Risk-aversion is afoot this morning with the US Dollar pacing the
gainers, just behind the resilient Canadian Dollar. The world’s reserve
currency has been finding a base following Wednesday’s precipitous
sell-off predicated on a more dovish than expected Federal Reserve (one
which we are choosing to ignore given the comments from James Bullard,
the St. Louis Federal Reserve President, which suggested that the data
on which the Minutes were based on were “stale”). The Dow Jones FXCM
Dollar Index (Ticker: USDOLLAR)
is working on a short-term reversal pattern on the daily chart, a
Morning Star candle cluster, as the US Dollar fights back to channel
support. A close back above channel support (ideally, >10000) would
suggest a rebound is in order to end the month.
Mainly, we point to commentary out of Europe that is driving price
action today. First and foremost, the European Central Bank has
reportedly said, according to Bloomberg News, that any major bond-buying
programs are on hold until the German Constitutional Court rules on the
legality of the European Stability Mechanism (ESM), the region’s main
bailout fund (it will replace the European Financial Stability Facility
in the long-run). With no ruling expected until mid-September at the
earliest, we think that a further erosion of economic data, which is
likely, could put pressure on Italian and Spanish bond yields (which may
be materializing today).
Also influencing price action has been the meeting and ensuing press
conference between German Chancellor Angela Merkel and Greek Prime
Minister Antonis Samaras. It’s every evident that relations are eroding
quickly between the core and the periphery: Greek PM Samaras has asked
for an additional two-years for Greece to meet its obligations, while
both French and German leaders have said that current commitments must
be stuck to.
Amid all of the commentary, peripheral European bond yields have
started to rise again. The Italian 2-year note yield has risen to 3.275
(+14.5-bps) while the Spanish 2-year note yield has increased to 3.688%
(+10.1-bps). Similarly, the Italian 10-year note yield has moved higher
to 5.770% (+9.6-bps) while the Spanish 10-year note yield has rallied to
6.417% (+13.0-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 12:10 GMT
CAD: +0.04%
JPY:-0.01%
GBP:-0.17%
NZD:-0.28%
CHF:-0.41%
EUR:-0.41%
AUD: -0.42%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.25% (-0.85% past 5-days)
ECONOMIC CALENDAR
The docket is thin again to end the week,
but there is one event on the docket that is likely to stir volatility
ahead of the European session close. At 08:30 EDT / 12:30 GMT, the USD
Durable Goods Orders report for July will be released, and it is likely
to show a further strengthening of the US economy. Durable goods are a
good proxy for both sentiment and spending trends, as by definition,
durable goods have life spans of three-years or greater; accordingly, a
rise in orders suggests that consumers are more certain about future
income and employment prospects.
TECHNICAL OUTLOOK
BB represents Bollinger Bands ®
EURUSD: The EURUSD’s gains continue, as anticipated,
at least on a technical basis, and have been aided by the Federal
Reserve’s more dovish than anticipated Minutes. Nevertheless, gains
should persist, though we have slightly altered our outlook: while the
ascending channel off of the July 24 and August 2 lows remain, it is
possible that it a Wedge has formed. Resistance was hit yesterday at
1.2560 (a level noted on Wednesday for the first time), and a daily
close above said level will be necessary for further gains. Similarly,
the Inverse Head & Shoulders pattern off of the low is in play.
Given the Head at 1.2040/45, this would draw into focus 1.2760 as long
as price holds above 1.2405. Interim resistance comes in at 1.2560,
1.2615/20 (channel resistance, 100-DMA), and 1.2680 (long-term
descending channel resistance). Near-term support comes in at 1.2500,
1.2440/45 (former swing highs), 1.2405 (Neckline), 1.2310/30, 1.2250/65,
and 1.2155/70.
USDJPY: The USDJPY is right back where it was last
week, slightly lower than expected, given the short-term technical
congestion that materialized near the 100-DMA on Tuesday. Nevertheless,
the key level today is 78.60, former June swing lows and a level of
resistance during most of July. A weekly close below 78.60 today puts
78.10/20 (former lows) in focus. A weekly close above said level gives
scope towards 79.10/20.
GBPUSD: Wednesday I wrote “Resistance has broken in
the short-term channel at 1.5770, opening up room for a run towards
1.5880/1.5900.” Indeed, this was the case, with failure coming at said
level yesterday; a pullback has materialized today as well. Our key
levels for the near-term are 1.5880/1.5900 to the upside and 1.5770 to
the downside; we are also becoming overextended on shorter-term charts,
suggesting that another failure at 1.5900 could lead to profit taking
before further bullish price action. A daily close below 1.5770 should
lead to a drop into 1.5700/20. Beyond that, support comes in at
1.5635/40 (last week’s low), and 1.5625 (ascending trendline support off
of August 6 and August 10 lows).
AUDUSD: Rejection at the key 1.0530/45 zone signaled
further losses yesterday, and the sharp reversal has the AUDUSD
threatening a major breakdown in the coming days. Daily support at
1.0400/20 was broken, bringing into focus 1.0380/85; a break and daily
close below this level signals losses into channel support (off of the
August 9 high) at 1.0330. Near-term resistance comes in at 1.0400/20
(channel support dating back to June, 200-SMA on 4-hour chart),
1.0460/80, 1.0530/45 (former swing highs), and 1.0600/15 (August high).
Should we see a rally up towards 1.0600 again, another failure would
market a Double Top and signal a push for a test of 1.0200/05 (100-DMA).
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