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August 15: forex news



High-yielding currencies weaken amid concerns US data will reduce the expectations for QE3. Demand for Aussie was also tempered after the Westpac consumer sentiment index fell amid prospects the RBA will keep interest rates unchanged. AUD/USD trades below $1.0500, while NZD/USD – below $0.8100. USD/CAD consolidates around 0.9920.

EUR/USD is trading below the week’s maximum ($1.2385), in the narrow range of $.1.2320/30, between 50- and 100-hour MAs. Markets in many European countries are closed due to the Assumption Day celebration. No data releases are scheduled in Europe; there even are no debt auctions.

The main attention this afternoon will be focused on the UK. At 8:30 GMT Britain will publish labor market data (jobless claims, unemployment rate) and the MPC meeting minutes. GBP/USD spiked to $1.5728 yesterday, but was contained by the 200-day MA.

USD/JPY rose yesterday above 20-day MA and reached 1-month high at 78.93 helped by positive American data.

Today the US will continue releasing important indicators: core CPI and Empire State manufacturing index at 12:30 GMT and industrial production at 13:15 GMT. The data is expected to support the greenback.

Key options expiring today

Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).

Here are the key options expiring today:

EUR/USD: $1.2200, $1.2210, $1.2225, $1.2300, $1.2350;

GBP/USD: $1.5675;

USD/JPY: 78.00, 78.10, 78.25;

EUR/JPY: 97.00;

EUR/GBP: 0.8000.

BofA: bearish on NZD/USD

According to technical specialists at Bank of America, NZD/USD may fall after descending from the top of its year-long downward range.

The kiwi broke below the important support (previous resistance) at $0.8067, confirming the slide from the top. The pair again and again repelled from this level in 2011 and 2012. Strategists expect the pair to decline to $0.7841 and then to $0.7489.



Chart. Daily NZD/USD

USD/JPY is up from the recent range

The technical picture improved. The pair USD/JPY rose yesterday above 20-day MA and reached 1-month high at 78.93 helped by positive American data. Today the bulls pushed the pair through the resistance line at 78.75 connecting March, June and July maximums.

Commerzbank: The greenback will rise to 79.01 (55-day MA) and 79.19 (200-day MA). The pair should close above 79.19 to get chance to rise to 80.63 (June maximum) in the coming weeks. If USD/JPY fails to overcome this obstacle, it will be vulnerable for a slide to 78.03/77.90. The resistance at 200-day MA is traditionally strong.



Chart. Daily USD/JPY

Olli Rehn: Spain may ask for sovereign bailout

European Economic and Monetary Affairs Commissioner Olli Rehn signaled yesterday that Spain’s government is considering a request for a sovereign bailout after earlier accepting 100 billion euro of aid to help the nation’s banks, reports Bloomberg.

“The Spanish government has an open mind on this issue, but no decision has been made. We stand ready to act if there is a request,” said Rehn.

Spanish 10-year bond yields reached record maximum of 7.62% on July 24. Yesterday yields eased to 6.72%. Another euro zone’s nation, Belgium, on the contrary, sold 3-month bills at negative yield. In other words, investors paid to lend Belgium money. Rehn underlined that this is “not a healthy phenomenon”, but a “sign that the euro-zone economy is not doing well”.



Olli Rehn, EU Commissioner for Economic & Financial Affairs

Photo from forexturtle.com

JPY: contrary prospects

The yen issue doesn’t leave us. The views, as always, differ.

Nomura says that global risk-on environment suggests a higher possibility of JPY weakness in the near future. The specialists have already proposed to buy GBP/JPY. “US yields are always one of the most important determinants for USD/JPY and yield movements ahead of the next FOMC meeting in September may increase volatility.” Tuesday’s strong retail trade figures “could also be seen as an encouraging sign of a risk rally in the near future.”

RBC reminds yen tends to strengthen in August. The specialists say that although this hasn’t happened yet, things may change. “With a heavy concentration of US Treasuries coupon payments this week repatriation flow is likely to pick up against a background of depressed liquidity, particularly so given the Obon holidays (August 11-19) in the early part of the week.” According to the analysts, USD/JPY declined by an average of 137 pips every August through 2005.



Photo from brecorder.com

EUR/GBP: reasons for a drop

Despite the recent bullish correction of the EUR/GBP, we see enough reasons to remain bearish on the pair in a longer term.

As can be seen from the H4 chart, last week EUR/GBP broke below the short-term bullish support line, hinting that the upward retracement is over.

What’s more, we can see a head-and-shoulder pattern with a neckline at 0.7825. This pattern marks a significant top in the market and would be confirmed by a break below the neckline.

Taking into consideration the reasons cited above, we recommend selling EUR/GBP at 0.7820 (just below the neckline), targeting 0.7760 (lowest level since August 2008) and with a stop at 0.7885 (above the right shoulder of the pattern).

From a fundamental point of view, euro zone’s debt woes are reviving with renewed vigor as the summer comes to an end. On August 20 Greece faces redemption of a 3.2 billion-euro bond held by the ECB. Note that the British pound may find support after we’ll see the first economic results of the London Olympics.



Chart. H4 EUR/GBP

RBC: UK economic paradox

Analysts at RBC note a strange inconsistency between the UK GDP (-0.7% in Q2) and the positive employment figures. In their view, it would be similar if the US NFP rose by 300K a month for three straight months along with the GDP contraction. However, the improvement of employment figures may be due to a short-term effect from the London Olympics.

Despite the fact that all the MPC members voted to leave the current monetary policy unchanged, many market participants still believe the BoE will opt for more monetary easing in the coming months to aid an economy struggling in a deep recession.

On Wednesday GBP/USD trades on the upside after the MPC minutes and the positive labor market data, but still remains below the $1.5700 mark. The pair remains capped in a sideways channel and below the 200-day MA resistance.



Chart. Daily GBP/USD

US data disappoints

Why can’t US data be unambiguous? Today’s figures disappointed the market after positive data released yesterday.Lower inflation and tumbling manufacturing activity is just what the Fed has been worried about. The fig
ures increase the odds of QE3. Does anyone here want certainty at last?

US consumer prices were unchanged in July (vs. +0.2% expected). Core CPI, which excludes the volatile categories of food and energy, rose by 0.1% (vs. 0.2%) expected. Empire State manufacturing index fell to -5.9 in August from 7.4 in July, showing the biggest miss in 14 months.

August 16: forex news



US dollar strengthened versus its major counterpart after better-than-expected industrial production data (+0.6% m/m in July). The market has started to take out a little bit of pricing for QE3 in the near term.

High-yielding currencies were also affected by negative foreign direct investment figures from China showing a decrease by 3.6% y/y. AUD/USD trades below $1.0500 mark after falling to $1.0453 yesterday. NZD/USD remains close to the key $0.8060 levels. New Zealand business manufacturing index slid to 49.4, indicating industry contraction. USD/CAD reached a new three-month low around 0.9880.

EUR/USD slid yesterday below $1.2300. Today euro revisited this area, but then dived to the levels around $1.2280. In Europe the most important publication is one of the CPI at 09:00 GMT. Spanish debt auction was canceled. GBP/USD is consolidating this week above $1.5660. Watch for UK retail sales data at 8:30 GMT.

USD/JPY managed to keep pushing higher: the pair rose above the 200-day MA as US bond yields climbed to more than 6-week maximums.

US housing data (building permits, housing starts) are released today at 12:30 GMT. Stronger than expected figures will further decrease the odds of QE3, especially after more solid industrial production reading came on Tuesday. As usual on Thursdays, watch for US unemployment claims, also at 12:30 GMT.