Currencies Attempting to Recover in Relatively Stable Overnight Trade
The USD rally has certainly made an impact on some of the other markets, with global equities and commodity prices selling off on what appears to be a flight to safety move. A high degree of uncertainty in the global economy and specifically in the Eurozone has been attributed to the latest elevation in risk aversion, and the downgrade of Portugal in the previous day has certainly not helped matters. Nevertheless, negative sentiment has found a base for now, and all currencies track higher against the Greenback on the day.
Relative Performance Versus USD on Thursday (As of 11:00GMT) –
1) STERLING +0.71%
2) KIWI +0.61%
3) AUSSIE +0.58%
4) CAD +0.57%
5) SWISSIE +0.38%
6) YEN +0.33%
7) EURO +0.32%
Data in European trade has come in mixed, with German GfK consumer confidence slightly better, while Eurozone M3 figures have produced a softer result. In the UK, the highly anticipated retail sales number has been somewhat misleading, with a much stronger than expected print nearly fully offset by a substantial downward revision in the previous print. On the whole however, Sterling still manages to outperform on the day.
The topic of the Yuan and pressures for the Chinese to revalue its currency remains a hot one, with Chinese Vice commerce minister Zhong echoing some recent local sentiment that the country will not be pressured into forcing a reminbi appreciation and that the Yuan is not was is driving the US trade deficit. Treasury Secretary Geithner however has said that it is quite likely that China will indeed move on the Yuan over time. The US Ways and Means committee has concluded that the US will not act rashly on the Yuan.
The Australian Dollar has received some positive attention overnight, managing to find fresh bids following some hawkish and currency supportive comments from RBA’s Lowe, and a stamp of approval from the RBA financial stability review. Assistant governor Lowe has said that he sees rates higher despite any uncertainty in the global economy and feels that the Australian Dollar should trade above its average from the past decade over the next few years. Some of Lowe comments have however been mitigated after saying in a Q&A session that rates are 50bps below where they should be, to suggest that only two more hikes are planned. Meanwhile, the RBA financial stability review has given the thumbs up to its financial system, saying that the local economy has been resilient and that funding conditions have improved.
Also out with some hawkish comments has been Fed Kohn who says that the Fed could and would tighten policy well in advance of any threat to price stability. In Japan, BOJ Kamezaki talking on the dovish side after saying that more QE could be in the mix with falling rates possibly not enough to boost economic activity. Eurozone officials and central bankers have not shied away from press with EU Rehn providing some encouragement to the Greek situation, after saying the EU supports a prompt decision on an aid mechanism for Greece. Meanwhile, ECB Bini-SMaghi is on the other side after saying that he opposes IMF help to Greece, explaining that he believes that it puts EMU stability at risk. Germany’s Merkel feels that IMF and bilateral loans for Greece should only be used as a last resort, and this view seems to now be gaining momentum.
On the topic of non-standard monetary policy measures, ECB President Trichet says that he does not want to breed dependency on its liquidity lifelines and that these measures must be withdrawn in time. Finally, ECB Nowotny has come out on FX, welcoming the recent Euro depreciation and saying that it is a positive for the local economy.
Looking ahead, the calendar is fairly light in North American trade, with the only notable releases coming in the form of initial jobless claims (450k expected) and continuing claims (4562k expected) at 12:30GMT. On the official circuit, Fed Chair Bernanke testifies on exit strategies and unwinding Fed programs at 14:00GMT, while Fed Pianalto speaks to the local chamber of commerce in Florida a tad earlier at 13:10GMT. Treasury Allison is at a congressional hearing on housing at 14:0GMT, while Treasury Secretary Geithner sits in on the House Appropriations Subcommittee at 17:30GMT. US equity futures and commodity prices have recovered overnight and track higher heading into the North American open.
EUR/USD Has finally broken down below the multi-day consolidation lows (fresh 2010 low) to likely confirm a bearish continuation and open the next major downside extension towards key psychological barriers by 1.3000 over the coming days. Daily studies have had time to unwind from oversold levels following the major drop in January and February, and there is plenty of room for studies to track lower which is supportive of the prospects for continued weakness. In the interim, key short-term resistance comes in by 1.3465, with only a break back above 1.3570 to take the immediate pressure off of the downside.
USD/JPY Has been very well supported on dips, and we look for the most recent sharp rebound to open additional upside over the coming weeks back above critical medium-term resistance at 93.75. The latest impressive rally from Wednesday reaffirms our outlook with the market closing back above the 200-Day SMA for the first time since August 2009. Look for any intraday setbacks to now be well supported in the 91.00 area.
GBP/USD The market looks to be in the process of a bearish consolidation, with an eventual break below 1.4780 to confirm and open the next major downside extension. The 10-Day SMA has been below the 20-Day SMA for a good portion of 2010, and with the shorter-term SMA now kissing the 20-Day (slightly above), we could once again be on the verge of another major decline. Key short-term resistance comes in by 1.5100, with a break back above this level required to take the immediate pressure off of the downside.
USD/CHF The overall structure is constructive with a medium-term higher low now sought out by 1.0500 in favor of the next major upside extension beyond 1.0900 and towards 1.1500 further up. Ultimately, it is the 200-Day SMA that we use as our gauge for direction, with the longer-term SMA, which comes in just under 1.0500, expected to continue to prop setbacks. So long as the market holds above this SMA, we recommend looking for opportunities to be long. Wednesday’s break back above 1.0670 should now accelerate gains.
Japanses accounts and a security house on the offer in Aud/Jpy. US names on the bid in Usd/Jpy; Japanese exporters selling. Large UK account seller of Eur/Usd. Decent sized buying interest for Gbp/Usd ahead of 1.4800. US investment bank buying Eur/Gbp and Eur/Nok.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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