News and Events:
Risky assets are once again in fashion' as yesterday's US treasury auction went off without a hitch and the US Conference Board consumer confidence jumped unexpectedly to 54.9 vs. 39.2 previously. US equities enjoyed another strong trading day and today both Asian and European indexes are trading higher. Going into yesterdays US trading session, markets optimism had begun to wane on the back of N. Korea's missile test and worries that China wouldn't show up to this week's auctions heavy schedule. The USD was able to correct slightly, commodities prices (specifically crude) were bid and the S&P was trading lower (threatening to slip below 878). However, this trend quickly shifted as the results suggested that indirect bidder's (an alleged proxy for foreign central banks) confidence in the US was unscathed.. Despite the S&P downgrade of the UK, the Sterling continued to be on a tear with the GBPUSD piercing the psychological 1.6000 level, while the GBPJPY broke higher, making six month highs above 152.00. In the commodity currencies, USDCAD is fast approaching the support at 1.1060 and a break below would signal another leg down, as commodities continue to rally on the positive outlook on global growth. N. Korea continues to test missiles, but we are seeing no real effect in the markets. In Japan, trade data released showed merchandise trade balance coming in above expectations at Y69bn versus deficit of Y55bn. The BoJ and government should be relieved, as the recent upgrade in economic outlook was based on the recovery in export. Today's data calendar in relatively thin, with US existing home sales the main highlight ahead of the 5yr auction this evening. Should the auction proceed in an orderly fashion (however expectations have rise since yesterday) it will be viewed as a risk positive and USD negative.
Today's Key Issues (time in GMT):
00:00 EUR Poland NBP interest rate announcement, % May-28 3.75% exp, 3.75% prior
08:30 GBP ECB's Bini Smaghi speaks in Rome at the conference Towards the G8: strategies to exit the crisis
08:30 ZAR BBA mortgage approvals, K May 26.1 exp
09:30 USD CPI, % y/y Apr 8.3 exp, 8.5 prior
14:00 USD FHFA house prices , % q/q saar (y/y) Q1 -13.0 (-8.2) exp
14:00 Existing home sales, mn saar Apr 4.65 exp, 4.57 prior
The Risk Today:
EurUsd We traded a 40 pip range yesterday that we broke from through the night and traded as low as 1.3927. 1.4005 stands as a strong resistance for moves on the upside with a cap at 1.4023 in the near term. While mid-term bias is to the downside we will trade this range for some time as even the consumer confidence numbers yesterday failed to break the 1.4005 barrier. On the downside strong support at 1.3927 (where this morning's bulls faltered) with a floor at 1.3861 (yesterday's low).
GbpUsd Range between 1.5914 – 1.5981 was traded yesterday with multiple tests to the upside in late trading and this morning. Floor for today's moves seen at 1.5778 via 1.5887. On the upside we see strong resistance at 1.6020 however a break past this level would break for new highs at 1.6228.
UsdJpy Broad scale head and shoulder formation finalizes and heads higher. Initial resistance at 95.51 with a daily target at 96.72 with a soft resistance at 96.09. On the downside retracement is seen to find support at 95.28 and 94.94 with a strong floor for moves at 94.57
UsdChf Strong support stands at 1.0834 as it is the start of the move that took us to 1.0887 (morning high) and subsequently our low. Initial resistance at 1.0854. Further bias for the Swissy (risk aversion amidst deflationary fears) would see the pair lower, mid-term target at 1.0750.
Resistance and Support:
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot