GBP/USD Eyes Yearly Lows Near $1.42; Euro Gains Ahead of Fed, BoJ
ASIA/EUROPE FOREX NEWS WRAP
The world’s oldest currency, the British Pound, is being walloped again today after a surprising bad batch of data has investors reconsidering their growth outlook for the UK. Hopes for a strong 2Q’13 had been building for the UK, thanks to a string of better than expected data for May and June – namely, the PMI surveys. Now, with official Industrial and Manufacturing data unexpectedly worse off than previously anticipated, there is some wind behind the Bank of England’s new dovish sails.
Opposite the Sterling is the Euro, which too has seen its central bank shift towards a new more dovish framework in recent days; however, any such negativity has been limited at best to start this week. With international lenders set to release €3B to Greece following meetings in Brussels, investors have found attraction anew for the Euro ahead of critical events from the Federal Reserve and the Bank of Japan on Wednesday and Thursday.
Of note, Fed Chairman Ben Bernanke is set to speak on Wednesday just hours after the June 18 to 19 FOMC meeting Minutes are released, which should shine light on the Fed’s next actions. (The speech is entitled “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future,” meaning there is scope for discussion on future policy.) Overall, the coming few days should be much less exciting than those at the tail end of last week, given the considerably light fundamental docket.
Taking a look at European credit, mixed but stable peripheral yields has neither afforded nor denied the Euro opportunity to rally on Tuesday. The Italian 2-year note yield has decreased to 1.501% (-0.8-bps) while the Spanish 2-year note yield has increased to 1.914% (+5.5-bps). Similarly, the Italian 10-year note yield has decreased to 4.365% (-0.8-bps) while the Spanish 10-year note yield has decreased to 4.691% (+3.0-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:55 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.15% (+0.66%prior 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: No change from last week:“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.” 1.2807 printed to the downside before price rebounded this week, and the rejection of the 76.4% Fibonacci retracement at 1.2902 (price fell short at 1.2897 today) suggests that selling pressure remains strong. A close below 1.2800 tentatively triggers the broader Head & Shoulders pattern, whose measured move points to a return to the June 2010 lows near 1.1875.
USDJPY: The rejection of the 76.4% Fib retracement at ¥101/35/40 (May high to June low) is only a near-term setback, as the break off of the late-May to mid-June correction in the pair completed the last week of June. Furthermore, a run to RSI resistance should be accompanied by price accompanying higher towards 102.40/60. Looking to buy dips as long as 99.00/25 is held.
GBPUSD: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: A brief reprieve at 1635/40 (23.6% Fib Feb low May high, 61.8% Fib May high June low [blue line]) proved only a near-term stumbling block, and now price finds itself on its way towards mid-June swing highs and the 76.4% Fib retracement (May high June low) at 1655/60.
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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