Filed Under:
Forex pairs in this Article » AUD/USD, EUR/USD, USD/JPY, GBP/USD, USDOLLAR, SPX/500, GOLD
ASIA/EUROPE FOREX NEWS WRAP

The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is near its daily highs as it continues its impressive outperformance since June 17, having gained nearly +3.50% since then, while only posting two down days in the process. While the Japanese Yen was a prime reason the USDOLLAR surged over this time frame, today the drivers of bullish USD price action are the Australian and New Zealand Dollars, on the back of renewed concern that the commodity/carry trade will continue to unwind over the coming months.

In its policy statement released early this morning, the Reserve Bank of Australia noted that “commodity prices have declined further but, overall, remain at high levels by historical standards,” and that the “Australian dollar has depreciated by around 10 per cent since early AprilIt is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.” This apparent dovish bias refreshes our core outlook that we should expect to see another 50-bps cut from the RBA’s main rate by the end of the year, which should remain a significant bearish influence on the Aussie; and as such, the Australian Dollar is the worst performer.

Heading North and West, European trade today has yielded little positivity around the regional currencies, although recent price action suggests that the British Pound, the Euro, and the Swiss Franc might be poised to extend their recent rallies against the Yen. More specifically, despite the bullish technicals engulfing the Euro (save the EURUSD), pressure is on the single currency today ahead of the European Central Bank policy meeting on Thursday thanks to faster deflation in the May PPI report.

Taking a look at European credit, yields across the continent (save Greece) have slumped; and in context of the ECB’s policy meeting on Thursday, given the divergence with the Euro, there is perhaps positioning for a dovish bias from President Draghi (this fits in with the soft PPI reading today). The Italian 2-year note yield has decreased to 1.760% (-3.5-bps) while the Spanish 2-year note yield has decreased to 2.004% (-4.2-bps). Similarly, the Italian 10-year note yield has decreased to 4.394% (-1.8-bps) while the Spanish 10-year note yield has decreased to 4.578% (-0.8-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

JPY: -0.08%

GBP: -0.16%

CAD: -0.25%

CHF:-0.25%

EUR:-0.28%

NZD:-0.41%

AUD:-0.60%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.24% (+0.90%prior 5-days)

ECONOMIC CALENDAR

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_Picture_1.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators. Want the forecasts to appear right on your charts? Download the DailyFX News App.

TECHNICAL ANALYSIS OUTLOOK

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1028.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200EURUSD: The past few weeks week I’ve been suggesting that a Right Shoulder on a Head & Shoulders formation, dating back to September 2013, might be forming with implications for a retest of the June 2010 low near $1.1875. The FOMC decision provided the necessary catalyst for a turn near 1.3400. The EURUSD now finds itself below the formerly key 1.3185/45 zone, which produced highs in mid-April and late-May, before breaking in the first week of June. Support has been found at 1.3070/75, the 200-SMA and the 38.2% Fibonacci retracement (July 2012 low to February 2013 high). I continue to favor shorts, as evidence of a return of the Euro-zone crisis is building.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1029.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200USDJPY: Although price has maintained the 38.2% Fibonacci retracement (May 22 high to June 7 low) at ¥97.58, constructive price action into 99.25/35 has yet to develop as a number of the JPY-crosses have seen Inverted Hammers or Dojis (topping candles) form on daily timeframes. Undoubtedly, this is a result of the global shift to safety; the USDJPY typically struggles when US equity markets do. Until global equity markets stabilize and US yields begin to rally further, it is too early to declare the reaction in risk assets finished, and therefore, it is too early to declare the USDJPY’s slide since late-May complete either. At this juncture, only a break of 99.25/35, the June high and the 50% retracement of the May 22/June 7 high/low, will negate the bearish bias in the pair. Until said level is broken, shorts are eyed into 95.25/35, 93.75/85, and 92.55 (pre-BoJ QE announcement low in April).

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1030.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200GBPUSD: The GBPUSD has traded in a slight ascending channel off of the March 14 and May 29 lows (parallel to May 1 high), and the conflux of the 200-SMA and said channel resistance just under $1.5750 provoked a pushback midweek. Now, price finds itself at the 50% Fibonacci retracement of the February high to the March low at 1.5354, as well as underneath the 38.2% Fibo of the yearly high/low at 1.5405/10. With US yields rallying, the USD component of this pair looks well-supported, and any rallies seen in the coming days are viewed as selling opportunities. 1.5230 is the first big support lower.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1031.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200AUDUSD: No change: “Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie.”

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1032.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200S&P 500: The 2013 uptrend off of the December 28, 2012 and April 18, 2013 lows gave way on Thursday, and with a sustained break by the end of the week, the technical bias is for a deeper pullback in the near-term. The 61.8% Fibonacci retracement of the Feb low/May high serves as near-term support at 1561, followed by mid-April swing lows near 1535. A bearish bias is appropriate unless 1605/08 is broken.

US_Dollar_Yen_Lead_Majors_as_RBA_Sinks_Aussie_AUDUSD_Below_0.9200_body_x0000_i1033.png, US Dollar, Yen Lead Majors as RBA Sinks Aussie; AUD/USD Below $0.9200GOLD: No change: “If the US Dollar turns around, however (as many of the techs are starting to point to), then Gold will have a difficult gaining momentum higher. Indeed this has been the case, with Gold failing to reclaim the 61.8% Fibonacci retracement of the April meltdown at $1487.65, only peaking above it by 35 cents for a moment a few weeks ago.” This has played out, with fresh yearly lows at 1269.45 last week, and pressure remains biased for a move lower so long as US yields remain elevated.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

comments powered by Disqus
Trading Center