News and Events:
The calls for tentative signs of a recovery a little under 2 months ago seem to have caught on – the movement verdantly labeled “green-shoots” has seen economic data improve consistently – and markets take heed of these signs by being more aggressive. Data such as the ADP and NFP numbers were more than encouraging (even Australian employment numbers were encouraging, actually rising while markets were expecting a decline) corroborating what analysts and investors are quick to label a bottom to this global economic crisis. However, is this enthusiasm slightly overzealous? – Fundamentals are still very weak and government debt levels are at an all-time high, yet the world continues to be long dollar in the long-run. These questions are but a few that one needs to be mindful of as we navigate these times, we have – what literature would call – witnessed a “paradigm shift” in how the financial world conducts business, where companies are just “too big to fail” and the “intervention” button is used at will.
The point here is that, although theory says any rapid recession will see a rapid “V-shape” recovery, markets behave in waves, a retracement to our current upturn should not be discounted, especially when so many of the underlying fundamentals in so many economies remain weak. For the time being we see an accrue in yield orientated trades, a break from the haven seeking dynamic investors preferred at till this juncture, NZD and AUD carry trades will slowly build – these economies not being forced to cut it's rates as drastically as it's main-land counterparts. AUD and NZD rising 4.08% and 4.86% since May 6th respectively.
The NFP's on Friday came in much better than expected, -531K instead of the consensus at -600K, which still is a massive number, but that's what this crisis has done with our previous benchmarks for normality, blown them out of the water! As large economies start to plan for deflation currency dynamics continue to thaw and risk aversion subsides. The EURUSD traded to a 2-month high of 1.3668, a break past March's high of 1.3756 would see the pair head even higher. This said, one needs to be careful of the flurry of profit taking and loss covering from the investors that didn't do so last time we traded at these levels. Another point to make is that earnings season is now over, the euphoria from the relatively good numbers we saw is set to wane, markets could too. This week is quiet on the economic data front.
Today's Key Issues (time in GMT):
12:30 CAD New Home sales Price Index
The Risk Today:
EurUsd Friday's firm break out of the 9-month descending triangle has seen the pair trading as high as 1.3671 (initial resistance) as we embark on a correction period, 38.20% retracement at 1.3567 is a soft support but focus will be on the 50.00% mark at 1.3535 – at which point the pair should resume it's bullish trend – risk appetite continues to weaken the dollar. On the upside – past the initial resistance – we see the March high of 1.3756 as a strong resistance, a push past this level will home in 1.3971.
GbpUsd Much of the same market dynamic as the EURUSD, widespread dollar weakness is driving moves as risk appetite improves. This said, the retracement has been more pronounced, actually passing the 50.00% retracement at 1.5110 where we are trading at time of writing. A broad bull signal continues to prevail however, a retracement as low as 1.4969 would mark a return to levels before Friday's large moves and where we see strong support. On the upside the pair should be capped for now by the 1.5250 highs seen on Friday night.
UsdJpy Double-top head and shoulders finalizes this morning with a neckline at 98.24 (which is now initial resistance) – with a strong (double top resistance) at 99.58. On the downside, we briefly tested but bounced off the 50.00% retracement (of the bull move started end of April) at 97.60, further Yen gains or return of risk aversion sets sights on 97.14 and 95.62.
UsdChf The Swiss currency gained substantially against the Greenback – up 2.52% since the beginning of May. Further dollar weakness could see the pair regain it's parity pricing seen last year. Large move on Friday is retracing now but has failed to confidently break the 23.60% level at 1.1091, we see scope for a correction to 1.1134 or even 1.1169 which would be the 50.00% fib level. On the downside 1.1000 is a crucial psy level. 1.0550 stands as long-term support.
Resistance and Support: