued moving higher during Friday’s session, penetrating upwards the 105.70 resistance 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