USD A Touch Softer As Currencies Consolidate; Kiwi Continues to Headline
Its been a fairly turbulent morning in Europe with early moves coming in the form of a Sterling sell-off after Moody’s confirmed rumours that it is reviewing a selection of UK financial institutions for possible downgrades. Moody’s also issued warnings to Portugal and Ireland, suggesting they would suffer multi-notch downgrades if Greece defaulted on its debt obligations. The bad news for the periphery kept coming as the Greek opposition leader announced that he has rejected the new austerity plans which were set to see the government sell assets and speed up austerity in an attempt to meet its obligations; leaving debt restructuring, or reprofiling, looking imminent.
Relative Performance Versus the USD Tuesday (as of 11:00GMT)
Despite all this the euro managed to maintain a bid tone as consolidation dominated, and even managed to retake 1.4100 intraday as a short squeeze played out after a firmer than expected German IFO reading. One other currency which continues to grab our attention however, has been the New Zealand Dollar, which remains very well bid in recent sessions on the back of a well received government budget and most recently, a higher than expected annual inflation forecasts.
Data this morning was mixed in nature with the aforementioned German IFO defying pre-release rumours and performing solidly, German Q1 GDP came in as expected but the accompanying breakdown showed some cause for concern, particularly as domestic demand remains tepid. Meanwhile, UK public finances for April came in at the worst on record for the month, and finally Euro-zone industrial orders also disappointed as they continue to slow dramatically.
Looking ahead, US new home sales (1.7% expected) at 14:00GMT gets things underway in the US session, followed by the Richmond Fed Manufacturing Index (9 expected). There are plenty of Fed speaks to note too with Hoenig, Bullard and Duke all slated to speak today. US futures are pointing to a mildly higher start after yesterday’s rout and commodities are well bid led by oil.
EUR/USD: The market continues to show signs of weakness following the break below 1.4155 support several days back, and the risks from here are for deeper setbacks over the coming days towards next key support in the 1.3800’s. Look for a clear break below 1.4045 to confirm and accelerate, while any rallies should be well capped ahead of 1.4350.
USD/JPY: After undergoing a fairly intense drop off from the 85.50 area several days back, the market looks to have finally found some support by the bottom of the daily Ichimoku cloud and could be in the process of carving out some form of a base. Look for setbacks to continue to be well supported in the 80.00’s with only a close back below 79.50 to give reason for concern. From here we see the risks for a fresh upside extension back towards the recent range highs at 85.50 over the coming days.
GBP/USD: The market is starting to give way, with the price now dropping back below the 50-Day SMA to warn of additional declines over the coming sessions. Look for deeper setbacks below 1.6000, with any rallies now expected to be well capped ahead of 1.6400. Ultimately, only back above 1.6520 gives reason for concern.
USD/CHF: Starting to show signs of basing off of the recently established record lows by 0.8550, with the market putting in a solid bullish close for two consecutive weeks and breaking back above the previous weekly high. Next key resistance comes in by 0.9000 and a break above will further confirm recovery structure and open the door for a move back towards a medium-term lower top at 0.9340. Look for any intraday setbacks to be well supported above 0.8700 on a daily close basis. Ultimately, only a daily close back below 0.8700 delays and gives reason for concern.
Real money, models and funds all aggressive Nzd/Usd buyers. A French bank is a noted seller in Eur/Jpy with corporate types on the bid. Swiss, French banks and a Middle Eastern account have all been buyers in Cable this morning.
Written by Joel Kruger, Technical Currency Strategist
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