EUR/USD still lingering above support, while AUD, NZD and JPY continue to suffer under the USD's weight.
EUR may yet join the weaklings vs. the USD later today or early next week. ISM up at 14:00 GMT.
MAJOR HEADLINES – PREVIOUS SESSION
- Germany and EuroZone Manufacturing PMI's were marginally better than expected in June
- The South African Investec PMI jumped to 59.8 in June vs. 53.6 in May.
- Germany's Chancellor Schroeder lost a confidence vote in the Germany parliament, which will usher in the holding of new elections in September
Market Action: GBP, NZD, AUD and JPY were weak with the EUR and USD strong in the European Session today.
THEMES TO WATCH – UPCOMING SESSION
No new developments today to challenge the view from this morning, though the fall in US EuroDollar 3-month and Treasury futures today in Europe could be indicative of a USD that will strengthen further (even if we have argued that there is littl correlation with rates and currencies lately). It's interesting to see EUR holding up so well as its oversold levels in the crosses would seem largely unwound by now for the short term. The EUR/GBP rally is simply mind-boggling and may need a little consolidation, which is likely if 1.2000 finally gives way in EUR/USD as we expect.
Still, an ISM under 50 could be enough of a shocker to delay or cancel a EURUSD sell-off, though there's no reason to expect the ISM won't be in line with the 51+ expectations. Sio the break lower may yet come today.
The technical comments are partially updated depending on the activity today.
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(commentary from this morning...)
We got it wrong with the Fed statement. The Fed's complete lack of admission that there are signs of weakness in the economy took us by surprise and is very bullish for the USD here short term as the market is now scratching its head on when the Fed will stop hiking rates. Interestingly, the long treasury market continues to thumb is nose at the Chairman and actually rallied yesterday - and EuroDollar short interest rate futures were unbelievably stable considering what this would supposedly mean for rates further out. Esssentially the market is saying, "Even though you sit there with your finger on the button, Mr. Greenspan, we know you will stop pressing it soon."
The currency market was another matter, as USD bulls found fresh reason in yesterrday's developments (for the short term at least) to put on new positions.
Looking at the anatomy of the statement - the infamous "accommodative" (for current rate level) and "measured" (for pace of hikes going forward) words were retained, while the kicker was this: the Fed interestingly dropped its observation from May 3 that growth had "slowed somewhat" and now states that "Although energy prices have risen further, the expansion remains firm.
The market was clearly caught on the wrong foot here, and with the long weekend approaching, we could see a very large move down in EUR/USD and up in USD/CHF today, barring any desperately bad ISM data at 1400 GMT. This may be the final blow-off rally in the USD before some consolidation further out.
The data from Japan overnight is JPY supportive and USD/JPY's may begin to slow a bit while EUR/JPY looks vulnerable to a reversal lower.
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 in the range today between 1.2020 and 1.2110 as EUR continued to consolidate stronger in the crosses. LAter today, the pair may not escape the USD's wrath and we could see a quick removal of 1.2020 and a blast lower to 1.1870 early next week if the 1.2110 area holds. 1.2160 is the reversal level if things develop against our expectations. |
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British Pound/US Dollar
| GBP continued lower today against EUR, GBP and the USD. The big 1.7750 level was briefly taken out today in GBP/USD. 1.7880 is now resistance and the pair may even head to 1.7500 in the days ahead, though the momentum may begin to fade. |
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US Dollar/Japanese Yen
| USD/JPY trended ever higher, though, it may stop soon around the 112.00 area as the things are getting a bit overheated here. A fall toward 110.40 support may be the next move. |
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