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Risk Bounces Back as Data Outshines Bernanke

Risk Bounces Back as Data Outshines Bernanke

2010-07-22 10:14:00
Joel Kruger;Jonathan Granby,
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 MORNING SLICES

 

FUNDYS
 
Equities have shrugged off very early declines and gains are now gathering momentum as major bourses are 1% higher.
 
Relative Performance Versus the USD on Thursday (as of 10:15GMT) - 

1)SWISSIE            +0.92%
2)KIWI                   +0.86%
3)AUSSIE              +0.75%
4)CAD                    +0.73%
5)STERLING         +0.67%
6)EURO                 +0.58%
7)YEN                    +0.47%
 
Over night, USD, Yen and Swissie were big winners due to their safe-haven status after Fed Chair Bernanke said that although the chances for a double dip recession were unlikely, the outlook for the economy as “unusually uncertain.” This in conjunction with the Fed Chair’s failure to introduce any additional forms of accommodative measures was taken as net bearish, with global equities and currencies selling off sharply as a result.
 
Swissie has caught our eye this morning and looks poised to break below 1.0400 which should accelerate declines. An article titled “Switzerland Endures Safe-Haven Agony” will continue to weigh on the pair as it presses lower. It is our opinion to exit any long positions taken and sell the pair in anticipation of a clear break of 1.0400 with full expectation of the SNB to remain sidelined after news that the central bank lost Chf14b in intervention related trades. 
 
Elsewhere, EU Rehn was out talking up the stress-test results which are due tomorrow saying that the tests will give a clear indication of the state of the banking system. Quickly adding that the EU has the tools to fix any weakness in the system.
 
On the data front, German PMIs surprised to the topside early supporting recent upbeat comments from the German FinMin regarding further strengthening in H2 and a very strong Q2 reading. French PMIs also came in firmly along with EMU PMIs which were stronger all around, lifted by German strength. EU industrial orders added more shine to earlier PMIs coming in much stronger than expected showing just how far the economy has come in the last year. Finally, UK retail sales didn’t disappoint which were spurred on by World Cup related purchases and gave cable a much needed lift.
 
Looking ahead, the usual Thursday data of US continuing claims (4590K expected) and initial jobless claims (445K expected) are due at 12:30GMT. Also due at 12:30GMT are Canadian retail sales (0.5% expected). Followed by US leading indicators (-0.3% expected) and existing home sales (-9.9% expected) at 14:00GMT wrapping up data for the session. US equity futures are 1% higher, commodities have bounced back to trade firmer.
 
GRAPHIC REWIND
dxy7.22

TECHS
 
EUR/USD:  The market continues to roll over after failing to hold above the 100-Day SMA, with the latest setbacks accelerating into the 1.2700’s thus far. Look for additional declines towards next key support by 1.2500 over the coming sessions, while any rallies should be well capped ahead of 1.2900. Only  a break back above 1.2915 would negate and open the possibility for a fresh upside extension beyond 1.3030.   
 
USD/JPY: The latest round of setbacks below 87.00 have been very well supported and daily studies have now turned up from oversold levels with the market looking like it wants to carve out a base. Look for additional gains over the coming sessions back towards 89.15, with a break of this level to likely accelerate gains and force a more material shift in the structure. Back below 86.25 would negate and shift focus back towards the multi-year lows by 84.80. 
 
GBP/USD: The latest rally has stalled out ahead of key resistance just over 1.5500 and we look for a medium-term lower top to now carve out by 1.5470 ahead of the next major downside extension below 1.5000. Key short-term support now comes in by 1.5000, and a break below this level will be required to confirm bearish bias and accelerate declines. Back above 1.5400 delays outlook and gives reason for concern. 
 
USD/CHF: The market could be in the process of carving out a material base after closing back above the 10-Day SMA on Monday for the first time since early June when the price was above 1.1600. This should be encouraging for bulls, and we look for some more bullish confirmation on a break above next key resistance by 1.0680 over the coming sessions. Back below 1.0400 would negate outlook and give reason for concern. 
 
FLOWS
 
A European central bank on the offer in Eur/Usd keeping the topside while Canadian banks, Russian accounts and European corporates are on the bid. Russian accounts and Swiss bank selling in Gbp/Usd. European name and German bank selling in Aud/Usd.
 

Written by Joel Kruger & Jonathan Granby


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