Forex News and Events:

Today's US retail sales release will be an interesting test that FX market's reaction to US data might be shifting. Currently the trend is counter intuitive and positive US data is viewed as “pro-risk” causing USD selling. The recent discussions from FOMC members and participants globally over the timing of ending the entrenched accommodating monetary policy, prompted the market to price in 50bp hike by years end and subsequently caused USD strength (capital trading out of EM and commodities). While we had expected the tightening to be overly optimistic and premature, we do believe the FX markets have shown its preverbal “hand”. So the question standing now is what economic conditions would need to exist for the markets to re-price Fed's tightening? Obviously, the health of the US consumer seen through the gauge of retail sales will be critical to this equation. A quick note on today's figure, the number will encapsulate the recent surge in gasoline costs (25%) which could skew the real figure and cloud our ability to discern the real price drivers. There is some debate over the success of yesterday's 10yr auction. In our view the bid to cover ratio and awards to indirect bidder participation were good and not reflective of any external financing constraints. Russian government officials said the Russian central bank would decrease its percentage of reserves in Treasuries and buy IMF bonds instead. That said, the media is still pushing the story (supported by slight US Trsy sell-off) that comments from several key EM reserve holders including Russia, China and Brazil who have recently expressed interest in buying proposed IMF bonds (presumably SDR denominated) equates to USD potentially losing its reserve status. Overall we don't see this situation as so simple (especially as any shift away from the USD would be a significant undertaking) but more importantly we don't see proof in price action. In New Zealand , the RBNZ held rates at 2.50%. It seems that the market was pricing in a cut, as the NZD rapidly rose to 0.6380 against the Usd. The RBNZ stated that recent improvement in domestic activity has balanced downside risks to the economy and the need to monitor past rate cuts. In Sweden, the Riksbank announced it has borrowed 3bn from the ECB, stating the potential need to offer liquidity assistance to the domestic banks. We would see this development, combined with news from Latvia, to keep the SEK under pressure.

Forex-Chart

Today's Key Issues (time in GMT):

08:00 EUR ECB monthly bulletin published

08:30 GBP BoE Inflation Attitudes Survey, % 1yr ahead Q2

12:30 USD Retail sales, % m/m (y/y) May 0.3 (-9.9) exp, -0.4 ( -10.1) prior

12:30 USD Retail sales ex autos, % m/m (y/y) May 0.2 (-7.9) exp,-0.5 (-7.7) prior

12:30 USD Initial jobless claims, ‘000 (4wk mvg avg) 06-Jun 621 (631) prior

14:00 USD Business inventories, % m/m (y/y) Apr -1.0 (-6.2) exp, -1.2 (-4.9) prior

17:05 USD FRB of Atlanta President Lockhart (FOMC voter) speaks on the US economy

21:45 NZD Retail sales % m/m Apr 0.2 exp, -0.4 prior

21:45 NZD Retail sales ex autos % m/m Apr 0.4exp, 0.5 prior

The Risk Today:

EurUsd Head and shoulders continue to transpire however wedge formation reasserts the risk for the downside. Very short term moves to the upside will give bulls a chance to take their profits but if we manage to break the crucial floor at 1.3800 we are heading much lower. Initial support at crucial 1.4000 and initial resistance at 1.4062.

GbpUsd News sensitive pair continues to see upward pressure as the Sterling breaks away from it's months of oversold status on a flurry of even mildly encouraging news and data. We are testing highs as we speak on strong signs the housing market is making a recovery. A break past 1.6474 will see the pair break away and head for recent highs at 1.6666. Double top will allow for a retest of 1.6300 with 1.6243.

UsdJpy Yen consolidating in a broad wedge formation, last time this happened we broke higher, Test of 98.00 level would refocus to the upside with tentative resistance at 98.43 and crucial level at 98.90 with min-term target at infamous 100.00. Pair has been a barometer for risk sentiment throughout this crisis, risk to the downside remains limited with a floor at 94.50, however first crucial support stands at 96.78.

UsdChf Continues to trade as a perfect hedge to the EURUSD. Bias is for the upside as we prime for a breakout with a distinct wedge formation. Initial resistance at 1.0862 with a target a crucial level at 1.0986 – further gains see potential for 1.1262. On the downside initial support at 1.0720 with a floor in at 1.0594.

Resistance and Support:

EURUSDGBPUSDUSDJPYUSDCHF
1.42481.6665100.001.1262
1.41451.658598.901.0989
1.40651.650098.431.0862
1.40331.646897.791.0787
1.40001.625097.121.0660
1.39381.617596.781.0590
1.38001.607595.501.0545
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot