News and Events:
FX drivers are in short supply today. After last week's stark exit from risky assets, with commodities leading the decline and equities following, this week we are yet to see any meaningful trend. Asian regional equity indexes fell sharply today (Hang Seng -2.56%), but European stock markets have bee able to struggle back. The EURUSD has been held in a tight range trading from a low of 1.3915 to a high of 1.3977, while the USDJPY traded in the range 92.35- 92..95. Watching the downward skew in commodity prices and EURJPY (our FX risk barometer) we believe risk aversion is still the name of the game. Any upside surprise, specifically in corporate earning, should provide a decent wave of USD selling. But barring deviation in earning or economic data, we expect FX markets to respect the ranges this week. Overall, last week's G8 meeting lacked inspiration and there is a growing sense of helplessness among policy makers. Even Russian President Medvedev parlour trick of pulling a supranational currency (i.e 'future world currency') from his pocket failed to capture the markets attention. Without the sense of optimism witnessed in the 'green shoot' era, highlighted in the US by the drop in Michigan Confidence to 64.6 vs. 70.8 prior reading, we don't see traders risk appetite increasing near term. We are currently favouring JPY and USD within the current ranges. In Japan, Prime Minister Aso was defeated in the weekend's assembly votes and will struggle to hold on to power. While political uncertainly is never a positive for the underlying currency, in this case we don't expect it to have a profound or lasting effect, if any. With USDJPY trading around 92.00, most traders are focused on 90.00. The pair's momentum and global shift in risk appetite make this handle almost predetermined. Even threats of intervention from a representative of the Democratic Party, stating concerns over volatility, have failed to stem JPY buying. While we will not stand in the way of the JPY appreciation, we expect this move lower is only temporary. The levels in USDJPY have not been seen the fall of Lehmans and subsequent economic collapse (and massive short JPY positioning) however in this round of JPY buying there is no noticeable crisis driving risk aversion. We expect that markets will begin focusing on the fragile Japanese economy and we should see a sell off in JPY mid term. For the day ahead economic data is light. The Bank of Canada's release of its Business Outlook Survey could renew the markets focus on unemployment which inched up to 8.6% vs 8.4% in May last week. While not a huge surprise since officials had been cautioning for a while it should keep USDCAD supported as sentiment remain weak.
Today Key Issues:
- 10:30 EUR ECB President Trichet speaks at the Munich seminars organized by CES IFO-group
- 18:00 USD Budget balance, $ bn Jun -77.5 exp, 33.5 prior
- 15:30 CAD BoC Business Outlook Survey
- 23:01 GBP RICS housing market survey, price balance Jun -40.0 exp, -44.1 prior
- 23:01 GBP BRC retail sales monitor, total sales, % y/y Jun 0.8 prior
The Risk Today:
EurUsd A sideways consolidation day is the trend, or lack of. Thusrsday we should be seeing the single currency comfortably in it's 1.3825 to 1.4050 range. A relatively calm instrument at the moment given the moves elsewhere
GbpUsd Moving averages show cable to be mildly bearish, but its a grind lower. We are in a wide range, but see risk to the downside and in the medium term the 1.5800 level to slow the slide, on top 1.6370 the top. On the day see 1.6260 to provide the cap and 1.6000 the low
UsdJpy saw the USDJPY break out of its previous range that has remained intact for the past five months. Once 94.00 gave way conclusively the head and shoulders formation gave way to the downside. We see a continuing support for a strong Japanese currency, and expect a move toward 90.00 handle.
UsdChf A sideways moving, rangebound USDCHF sits in it's two months old 1.1020 to 1.0630 zone. We see unexciting price action and choose to avoid this pair until a concerted move in either direction is seen. There is a small trendline which comes in at 1.0770/80 which could provide intraday support
|S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot|