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الثلاثاء، 25 سبتمبر 2012
US Dollar Increasingly Bullish as Euro Slips Despite Improving Yields
News has been quiet in the Asian and European sessions thus far, but that appears to be a poor development for the risk landscape as investors are seemingly losing patience with central banks amid high expectations for new easing measures. As initially suggested in this report on Friday, “with global growth concerns mounting again, and no new accommodative measures definitively on the horizon…the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) appears to be carving out a bottom…and given the positive fundamental developments last week (the Federal Reserve holding back on more stimulus and July’s Nonfarm Payrolls report showing the labor market is adding jobs faster than anticipated), we believe the US Dollar is both fundamental and technically constructive in the short-term.”
Such appears to be the case materializing today, and one needs to look no further than what’s been happening with the EURUSD and Italian and Spanish bond yields. Over the past several weeks and months, the EURUSD has held highly significant inverse correlations with 2-year Italian and Spanish notes (anywhere from -0.78 to -0.89 correlations on a five-day rolling basis). That is to say that as yields have increased, the EURUSD has fallen. The implication is that a relief in the sovereign debt crisis (lower yields) should provide relief to the EURUSD (higher exchange rate). Yet that is not transpiring today, and we believe this is a direct result of the US Dollar’s shifting fundamental bias.
The Italian 2-year note yield has slid to 3.291% (-7.4-bps) while the Spanish 2-year note yield has eased to 3.984% (-5.7-bps). Similarly, the Italian 10-year note yield has dropped to 5.759% (-4.5-bps) while the Spanish 10-year note yield has fallen to 6.586% (-7.4-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:35 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.16% (+0.55% past 5-days)
Another very busy morning in the North American session as there are eighteen individual data points that will be released. However, in light of the fact that twelve are considered of “Low” importance, as per the DailyFX Economic Calendar, our focus largely lays on those due within the hour before the US cash equity open. At 08:30 EDT / 12:30 GMT, the USD Consumer Price Index for July will be released, though a mixed reading is expected (see detailed explanation here). At 09:00 EDT / 13:00 GMT, the USD Net Long-term TIC Flows for June will be reported, which is important because it summarizes the flow of stocks, bonds, and money market funds to and from the US. At 09:15 EDT / 13:15 GMT, the USD Industrial Production report for June will be released, which is forecasted to show further expansion, eclipsing the prior month’s rate of gains.
EURUSD: More sideways to downside price action in the EURUSD as the pair trickles lower amid thin trading conditions. The rally off of the July 24 low appeared to be corrective in nature, with three waves evident from the bottom (A-B-C correction). However, despite declines from the highs, we suspect that there is some support upcoming, given the ascending trendline off of the July 24 and August 2 lows, as well as former swing lows, at 1.2250/65. Any rally from this area should be sold; it is possible that a rebound here would mark a Bull Flag on the daily chart. Overall, however, we look for one more new low near the 2010 low of 1.1875 before the start of the next major bull leg (towards 1.3000). A drop towards 1.1695-1.1875 remains likely by mid-September. Interim resistance comes in at 1.2310/30, 1.2400/05, and 1.2440/45. Near-term support comes in at 1.2250/65, 1.2155/70, and 1.2130/35. The Inverse Head & Shoulders (Head at 1.2040/45, Neckline at 1.2400/05, Measured Move 1.2750/60) remains a potential outcome.
USDJPY: A string of better than expected US data has shifted the fundamental bias of this pair, and indeed, the Rounded Bottom on the hourly charts has materialized a bullish outcome, as expected. This could be the first step towards the USDJPY Inverse Head & Shoulder formation playing out. With the Head at 77.60/70 and the Neckline at 80.60/70, this suggests a measured move towards 83.60/70 once initiated. The daily close above 78.60 yesterday, in our opinion, brings near-term resistance in focus at 79.15/20 (200-DMA). Interim support comes in at 78.60 (former swing lows) and 78.10/20 (lows from the past week).
GBPUSD: The muddle sideways continues, leaving little changed of our outlook for the GBPUSD. Overall, our outlook is little changed from Monday [August 6]. With the ascending trendline off of the July 12 and July 25 lows holding, our bias is neutral. A daily close below 1.5595/1.5600 (50-DMA, short-term channel support) would be bearish, whereas a close below 1.5490/1.5520 (former swing lows) would be very bearish (as it would represent a break of the channel as well as the August lows). Near-term resistance is 1.5700/05 (August high), 1.5715/20 (200-DMA), and 1.5755/70 (July high, 100-DMA). Daily support is 1.5625/40 (10-DMA, 20-DMA) 1.5575/80, 1.5490/1.5520, then 1.5450/60 (July 25 low).
AUDUSD: The top that we posited that was forming on the 4-hour charts is close to being confirmed, now that prices have broken below 1.0500; ideally, a daily close below 1.0435/40 (August low) would confirm. At current price, near-term support comes in at 1.0435/45 and 1.0380/85, though with shorter-term timeframes showing exhaustion, we suspect a bounce could be had first. Near-term resistance comes in at 1.0480/1.0500, 1.0535/45 (former swing highs), 1.0580, 1.0600/15 (August high) and 1.0630.