الثلاثاء، 25 سبتمبر، 2012

US Dollar Fights Back to Broken Support; Morning Star Forming on Daily?


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).
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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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