GBP collapses on more bad data. Gunslingers also running stops on JPY longs ahead of the FOMC.
http://www.saxobank.com/?id=582&Lan=EN&Au=1&Grp=5&PubTypeID=1Will the FOMC provide a snapback from the latest market moves?
MAJOR HEADLINES – PREVIOUS SESSION
- Switzerland CPI fell -0.2% vs. expectations of +0.2%
- UK Nationwide House Prices fell -0.2% in June vs. -0.1% expected
- France Consumer Confidence Indicator for June out at -30 vs. -28 expected
- France Unemployment steady at 10.2% in May, while Unemployment rolls ticked up 1K vs. 2K expected
- Germany Unemployment fell to 11.7% from 11.8% in June (11.8% was expected) while the Unemployment rolls dropped -23K vs. 0K expected
- Norway's Unemployment Rate rose to 3.4% in June from 3.3% as expected
- Italy's PPI fell -0.4% in May vs. 0.0% expected
- UK's final GDP reading for Q1 was in at 0.4% vs. the original 0.7% reading and 0.5% expected.
- EuroZone Consumer Confidence was steady at -15 in June as exepcted while Economic Confidence rose marginally and Services Confidence fell a notch.
- UK GfK Consumer Confidence fell to -3 in June from -1 in May and -2 expected.
- South Africa's May Trade Balance was in at -2840M Rand vs. -650M expected
- US Personal Income for May out at 0.2% vs. 0.3% expected while Personal Spending was out at 0.0% vs.0.1% expected
- US Weekly Initial Jobless Claims were out at 310K vs. 325K expected
- Canada GDP for April was out at 0.4% vs. 0.3% expected.
- Canada's Raw Materials Price Index for May out at -3.1% vs. -1.0% expected
- Canada's Industrial Product Price change for May was out at 0.0% vs. 0.1% expected
Market Action: GBP collapsed vs. the market and JPY was also ver weak today as EUR/USD remained rangebound..
THEMES TO WATCH – UPCOMING SESSION
Market sending mixed messages with today's crazy action, as the weak GBP and weak JPY were really the focus. The latter may be a blow-off spike before this evening's FOMC - don't be surprised to see a sudden reversal of direction. Meanwhile, the GBP weakness could be set to continue (especially in the crosses) if more signs crop up that the UK economy is struggling and if further rhetoric from the BOE indicates more likelihood of rate cuts going forward.
The latest uptick in EUR/USD may follow through higher, but we won't know until the FOMC this evening.
No change to the technical comments, as we'd prefer to see how things settle going into tomorrow rather than making a wild stab while the markets are really hot - and they promise to stay that way for the North American session and possibly tomorrow as well as we're headed into a three-day weekend in the US.
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(comments from this morning...)
It's tough not to flip-flop on what will unfold today in the wake of the FOMC, but there are really two scenarios that we can boil it down to for now (both of which are 100% sure to include a 25 bps hike in rates - but like expensive perfume, it's the packaging that counts today):
- The Fed leaves its monetary statement entirely unchanged and expresses no worries about the latest softness in some of the data.
Market reaction: a retest of the USD highs with some possible follow through higher before USD corrects weaker again.
- The Fed leaves the monetary policy statemnt largely unchanged, but concedes that numbers have been soft and expresses concern about the numbers, or expresses that continued weakness in the numbers could lead to a change of stance.
Market reaction: USD weakens almost right away and EUR/USD heads quickly toward 1.2180 resistance and even 1.2300 in the days ahead. This is the scenario we prefer.
We don't believe the Fed will nix the infamous "accommodative" word from its monetary statement - but it would be extremely bullish for EUR/USD in the short term if it did.
One important thing to note as we mentioned yesterday, the interest rate correlation with the USD strength/weakness has really faded - in fact the latest research from one of the bigger banks measures it at close to zero, so we shouldn't necessarily expect a rally in yields to interfere with the EUR/USD picture.
We also have the Chicago PMI up today - an especially weak reading there could have the market breathing down the Fed's neck to admit that the economy is looking a bit soft. Of course, tomorrow's ISM number is a better number than the regional manufacturing surveys for measuring the health of the US manufacturing sector. The ISM may bounce a bit in the coming couple of months if companies begin to restock some of their low inventories.
Today offers a really packed calendar. Besides the FOMC meeting and Chicago PMI, we also have France and Germany unemployment figures, UK Consumer Confidence, a Norway rate announcement (a 25 bps hike expected), Canada GDP, and US Personal Income and Spending.
Note: the support/resistance levels used in the matrix's of this document are levels derived from yesterday high, low and close. Reference in the text to other support/resistance levels will occur.
Euro/US Dollar
| EUR/USD held above 1.2020 yesterday as fresh shorts were taken out of their positions on the "no-break". As outlined in the overall comments, there are two possibilities here depending on the outcome of the FOMC. A break below 1.2020 that holds could usher in new lows toward 1.1870 before we see a recovery while a continued rally through back through 1.2150/60 could spark a further rally toward the 1.2290 resistance much higher. Nominal support comes in at 1.2060 now. |
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British Pound/US Dollar
| GBP/USD touched the 1.8000 low yesterday on the lousy UK retail sales data and could test that area again today. The risk for a follow through lower is determined by the outcome of the FOMC meeting, but the technical target comes in around 1.7850 on a break. A rise back above 1.8150 resistance again, on the other hand, would suggest that the 1.8000 to 1.8350 range will hold for now and that the pair could pull itself higher toward the top of the range once more in the days ahead. |
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US Dollar/Japanese Yen
| JPY is struggling to find buyers ahead of the critical Tankan survey in Asia's Thursday session (23:50 GMT tonight), but USD/JPY may have topped out for now with yesterday's 110.62 reading. Now we focus on how the pair holds up during a possible consolidation lower - 109.70 is the first focus as a strong penetration back through that support level would have us smelling a reversal. 110.10 is minor support. |
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