Majors Remain Technically Constructive in Short-term Against US Dollar
High beta currencies and risk-correlated assets remain supported in the near-term as market participants digest the results of Friday’s relatively successful Euro-zone Summit. With that said, we’ve seen these initiatives by Euro-zone leaders fall flat on their face only after a few days (to wit: the Spanish bailout), so we remain cautiously bullish the AUD and EUR in the near-term against the JPY and USD.
For now, the key indicators to watch have to be the performance of Italian and Spanish debt in the wake of the Summit. Thus far on Monday, both sovereigns have seen their short-term and long-term debt improve modestly. The Italian 2-year note yield has fallen to 3.266% (-12.1-bps) while the Spanish 2-year note yield has fallen to 3.937% (-19.2-bps). The Italian 10-year note yield has fallen to 5.733% (-6.2-bps) while the Spanish 10-year note yield has fallen to 6.178 (-7.4-bps).
RELATIVE PERFORMANCE (versus USD): 09:55 GMT
An overall quiet session in New York coming up, with no data out of Europe expected the rest of the day. Of interest: the ISM Manufacturing report for June (14:00 GMT / 10:00 EDT), in which the US economy is forecasted to have exhibited signs of slight growth in the manufacturing sector, albeit at a slower pace. The ISM Prices Paid index should show signs of deflation at a quicker pace.
EURUSD: While we remain long-term bears given the descending channel in place off of the August and October 2011 highs (with the parallel channel drawn to the October 2011 and January 2012 lows), the fundamental shift in the Euro-zone’s approach to the crisis has given way to the potential for further rallies ahead. A confluence of resistance lies above, at 1.2715/30 (Bollinger Band, 50-DMA) and at 1.2740/50 (June 2012 highs). A break above this zone suggests further upside to 1.2820. Near-term support comes in at 1.2560 (20-DMA).
USDJPY: The USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low, with the neckline coming in at 80.60/70. Only a daily close above this level will signal the commencement of this pattern. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term support comes in at 78.85/90 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70.
GBPUSD: The GBPUSD remains constructive in the near-term but advances look to be capped by the confluence of key moving averages around 1.5750. Furthermore, a retest of 1.5775/80 when considered in context of the moving averages in the area should see some sellers return to the market. Advances should be capped by 1.5745/50 (200-DMA) and then 1.5775/85 (June high, 50-DMA). Declines into 1.5815/20 (100-DMA) should be supported.
AUDUSD: While our fundamental outlook for the AUDUSD is bearish long-term, we respect the recent rally off of the June 1 low and identify the move as impulsive (we can identify 5 waves up from the June 1 low). With that said, this advance thus appears to be in its final stages, and the confluence of resistance in close proximity to current price should hinder gains. 1.0265/90 (Bollinger Bank, 100-DMA) should attract sellers as should the budding RSI divergence on the 4-hour charts. Price remains supported above 1.0125.
--- Written by Christopher Vecchio, Currency Analyst
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