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- Running with the Bulls… in China
- British Manufacturing Dip Drags on Pound Sterling
- Australian New Home Sales Down 8.7%
- Debt Ceiling Compromise Provides Only Short Term Dollar Relief
- Weekly Technical FX Preview – GBP/USD Shifting from Bearish to Bullish
| Running with the Bulls… in China Posted: 01 Aug 2011 08:06 AM PDT
Manufacturers working in conjunction with China appeared much pleased this morning after several reports on Chinese PMI signaled solid bullishness in the Asian giant's manufacturing sector. The core report on Chinese Manufacturing PMI showed an upward movement beyond the expected reading of 50.2, reaching 50.7 instead. Adding to the bullishness surrounding China's core PMI report, HSBC's concurrent report on Final Manufacturing PMI also highlighted a solid uptick from 48.9 last month to 49.3 this month. After the recent passage of a lift on the US debt ceiling, Chinese markets appear poised for sharp gains considering the close interconnection between the two economic rivals' national debt holdings. |
| British Manufacturing Dip Drags on Pound Sterling Posted: 01 Aug 2011 08:03 AM PDT
A minor downtick in Britain's manufacturing purchasing managers index (PMI) helped drag the British pound (GBP) slightly lower in today's European trading sessions. Though the UK's housing sector was seen rising last week, a dip in manufacturing appears to be tearing into recent upswings in optimism. Mixed growth in several sectors has had traders on edge these past few weeks. Such reports out of the vital manufacturing sector give cause for concern as Britain struggles with regional debt woes and its own structural deficits. Risk appetite may be switched on this week, however, considering the recent passage of a debt ceiling increase in the United States. Should sentiment shift in favor of regional currencies, the GBP may find itself gaining throughout the week. |
| Australian New Home Sales Down 8.7% Posted: 01 Aug 2011 07:47 AM PDT
An economic report from the Australian Housing Industry Association (HIA) remarked this morning that the sale of newly constructed homes declined in June by 8.7%, month-on-month. The previous month's contraction by 0.2% had spooked investors only mildly last month, but today's reading has many pulling away from the Australian dollar (AUD) in larger numbers. Housing data worldwide has been showing positive figures. Japan, Britain and the United States all posted significant growth in their respective housing sectors. The slump in Australian housing is bewildering to many who had anticipated a return to growth globally in the housing sector of industrialized nations. |
| Debt Ceiling Compromise Provides Only Short Term Dollar Relief Posted: 01 Aug 2011 05:01 AM PDT
The relief rally the US dollar received was short lived following the compromise between Democrats and Republicans to increase the US debt ceiling. All of the majors are higher versus the USD with equity markets also posting solid gains. Given last week's poor Q2 GDP report traders may be positioning for another round of quantitative easing from the Fed though the bar for additional easing remains high. Traders took only a short pause in their dollar selling while market players continue to move into the safe haven currencies as the threat of a US credit rating downgrade by S&P looms and European peripheral bond spreads remain elevated. The USD/CHF is within striking distance of Friday's low and the yen has rebounded from this morning's initial spike higher to 78 in the USD/JPY. The overnight high coincides with a 50% retracement of the downtrend that began on July 20th. While intervention in the forex market by the Japanese Ministry of Finance remains a possibility the most recent CFTC data of the International Money Market shows speculators have increased their long yen positions to a level last seen in March (see chart below), a signal that hints at a reversal in the value of the USD/JPY. Asian and European equities were higher following the compromise over the US debt ceiling and data from China. Chinese manufacturing PMI was better than expected at 50.7 on expectations of 50.2 but the indicator declined from its previous reading of 50.9. This hints at a slowdown in the Chinese economy but deflects the hard landing scenario some analysts are calling for. British manufacturing PMI came in below expectations at 49.1 on consensus forecasts of 51.1. A reading below the 50 boom/bust level suggests a contraction in economic growth. This is the fifth consecutive month the survey has failed to meet expectations. The continued drop in manufacturing PMI suggests today's results are not a case of one off irregularities due to Japanese supply constraints but rather structural problems in the UK manufacturing sector. In the crosses sterling is trading on its lows for the day but cable has still managed to eke out gains versus. Appreciation in the GBP/USD should be contributed to fundamental dollar weakness rather than sterling strength. The pair has resistance at 1.6550 and support at 1.6260. EUR/GBP has resistance at 0.8870 from the falling trend line off of the July high. Support is located at 0.8700. Last Friday's disappointing Q2 US GDP of 1.3% was well below expectations of 1.7% and suggests the US economy continues to struggle despite ultra-loose monetary policy. Cyclical unemployment also has drag with the unemployment rate standing at 9.2%. The next major update to the US economic picture comes on Friday with the non-farm payrolls report. Traders may be selling dollars in anticipation of QE3 but the bar for additional Fed action remains high. Despite the gains seen on Friday and today the EUR/USD has traded sideways over the past 10-weeks. EUR/USD resistance is found at 1.4440 followed by last week's high at 1.4540 and 1.4580. A break here would likely shift the technical picture in favor of the euro. To the downside support comes in at 1.4320-40.
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| Weekly Technical FX Preview – GBP/USD Shifting from Bearish to Bullish Posted: 01 Aug 2011 12:41 AM PDT
EUR/USD The weekly chart shows a bullish engulfing pattern was followed by a false breakout above the trend line falling off of the May and July highs. A pullback from this resistance line formed a doji reversal candlestick which hints at declines in the EUR/USD. The 200-week moving average looks to be the first support at 1.4025 followed by the 200-day moving average at 1.3930. The rising trend line from the May low could also be supportive at 1.3830. To the upside 1.4580 will need to hold to maintain the bearish technical picture. A close above this level could go on to test 1.4700 and this year's high of 1.4940.
GBP/USD Three weeks of consistent gains for cable are beginning to shift the technical picture from bearish to bullish. Sterling has moved above resistance levels that otherwise would have contained the pair. The first break occurred above the neckline of the head and shoulders pattern at 1.6185 and the second major break occurred at 1.6370 above the previous trend line rising from the May 2010 low. Initial resistance will be the May 31st high at 1.6550 followed by the April high at 1.6745. A move lower for the GBP/USD will likely test the base at 1.6260 followed by the previously broken trend line off of the April high at 1.6140. A breach of 1.6000 could have scope towards 1.5780.
USD/JPY Yen strength has returned with a vengeance. Last week's candlestick closed with a shaved bottom indicating momentum is to the downside. This week's opening gapped higher but the price managed to hold below the current short term trend line from the July 20th high which comes in at 78.05. Additional resistance may be 79.60 and the 55-day moving average at 80.15 but the downside is calling. Support is found at 76.70 from last week's low followed by the all-time low from March at 76.11. A break here and we move into uncharted territory where the psychological support at 75.00 and 70.00 come into play.
USD/CHF The Swiss franc is in a similar position as the yen as the USD/CHF moves into uncharted territory. Bias remains to be short but Monday's opening gap higher could create a Harami reversal pattern which may lead slight gains for the pair. A daily close will be needed for confirmation. Resistance is found at 0.8080 and 0.8275. A move higher to these levels would provide for potential short entries back into the long term downtrend with targets at the big round number at 0.7800.
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