Markets are reacting sharply within ranges, but we’ll continue to struggle for follow through until the other side of tomorrow’s testimony by Federal Reserve chairman Ben Bernanke. Look for a lively interaction with an increasingly aggressive Congress.
The Reserve Bank of Australia (RBA) minutes overnight supported the Aussie – or at least seemed to, even if they weren’t particularly hawkish, likely because AUD positioning is so heavy that constant new pressure is needed to keep the currency pushing lower here and the minutes saw about five basis points of anticipated rate cuts unwound from the forward curve. The RBA merely expressed some satisfaction with current policy, rather than stepping up expectations for more easing. AUDUSD looks like it wants to reverse again, but recent weeks are littered with rally attempts that have failed to follow through. Let’s see where we are post-Bernanke. In AUDUSD, 0.9200 looks like an important near-term resistance level.
Minutes from a policy meeting at Sweden's central bank, the Riksbank, showed a bit of hawkishness as we have a fairly extensive discussion on the risks on the household debt front if rates are lowered much more. There was hardly any reaction in Swedish yields at the front of the curve. EURSEK did edge lower briefly in response, but then bounced back. That pair can’t decide what it wants to do – 8.65 looks like the near-term support, while a move above 8.80 is needed to offer upside hopes. I still prefer an eventual rally, but seeing is believing in this choppy range.
Looking ahead
For EURUSD and whether it can try higher above the 1.3100 area resistance that was found after the initial stop run and then consolidation from Bernanke’s bombshell last week, let’s await the German ZEW survey at 09:00 GMT. The level of 1.3000 is the obvious downside focus after twice teasing that level over the last two days. We need to push all the way back below about 1.2900 to start calling a full reversal of the EURUSD blow-up from last week.
Look for some direction on GBP from today’s UK inflation data ahead of tomorrow’s Bank of England (BoE) minutes, as the market continues to struggle to make a statement on what it wants to do with sterling. Inflation measures certainly look quiescent with no trend after falling from uncomfortably high levels of late 2011. After yesterday’s sign of support, GBPUSD looked like it wanted to pull back higher to resistance above 1.5200, but this morning’s action is discouraging that notion. Basically, we need to see Bernanke’s testimony tomorrow to get near term direction – watch the 1.5000 area, in the meantime.
Speaking of Bernanke’s testimony, the Congressional committee to which Bernanke will be testifying has asked that he release the testimony well before he actually delivers it – probably to give the members more time to prepare for the Q&A session. This is an interesting move and suggests to me that the questioning from the panel will be more pointed and aggressive than ever, after a significant escalation of the aggressive tone from Republicans at the previous testimony.
I strongly believe Bernanke’s comments last week were aimed at the bond market, and not intended to boost riskier asset prices. It will be interesting in that light to see if Bernanke can pull off a nuanced testimony that differentiates between Fed pushback when bond yields are too high versus discouraging “irrational exuberance” if riskier assets are over-responsive to the Fed’s rhetoric.
Remember that Japan’s upper house elections are this weekend and will likely finally signal a direction in JPY crosses starting as early as next week. More on that soon – USDJPY is getting interesting again as it has poked below near term support, though it is still well above the Ichimoku cloud level of note just above 99.00. Downside interest begins picking up below there.
Economic Data Highlights
- New Zealand Q2 Consumer Prices out showing a gain of 0.2 percent quarter-on-quarter and a gain of 0.7 percent year-on-year versus the 0.3 percent and 0.8 percent advances expected and the gain of 0.9 percent year-on-year seen in the first quarter.
- UK June PPI Input/Output (08:30)
- UK June CPI/RPI (08:30)
- Eurozone June CPI (09:00)
- Euro Zone May Trade Balance (09:00)
- Eurozone July ZEW Survey (09:00)
- Germany July ZEW Survey (09:00)
- US June CPI (12:30)
- US May TICs Data (13:00)
- US June Industrial Production and Capacity Utilisation (13:15)
- US July NAHB Housing Market Index (14:00)
- US Fed’s George to Speak (18:15)
- Japan BoJ to release Meeting Minutes (23:50)