The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) continues to push fresh yearly highs, but this time no longer at the expense of the Australian Dollar and the Japanese Yen, the two weakest currencies year-to-date versus the US Dollar (-11.79% and -13.25%, respectively). Thanks to the introduction of forward guidance by both the Bank of England and the European Central Bank yesterday, the British Pound and the Euro are now propelling the USDOLLAR higher (concurrently, the Swiss Franc was a bottom performer as well overnight).
Of course, the BoE and ECB policy meetings might have little staying power given the massive fundamental overhang that is the June US labor market release. The Bloomberg News consensus calls for +165K from +175K in May, and our central tendency should see the headline “hit” should the figure land between +160K and +185K, according to Currency Analyst David Song.
In light of the strong June ISM Services Employment subcomponent, we find that risk is skewed to the upside for a beat; anything over +200K should provoke an exacerbated “taper trade” amid the thin conditions thanks to the July 4 holiday: long US Dollar, short equities, short US Treasuries, and short precious metals.
Taking a look at European credit, political relief out of Portugal (the coalition will hold, for now) has helped lift peripheral debt, although yields would likely be lower regardless given the ECB’s policy meeting outcome on Thursday. The Italian 2-year note yield has decreased to 1.578% (-3.8-bps) while the Spanish 2-year note yield has decreased to 1.884% (-5.4-bps). Similarly, the Italian 10-year note yield has decreased to 4.367% (-2.1-bps) while the Spanish 10-year note yield has decreased to 4.603% (-1.8-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:40 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.15% (+0.60%prior 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: Earlier this week I said:“Risk should be contained to the June 25 high at $1.3150, looking for a break below 1.2970 to yield a move towards 1.2770/800.” Fresh July lows were hit today at 1.2868, and the break below 1.2970 remains on track for a test of 1.2800. A weak NFP print today negates near-term bearishness, with 1.3000/20 eyed higher to resell.
USDJPY: No change: “Price has unfolded as expected, having noted earlier “a near-term bullish bias is warranted as long as price holds 96.65/80; a medium-term bearish bias is warranted as long as price holds 99.25/35.” With 99.25/35 broken, the technical structure shifts medium-term bullish so long as 96.75 holds lower. Ultimately, now that the downtrend from the May 22 has been broken, the Symmetrical Triangle suggests a continuation towards 99.80/100.00 and 100.40/75.”
GBPUSD: I maintain:“Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200. Any rallies in the pair look to be sold; price could climb to 1.5290 (50% Fib March low to May high) on a rebound now that the GBPUSD has broken through RSI trend support off of the March 12 and May 29 lows.” Price has undercut key Bear Flag support off of the March 12 and May 29 lows; and now the move towards 1.4200 appears to have begun.
AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie. Bullish divergence on the daily chart has formed once more, suggesting that consolidation or perhaps a small rally back towards 0.9330/420 is due; or another quick, sharp drop is necessary to clear the technical discrepancy.”
S&P 500: No change: “Significant resistance overhead at 1635/40 (23.6% Fib Feb low May high, 61.8% Fib May high June low [blue line]) proved too great to overcome, and the S&P 500 now looks to trade lower into 1585/90 (50% Fib Feb low May high, 23.6% Fib May high June low).”
GOLD: No change “Gold has fallen into the 10/20 RSI support region, where price has held on numerous probes lower ultimately producing a short-term rally. More recently, daily RSI has only dipped into this region in mid-February and mid-April…Basing just below $1200/oz shouldn’t be dismissed, as at 1189.91 lies the 100% extension of March high/April low/April high move, as well as the 61.8% extension of the October high (post-QE3 announcement)/April low/April high move at 1192. It should be noted that the rally off of Friday’s low has produced a maximum of +7.36% so far, eclipsing the rebound seen from late-May to early-June, when Gold rebounded by +6.36%.”
--- Written by Christopher Vecchio, Currency Analyst
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