UK GDP Best Since 4Q'11 but Sterling Slides into Last Place on Thursday
ASIA/EUROPE FOREX NEWS WRAP
Following the uptick in May and June PMI figures, sentiment around the 2Q’13 UK GDP print was quite bullish. Today, those bullish hopes were vindicated with the headline quarterly and yearly prints meeting consensus forecasts, provided by Bloomberg News, at +0.6% and +1.4%, respectively. Yet the British Pound has emerged as the worst performer on the day despite the best GDP report since the 4Q’11, perhaps an indication that market participants find that the data won’t be enough to dissuade the Bank of England, under newly-minted Governor Mark Carney, from implementing further accommodative measures.
Despite struggling elsewhere, the British Pound has outperformed the US Dollar handily the past few weeks, gaining +2.69% since July 9, climbing from $1.4815 to as high as 1.5393 two days ago. The reaction today underscores the uneasiness in being a Sterling bull in the wake of the July 4 BoE policy, despite the fact that the same meeting Minutes were the accelerant to see the GBPUSD climb so rapidly these past two weeks.
As I noted in my analyst pick on Monday, I believe that British Pound strength may be short-lived from the fundamental/policy perspective now that all of the positive news is ‘out of the way.’ As was made clear by the inclusion of a policy statement and forward guidance at the July 4 meeting, the intention of Governor Carney has been to clarify policy and be more transparent; the desired end result is to let market participants know that UK interest rates will be kept lower for the foreseeable future. Yet the reaction seen in the GBPUSD these past two weeks says that ‘no additional easing’ from Carney equates to ‘tightening.’ The BoE will take note and recalibrate quickly at the August meeting, which will be further Sterling negative.
Taking a look at European credit, mixed results in the periphery have done little to influence the Euro one way or another on Thursday. The Italian 2-year note yield has increased to 1.544% (+1.4-bps) while the Spanish 2-year note yield has decreased to 1.847% (-0.1-bps). Similarly, the Italian 10-year note yield has increased to 4.378% (+1.3-bps) while the Spanish 10-year note yield has decreased to 4.634% (-2.7-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:50 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.13% (-0.39% prior 5-days)
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TECHNICAL ANALYSIS OUTLOOK
EURUSD: Yesterday I said that we “could see the pair trade into $1.3256/71 before pausing on the way towards 1.3415/44.” Price peaked at 1.3255 yesterday before reversing, giving credence to the 1.3256/71 resistance zone, at least in the short-term. A close under 1.3140 (triangle breakout level) would suggest that a near-term top is in place. The strategy remains to buy dips intraday; but failure to achieve the 100% extension target of the Bull Flag by the end of July would help to revive the dwindling Head & Shoulders bearish scenario.
USDJPY: No change: “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. …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 daily close below 98.75 negates this bias; a move to 97.00 would be anticipated on a reversal lower.” While a Morning Star candle cluster (bullish reversal) was in the cards after yesterday, no follow through today keeps the outlook at neutral amid further ranging conditions.
GBPUSD: No change: “I’ve maintained that “a rebound could see the pair back up towards $1.5390/400 (38.2% Fib yearly high/low, 61.8% Fib June high to July low), which has proven to serve as both support and resistance since April.” Price topped at 1.5393 on Tuesday, triggering my short trade and putting focus on 1.5280/85 (50% Fib June high to July low) as support. A breach of 1.5390/400 could see the pair trade back to 1.5575/80 (50% Fib yearly high/low).” 1.5280/85 has been achieved, suggesting that the uptrend from the July 9 low is over.
AUDUSD: A Bearish Key Reversal formed yesterday with the close below $0.9220m but thus far today there has been little follow through. While the bullish bottoming scenario has taken a hit, I maintain: “Despite chopping around and through said level, the AUDUSD has more or less held 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. A Bullish Broadening Wedge may be forming at the lows as a base; 0.9750/75 would be the target on a close above 0.9415.” A close below 0.9140/45 today would confirm the bearish reversal.
S&P 500: The past week I’ve maintained that “a test of the yearly and all-time high at 1687.4 shouldn’t be discounted yet. 1640 is key support for bulls. Fresh all-time highs has the S&P 500 on track for a break of 1700; and given price action since April, 1710/15 looks to be resistance (100% Fib extension April 18 low to May 22, June 24 extension). 1670 is now support followed by 1640.” However, the bullish scenario has taken a hit now that the uptrend off of the June 24 and July 3 lows has been broken; 1670 is the first big level to watch for support.
GOLD: No change: “The past several weeks I’ve said: “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.” With a break of 50 on the daily RSI – which has helped contain Gold for the past three-plus months – a test of 1325/30 is in order (former swing lows mid-April and mid-May, 23.6% Fib Oct’12 high to Jun’13 low).”
--- Written by Christopher Vecchio, Currency Analyst
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