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AUD/USD: technical and fundamental

AUD/USD declines on Friday, trading close to the $1.0400 level as the risk appetite shrinks ahead of the Euro group meeting. The Aussie hasn’t managed to overcome a strong resistance at $1.0469 (April maximum) yet despite a five-day bullish movement, but still remains close to an 11-week high and above a 200-day MA. Analysts at Westpac forecast the Aussie to be pushed up by the hopes of further global central bank action. All in all, this week was positive for AUD/USD: on Monday the pair traded at $1.0200.

Markets expect the Australian CPI release on July 25 to show the slowest annual growth pace since June 1999. According to Bloomberg survey, Australian inflation probably grew by 1.3% in Q2 y/y. However, today some positive data were released: the Australian import prices unexpectedly increased by 2.4% in Q2.

Resistance: 1.0450 (April 12-13 double top); 1.0469 (April maximum); 1.0500 (psychological); 1.0557 (March 27 maximum)
Support: 1.0400 (psychological); 1.0320/28 (July 4-5 maximums); 1.0279 (200-day MA)



Chart. Daily AUD/USD

EUR/USD: negative bias persists

The single currency is declining versus the greenback. Euro got hurt due to weak demand at a Spanish bond auction on Thursday which pushed 10-year yields back above the critical 7% level. Eurogroup is expected to approve Spanish banking bailout later today. However, the news may do nothing to improve the outlook for euro: the markets fear that even if Spanish banks get help, the nation won’t be able to keep financing itself on its own.

In addition, as the ECB has so far cut the deposit rate, investors will likely leave the euro area searching for higher yields. Euro is now being viewed as a funding currency. While other currencies may gain versus the greenback on the talk of potential QE3 in the US, EUR will likely remain under pressure of the region’s debt crisis.

BNY Mellon: EUR/USD will test $1.2150 next week.

Commerzbank: A break below last week’s minimum of $1.2162 will bring EUR/USD down to $1.1934 (the symmetrical triangle downside target) and $1.2053 (200-month MA) and $1.1876 (2010 minimum).

Support: $1.2246 (today’s lows), $1.2230 (yesterday’s minimums), $1.2190 (Tuesday’s minimum), $1.2163 (July 13 low).

Resistance: $1.2285 (today’s maximum), $1.2317/24(Tuesday’s/yesterday’s maximum), $1.2335 (July 10 maximum).



Chart. H1 EUR/USD

NZD/USD: short-term outlook

NZD/USD has initially declined on Friday after a three-day growth as the risk sentiment worsened today ahead of the Eurogroup meeting. However, the pair has slightly pared its losses after the Finnish parliament has backed the rescue for Spanish banks in a vote held in the morning. NZD/USD trades above the 100- and 200-day MAs.

On Thursday NZD/USD overcame a strong resistance at $0.8000 (now support) and now consolidates in a $0.8000/53 range. From a technical point of view, therefore, it seems the pair is set to continue a bullish movement to $0.8075 after a short-term correction. However, further dynamics of the pair will highly depend on the news coming from the euro area and from the Fed’s and China’s monetary easing steps.

Resistance: $0.8053 (July 19 maximum); $0.8075 (July 5 maximum); $0.8231/33 (April 27 and 30 maximums)
Support: $0.8000 (psychological); $0.7991 (July 19 minimum); $0.7970/60 (100- and 200-day MAs); $0.7862 (July 13 minimum)



Chart. Daily NZD/USD

Nomura, RBC: JPY tends to strengthen in August

Analysts at Nomura point out that Japanese yen tends to strengthen against major currencies in August. It usually happens for a number of reasons: Japanese investors get repayments for their US Treasury holdings and transfer this money to their national currency (August has the second highest concentration of coupon payments after February); Japanese corporations repatriate half year profits.

Analysts at RBC add that this phenomenon may be explained by Japan’s huge stock of overseas assets. Moreover, the effects of repatriation in August are more visible as forex turnover that month is the second lowest of the year after December, data from CLS Bank show.

As a result, the specialists are bearish on USD/JPY. Note that there are about 90 pips between the current price level and June minimums and about 250 pips to 2012 minimum. Will the Bank of Japan have enough power and willingness to overcome the seasonal yen’s appreciation?





Charts. Yen's appreciation in August 2010 and 2011

GBP/USD: technical & fundamental

On Friday GBP/USD dropped below the $1.5670 area as the yield on Span’s 10-year bonds reached their highest level since the June 18 (7.158%). Moreover, public sector net borrowing in UK reached £12.08 billion in June, exceeding expectations at £11.0 billion, although lower than the previous £15.58 billion.

The pair has been moving sideways since June after trading in a bearish channel in May. Analysts at RBS claim that GBP/USD may be rangebound in the medium term. The specialists propose small shorts with a stop at $1.5800.

Support: $1.5660 (38.2% Fibonacci retracement of a May decline), $1.5600 (psychological), $1.5400 (July minimums)
Resistance: $1.5736 (July 19 maximum), $1.5750 (200-day MA), $1.5777 (June 20 maximum), $1.5800 (psychological)



Chart. Daily GBP/USD

RBC: trading GBP/AUD

Analysts at RBC claim that the pair GBP/AUD may decline to 4-month minimum if it closes below 1.5070 (early July minimum). The downside target lies at 1.4905 (76.4% Fibonacci retracement of its advance from February minimum to May maximum).



Chart. Daily GBP/AUD

EUR: rising concerns about Spain

Euro dropped versus its peers on the rumors that Valencia, Spain’s region, will ask for central government help to refinance its debt. Spanish 10-year yields climbed above 7%. The markets are extremely concerned about the situation in Spain, even though the euro zone’s finance ministers are expected to approve the bailout for the nation’s banks.



Illustration by Topos Graphics


EUR/USD tested the levels below $1.2200 and got some support around $1.2185. EUR/JPY hit 7-week minimum. EUR/GBP fell to the minimal level since October 2008.



Chart. H1 EUR/USD

Events to watch on July 23-27



Are you prepared for the next week’s trade?

Monday, July 23

Australia: PPI is likely to increase by 0.3% q/q in Q2 after a 0.3% drop in Q1 - still this a very small gain. The release is especially important ahead of the CPI release on Wednesday.

Euro area: Consumer confidence. Economists surveyed by Bloomberg News predict that an index of household sentiment in the euro region was probably unchanged this month from June at minus 19.8, remaining close to 3-year minimum.

Tuesday, July 24

China: HSBC flash manufacturing PMI. In June the index came at 48.2, its lowest reading in 7 months.

Euro area: PMIs. A gauge for manufacturing in the currency bloc is estimated to be at 45.3 in July. That’s below the 50 level that separates expansion from contraction and compares with a reading of 45.1 last month.

Canada: Retail sales. Data release may cheer the investors up a little bit: according to forecasts, core retail sales increased by 0.2% m/m in May vs. a decline by 0.3% in April, while retail sales - to grow by 0.3% vs. a previous 0.5% drop.

Wednesday, July 25

Australia: Consumer prices probably grew 1.3% in Q2 y/y, what would match the slowest annual pace since June 1999.

Germany: Ifo Business Climate might paint a brighter picture of current business conditions, but it is likely to show that companies are losing confidence in the future.

UK: - Preliminary GDP (Q2). The figures are expected to confirm the fears that the UK is still in recession: British economy may have fallen by 0.2% (q/q). This would be the third successive quarterly fall, and would mean that GDP is lower now than it was in the third quarter of 2010, and 3.9% below its pre-recession peak.
- CBI Industrial Order Expectations. The index improved in June coming better than expected. If this data are confirmed, hopes will rise that the UK will recover in Q3.

US: New home sales will likely continue to improve, though from a very low base.

New Zealand: The RBNZ meeting. Currency markets will be waiting for the Reserve Bank of New Zealand rate decision. According to Credit Suisse data, traders appear to be anticipating a 95% chance of no change to the current benchmark lending rate. Annual inflation is holding at the lower end of the RBNZ's annual target band of 1-3%, increasing the chances that the bank will keep the cash rate at a record low 2.50 % level until summer 2013. The rate was last lowered in March 2011.

Thursday, July 26

Euro area: Private loans. The ECB data may show that bank lending to the private sector is stagnating. The European crisis is reducing banks’ ability to lend and companies’ willingness to borrow.

US: Durable goods orders may have increased 0.4 percent in June, less than the 1.3 percent gain in May. Pending Home Sales.

Friday, July 27

US: Advance GDP (Q2). Though US economy is doing better that the euro zone’ or the UK ones, economists expect it to add only 1.5% (q/q), showing the slowest growth pace since June 2011. In Q1 American economy increased by 1.9%.

Der Spiegel: Greece may fail in September



Der Spiegel reports citing unnamed senior EU sources in Brussels that the IMF wants to stop providing financial aid to Greece as soon as the European Stability Mechanism (ESM) starts functioning in September.

According to Der Spiegel, Greece could become bankrupt as early as in autumn. It’s clear that Greek government won’t be able to bring down its debt load to about 120% of GDP by 2020. The Troika estimates show that that giving Greece more time to achieve its goals would cost additional 10-50 billion euro. However, many European economies are reluctant to pay for their troubled neighbor. In addition, countries like the Netherlands and Finland were providing as the IMF was involved.

The Troika officials will soon go to Athens to see whether Greece is doing enough to comply with the terms of its second international bailout and merit receiving the next tranche of funds. Last week Greek politicians were unable to reach agreement pushed back talks on cutting budget by almost 12 billion euros ($14.6 billion). The ECB adds pressure: on Friday the central bank said that it will no longer accept Greek bonds as collateral in return for funding, at least until the positive report of the Troika. On Saturday German foreign minister Guido Westerwelle ruled out the possibility of relaxing the conditions of Athens’ second bailout.

It seems that the EU and the IMF are finally ready to pull the plug on Greece. Euro zone’s nations think that the currency union would survive Greece’s exit. The ESM is meant to stop contagion in this case. German constitutional court delivers its verdict on the mechanism on September 12.



Grece. The impending doom.

Photo from minority-opinion.com

July 23: economic & forex news



The markets are in the risk-off mode amid the concerns that the European debt crisis is escalating. Asian shares are down. The greenback and Japanese yen have strengthened vs. the majority of their counterparts as the possibility of Greece’s leaving the euro area is getting higher and higher.

EUR/USD opened the week with almost 40-pip gap down touching fresh 2-year minimum at $1.2106. EUR/JPY hit 11-month minimum at 94.60 yen.

The sole data release today in Europe is the euro zone’s consumer confidence published at 14:00 GMT. According to the forecasts, the index will remain close to 3-month low. As for the debt auctions, Germany will offer short-term debt 06:00 GMT and France – at 10:50 GMT. Investors are more worried about tomorrow as Spain will auction 3- and 6-month bills. Spanish 10-year yields stay at the record maximums, above the critical level of 7%.

Note that demand for US dollar as everyone awaits US Q2 GDP figures on Friday. Economists expect American economy to add only 1.5% (q/q), showing the slowest growth pace since June 2011. Weak data will increase the odds of QE3, dollar-negative factor. Taking into account such prospects, yen may by the best performer in the coming months.

Elsewhere, Australian PPI rose by 0.5% in Q2 (vs. +0.3% expected). Japanese monetary authorities do their usual comments about their readiness to act with easing, but nothing more.