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Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

Christopher Vecchio, CFA, Senior Strategist


The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) has edged higher to start the week and has nearly taken back all of its losses since Wednesday, when Fed Chairman Bernanke deployed dovish rhetoric as a way of pushing US Treasury yields lower once more. With the US economy showing signs of improvement in key sectors, market participants will be watching today’s US Advance Retail Sales report for June for confirmation that gains in jobs and housing in recent weeks are reflective of improved consumption trends.

The data today is one of two key prints out of the United States before Wednesday’s fireworks, when Fed Chairman Bernanke takes to Capitol Hill for his likely last semiannual testimony in front of Congress. While today’s consumption report should show a stronger US economy, tomorrow’s inflation data – the other key report – suggests that the US economy isn’t growing fast enough to warrant a withdrawal of stimulus.

As the market tries to peg where Chairman Bernanke’s bias will lay on Wednesday, risk appetite has seen a nice boost to start the week after the 2Q’13 Chinese GDP report. Although the headline missed expectations, the annualized print of +7.5% came short of the +7.7% consensus forecast (and +7.7% model estimate), there had been growing chatter the past week or two that a print near +7.0% should be expected; needless to say, the report can be viewed as somewhat positive in that regard. Accordingly, the Australian Dollar, facing record short positioning among speculative traders, is seeing relief as well; and the AUDJPY is outperforming as a result.

Read more: Chinese GDP Sets Table for Improved Risk amid CPI Data from EZ, UK, US

Taking a look at European credit, peripheral yields are mostly mixed but Portugal continues to underperform and lead. The Italian 2-year note yield has decreased to 1.710% (-0.4-bps) while the Spanish 2-year note yield has increased to 2.040% (-1.7-bps). Similarly, the Italian 10-year note yield has increased to 4.481% (+0.1-bps) while the Spanish 10-year note yield has decreased to 4.756% (-0.9-bps); higher yields imply lower prices.


AUD: +0.01%

CAD: -0.30%

EUR: -0.34%





Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.33% (-0.38% prior 5-days)


Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_Picture_1.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

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Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1028.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

EURUSD: No change as the EURUSD holds below 50% of its Tuesday to Thursday move: “The EURUSD was flirting with a H&S breakdown but instead rebounded sharply off of the purported Neckline and achieved price over $1.3200. Today’s close is very important for sentiment headed into next week; a close below 1.3083 would signify a 50% pullback of today’s rally and set up an Inverted Hammer (bearish reversal candle). I maintain: “A [weekly] 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.””

Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1029.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

USDJPY: On Thursday I said: “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. …longs preferred into early next week.” Indeed, the 50% retracement of the June low to July high at 98.75 held as support and the pair has already bounced higher; a run at 102.00 shouldn’t be ruled out this week.

Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1030.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

GBPUSD: No change: “Big picture: the GBPUSD broke the uptrend off of the 2009, 2010, and 2012 lows, signaling the beginning of a greater selloff towards 1.4200/50. 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. The rally the past [few] days has seen price trade back to the underside of the Bear Flag, and ideal selling opportunity.”

Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1031.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

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.”

Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1032.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

S&P 500: Last week I said “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.” Gains have accelerated, with the S&P 500 achieving the 88.6% Fib retracement at 1672/75 overnight; a test of the yearly and all-time high at 1687.4 shouldn’t be discounted yet.1640 is key support for bulls.

Aussie_Holds_Ground_as_Chinese_GDP_Fears_Fail_to_Materialize_Yen_Weakest_body_x0000_i1033.png, Aussie Holds Ground as Chinese GDP Fears Fail to Materialize; Yen Weakest

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 +10.02% 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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