fundamental alert

Currencies Set to Quiet Ahead of Paper Thin Holiday Session; Closer Look at S&P (Morning Slices)

Friday, 03 July 2009 11:30:54 GMT  |  Joel Kruger, Technical Currency Strategist

All of the economic data for the week has been released and the final session of trade is expected to be a boring one, with the US holiday weekend kicking off and the equity markets closed. The commodity bloc currencies have outperformed on the lightened session, while Sterling lags. Happy 4th!!

MORNING SLICES

Fundys – All of the economic data for the week has been released and the final session of trade is expected to be a boring one, with the US holiday weekend kicking off and the equity markets closed. Data released in the overnight session was on the whole better than expected, although there were some holes in the Eurozone to leave traders with some concern. The common indicator of the day was PMI, with Eurozone and UK and PMI readings managing to slightly exceed expectations. In the UK, housing equity withdrawal numbers were better than forecast, but failed to infuse any sense of confidence after the release was still weaker than the previous print. The data also showed the largest amount of equity that UK homeowners injected back into their homes since the data series began in 1970. Eurozone retail sales was also released and managed to disappoint after coming in weaker than market forecast, but any negative reaction was seen mitigated by the earlier German retail sales release from Thursday. Meanwhile in Switzerland, CPI was released and came in better than expected, although this failed to have any influence over the manipulated Franc which still traded with relative weakness. A Japanese official was on the wires overnight saying that Japan thinks that other major countries should support the USD as a key international currency. ECB Noyer was also in the news saying that price stability should remain the primary objective of European Central Bank monetary policy. Finally, Swedish FinMin Borg was heard one day after the surprising 25bp rate cut by the Riksbank to 0.25%, saying he believed that the economy was showing signs of improvement. The commodity bloc currencies have outperformed on the lightened session, with Kiwi leading, up some 0.70% against the buck, while Sterling lags and tracks some 0.45% lower against the USD.

Quant – 


For information on the above tables, please visit our Guide to Morning Slices Quant section

Techs - EUR/USD has broken down through some recent consolidation to open the door for a potential drop back towards 1.3750 over the coming days. In the interim, key levels to watch above and below come in by 1.4155 and 1.3925. USD/JPY well capped on rallies to 97.00 and looks set for a fresh drop below 94.90 over the coming days to expose the key medium-term trend lows by 93.55-85. Key levels to watch over the coming session come in by 96.90 and 95.30. GBP/USD remains locked in a bout of sideways chop with the latest topside failure opening a decline towards the very well supported short-term trend lows in the 1.6185-1.6245 area. Any rallies are now expected to be well capped ahead of 1.6500. USD/CHF continues to attempt to carve out a meaningful base with the market pressing higher on Friday to end a sequence of 6 consecutive daily lower highs. A higher low is now sought out by 1.0710 ahead of the next upside extension back above 1.1025. Key levels to watch over the coming session come in by 1.0950 and 1.0830. 

Flows – Asian reserve manager bids in Aussie; technical accounts looking to sell rallies. US investment house selling Cable. Stops reported below 0.8500 in Eur/Gbp. Large 1.4000 expiries in Eur/Usd reported today.

Trade of the Day – S&P 500: We are not recommending any trades on the holiday lightened session of trade and instead will take the opportunity to broaden our scope outside of currencies to take a look at developments within the equity markets. A closer look at the daily S&P chart shows the potential formation of a head & shoulders topping pattern which looks to be in the process of carving out the right shoulder and on the verge of a break of neckline support by the 880 area. Look for a close below 880 to confirm and open the door for a more significant decline over the coming days back towards a measured move pattern objective by 800. As things have been correlating of late, any pickup in equity selling could very well translate into additional broad based USD buying on a flight to safety mentality trade.



Wishing all Americans a Happy 4th and a happy and great weekend to everyone!!

Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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Quant section prepared by David Rodriguez, Quantitative Strategist for DailyFX.com
To contact, e-mail drodriguez@fxcm.com

Joel Kruger publishes 6 daily pieces:

“Tech Talk” – A Daily Video Highlighting Technical Developments in the Overnight Session of Trade.
Monday-Friday (between 5:30am-6:30am EST)

“Morning Slices” – Morning Overview using Fundamental, Technical, Flow, and Quantitative Analysis (Includes “Trade of the Day”).
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“Daily Classical” – A Daily Technical Overview of the Major Currencies. 
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