Kiwi & Sterling Outperform Overnight; Aussie Lags (Morning Slices)

MORNING SLICES

Fundys – Summer doldrums appear to be setting in with the markets continuing to consolidate into the early week as traders look to lighten up for the heavy vacation season. Overnight, the big development on the global macro scene were USD supportive comments out from China’s SAFE which helped to mitigate any USD bull fears over a near-term diversification away from the Greenback. Fed Fisher also helped to confirm after saying that he did not believe the USD would lose its lead reserve currency role. The Dollar is mostly mixed on Monday, with only Kiwi and Sterling showing some relative strength. Data out of the UK was actually weaker than expected on the whole, with mortgage approvals disappointing and consumer credit coming in as expected. Meanwhile, an article in the Telegraph about the potential for UK debt to triple unless drastic steps were taken, failed to materially weigh on the single currency. In the Eurozone, confidence indices were better than expected which helped to bolster the major off of its daily lows and back towards opening levels in the mid-1.4000’s. EU Almunia was on the wires echoing the sentiment from the EU quarterly report, after saying that the worst of the crisis appeared to be over. However, Almunia also conceded that the recovery would be slow and that the US was likely to recover faster. Elsewhere, China’s Zhou came out talking about the outlook for the local economy, while BIS Chief Caruana warned that central banks and governments should withdraw their massive stimulus in time to avoid inflationary threats and new imbalances. Also, the IEA came out slashing its forecasts for world oil demand by nearly 50% from 2008-14, citing decreased demand on lower global GDP. Looking ahead, the calendar is light in North America with only the Chicago Fed national activity index due at 12:30GMT, followed by Dallas Fed manufacturing (-17.5% expected) at 14:30GMT. Interesting to see Kiwi outperforming on the day, while the Australian Dollar lags. US equity futures point to a higher open and commodities are mildly bid.

Techs - EUR/USD has matched Friday’s low but still remains confined to Friday range as the market continues to consolidate ahead of the next big move. Key levels to watch above and below come in by 1.410 and 1.3890 respectively. USD/JPY well supported for now by the 95.00 area but overall structure favors additional weakness to retest the key trend lows by 93.55-85. Only back above 96.60 will delay and give reason for shift. GBP/USD locked in consolidation with a clear break above 1.6665 or back below 1.6185 required for clear directional bias. In the interim trade is expected to remain quite choppy within the defined range. USD/CHF setbacks have been well supported ahead of 1.0760 and we look for a fresh higher low to carve out in anticipation of the next major upside extension back above 1.1025 and towards the 1.1500 area. Only a close back below 1.0760 negates. 

Flows – Strong offers in Kiwi by 0.6500. Talk of fix related demand for Cable. Local importers bidding Usd/Cad while leveraged accounts on the offer. US banks and Middle Eastern names selling Eur/Usd; UK clearer and corporates bidding. 

Trade of the Day – Gbp/Usd: The market has been confined to a multi-day consolidation with rallies towards 1.6600 well capped and drops to the 1.6200 area very well supported. Currently, price action shows a desire to retest the range highs over the coming session, with the potential for a break to fresh 2009 highs beyond 1.6665. However, we do not see gains extending much beyond the 1.6665 level, on the expectation that the market will continue to chop around and fail just after exceeding the current trend high. Look for stops to be cleared just over 1.6665 before a sharp pullback into the well defined range. Strategy: SELL @1.6670 FOR AN OPEN OBJECTIVE, STOP @1.6820.  Recommendation to be removed if not triggered by NY close (5pm ET) on Monday. 

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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