News and Events:

With any market move, pundits (such as myself) are forced to assign a rationale. This has been the case with the recent sell off in commodity prices and spillover effect into FX. Yesterday, price move were conveniently attributed to the World Bank's downgrade of its global growth estimates. We have our doubts that an international organization forecast would have such a profound on market sentiment and pricing, especially since news of the lower revisions where reported last week. Rather, we have accepted the possibility that aggressive stimulus policy (specifically in the US) have reached their limits and further actions (QE or fiscal stimulus) might have more negative than positive effects. In addition, the China as the “world's engine of growth” theory seems to be loosing momentum. First is the fact that the commodity buying spree is declining and second Beijing continues to support an export driven growth model which will only exacerbate global imbalances than drive the global recovery. The S&P500 closed back below its 200-day MA and threatening its recent range low at 878. Asian equity markets are also much lower, gold breaking below six-month trend line support, it is perhaps not surprising that commodity currencies are weak and the JPY is rallying. The AUDUSD pierced the 0.7800 level, while USDCAD broke the 1.1500 psychological resistances. The USDJPY moved sharply below daily cloud covering and now targets 94.00. The correlation between oil and the EUR/USD remains high so with crude prices safely below $68.00bll we expect EURUSD moves to be capped. That said, weakness in the EUR is not good news for the SNB and CHF. The EURCHF is once again focused on testing the 1.5000 barrier. The decline is risk appetite, combined with JPY strength, hurt carry trades as the NZDJPY slided through the 60.00 horizontal support. Today's data calendar brings a stream of leading indicator data, including Eurozone PMIs, UK BBA home loans, the Richmond Fed manufacturing index and US existing home sales. Considering yesterday's disappointing German Ifo, the Eurozone PMI data will be dissected for any sign that the “green shoots” are wilting. Outside the economic release, the US Treasury will auction $40bln in 2-year notes today, with markets watching for any signs that foreign demand for US sovereign debt is declining. After that, all eyes will be on tomorrow's FOMC rate announcement (if not there already).


Today's Key Issues (time in GMT):

00:00 USD FOMC meeting starts (to 24 June)

00:00 PLN NBP interest rate announcement, % 25-Jun 3.50 exp, 3.75 prior

09:00 OECD economic outlook published

10:00 EUR ECB's Ordonez testifies before a parliamentary commission in Madrid

13:00 EUR ECB's Weber speaks on The financial crisis - Reaction and lessons in Munich

06:00 EUR Germany: GfK consumer confidence, index Jul 2.5 exp, 2.5 prior

06:15 CHF Trade balance, CHF bn (nsa) May 2.56 prior

07:28 EUR Germany: Flash manufacturing PMI, index Jun 41.0 exp, 39.6 prior

07:28 EUR Germany: Flash services PMI, index Jun 46 exp, 45.2 prior

07:58 EUR Flash manufacturing PMI, index Jun 42.3 exp, 40.7 prior

07:58 EUR Flash services PMI, index Jun 45.8 exp, 44.8 prior

07:58 EUR Flash composite PMI, index Jun 45.9 exp, 44.0 prior

08:30 GBP BBA mortgage approvals, K May 27.7 prior

08:30 GBP BBA net mortgage lending, £ bn May 2.7 prior

08:30 GBP BBA net consumer credit, £ bn May 0.1 prior

09:30 ZAR headline CPI, % y/y May 7.8 exp, 8.4 prior

14:00 USD FHFA purchase-only house prices , % m/m (y/y) Apr -0.3 (-6.9) exp, -1.1 (-7.3) prior

14:00 USD Existing home sales, mn saar May 4.82 exp, 4.68 prior

19:30 MXN Trade balance, $ mn May-P 210 prior

23:50 JPY Corporate service price index, % y/y May -2.8 exp, -2.4 prior

23:50 JPY Trade surplus, bn JPY May 220.0 exp, 67.7 prior

The Risk Today:

EurUsd Medium term bearish, with a move below 1.3720 seen as key to confirmation and extension to 1.3450. Today expect a 1.3820 - 1.4000 range with traders seeking opportunities to buy/sell the break out. Poor price action in lacklustre trading

GbpUsd The bullish pennant shows resistance coming in at 1.6560 again today which will be closely watched, and which will be seen this as a strong cap. Support seen at 1.6180 intraday, and whilst above this level bulls stay in front.

UsdJpy Moving averages showing USDJPY as bearish. Profit taking and a breach of the 95.50 support level reaffirms this view and could lead the way for a run down towards the 93.90/93.50 area where a breach is showing as very bearish

UsdChf Seeing sideways moves at the moment in the short term; with the June highs and the strong psychological barrier at 1.1000 capping. Remaining below this level should prove the bears right. 1.0750 is the floor in this pair for now

Resistance and Support:

S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot