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The euro has been a top performer against the other major currencies lately as investors have turned their attention to the potential for Greece to move beyond its debt concerns. Speculators have been largely betting that Greece may be able to bear its debt burden without restructuring and this has helped lift the 17-nation common currency regardless of its weak monthly performance.
The US dollar halted its plummet against most currencies yesterday, with mixed gains seen versus the British pound, Japanese yen and Swiss franc. Positive news regarding Greece’s debt woes helped the EUR hold its ground against the USD’s resurgence and differences between the two regions’ fundamental data remains stark.
The EUR/USD rose to a three-week high Tuesday, reaching upwards of 1.4415 on news that Greece may not require a debt restructuring. The GBP/USD slumped from its four-week high of 1.6553 to a current price just below 1.6470.
The shift into riskier assets supports a variety of analyses which have called for a solid return to growth in the early summer months of Europe and North America, which is leading the way into these investment shifts. But weak fundamentals out of the US and other leading economies have some analysts a bit skeptical.
Today, the United States is scheduled to release a series of significant data sets. The most impactful figure being published will be ADP’s non-farm employment change report, set to be released at 13:15 GMT. This figure above all others should be a solid gauge from which to view the impending NFP employment reports due to be released Friday.
The euro has been a top performer against the other major currencies lately as investors have turned their attention to the potential for Greece to move beyond its debt concerns. Speculators have been largely betting that Greece may be able to bear its debt burden without restructuring and this has helped lift the 17-nation common currency regardless of its weak monthly performance.
The EUR/USD pushed above a three-week high yesterday, reaching upwards of 1.4415 before flattening out in today’s morning session. Potential for a technical cap to get triggered near 1.4450 could push the pair lower later on in the day, but analysts are still looking for additional gains by the currency if the current risk sentiment holds. Market pessimists, however, are noting the increase in poor fundamentals out of most major economies as a sign that this risk appetite may not materialize.
As for Wednesday, the euro looks to be continuing its gains against the greenback but with a technical selling point approaching fast. A busy trading session in the Pacific economies caused a stir early on today, but traders appear to still be favoring a move into higher yielding assets. Europe, however, will be largely absent from the calendar today with all eyes focused on the employment and manufacturing reports out of the US.
The Japanese yen took a sharp dive yesterday against most of the other major currencies after Moody’s Investor Services placed Japan up for a possible review that may result in a downgrade of its bond rating. After dropping to as low as 80.80 this week, the USD/JPY appears to now be moving upwards, recently climbing beyond 81.30.
Yen traders have been weighing risk sentiment lately, attempting to decipher the direction of the economy during this news heavy week. With Friday’s Non-Farm Payrolls (NFP) ahead, much can be said about the increase in speculative shifts taking place in the market right now. Last week’s data provided a temporary bullish uptick for the island currency, but yesterday’s news from Moody’s has reversed much of this sentiment.
Oil prices pushed beyond $103 a barrel today after investors viewed the recent downward correction as a natural process to help get prices in line with supply. This movement between $96 and $102 a barrel was representative of a market corrective sentiment to get speculation more in step with supply and demand. The upward movement in prices seen yesterday, according to the Organization of Petroleum Exporting Countries (OPEC), was a shift in growth forecasts which view oil consumption to be on the rise going into the second half of 2011.
The decision point anticipated since Monday appears to have been reached, but technical forces appear to now be in play testing this recent jump. Whether oil traders decide to lift oil prices beyond their current high of $103.06 will depend on manufacturing and industrial growth figures out of the major global economies. Employment also appears to be a top priority in this growth sentiment and oil traders are eyeing this week’s NFP data out of the United States to verify their revamped growth schedule for oil prices.
Yesterday’s solid close above the pair’s 50-day moving average should be taken as a bullish signal. The Momentum-14 indicator shows short term momentum is moving to the upside as the pair rises above its two week consolidation pattern. Resistance is found at 1.4490 followed by the May high at 1.4940. 1.4340 should serve as the initial support level followed by 1.4205 and the 100-day moving average at 1.4035.
Cable received a strong bounce higher at a level that coincided with the rising trend line off of the May 2010 low. As such, momentum has swung back in favor of the pound and rising weekly stochastics support further gains. Resistance is found at 1.6520 followed by the April high at 1.6750. A breach here would target the August 2008 high at1.7040. To the downside, support comes in at 1.6330 and 1.6000, followed by the trend line at 1.6120. Below the trend line the March low at 1.5935 comes into play.
The yen’s rally failed to breach the 82.25 resistance as well as the 100-day moving average before the pair turned sharply lower while making a significant close below the rising trend line from the May low. Falling daily stochastics point to further declines in the pair. Therefore traders may look to be short on the USD/JPY with initial support at 80.70 and 80.35, followed by the May low at 79.50. A breach here would expose the pre-intervention low at 76.10. A move to the upside and the pair may encounter initial resistance at the previous trend line which comes in at 81.95, followed by 82.25, and retracement targets from the April to May move at 82.50 and 83.25.
In almost textbook like fashion, the USD/CHF rose as high as 0.8890, a level that coincides with the trend line off of the February high only to encounter resistance and plummet, ending the week at a new all-time low at 0.8464. This level should serve as initial support for the USD/CHF, followed by 0.8400. A retracement back to the falling trend line would offer traders better levels at which to enter the trend with a stop above one of the resistance levels near 0.8890 and 0.8945.
Following a triangle consolidation pattern off of its May high the AUD/USD broke out above the upper consolidation line only to retrace lower before moving higher again. This is typical price behavior of a triangle pattern and forex traders may look to be long on the AUD/USD. A protective stop should be placed inside the triangle near 1.0600 with a target near the 1.1000 level.
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Weak PMI numbers were reported from China, the UK and the euro zone while Switzerland was stronger. Traders are anticipating US PMI and payrolls data later this afternoon that could disappoint to the downside.
China reported better than expected numbers at 52 on forecasts of 51.6, but the data from May is the lowest over the past 9-months. This highlights the slowdown in the Chinese economy after a series of interest rate hikes and other tightening measures Chinese officials have taken to slow the pace of economic growth and inflation rates.
The euro is consolidating its recent gains following a disappointing manufacturing PMI reading of 54.6 on expectations of 54.8. Earlier the EUR/USD failed to move above 1.4450, the 50% retracement from the slide in May. A breach above 1.4450 could tack on another $0.015 to the pair. To the downside 1.4345 is the first support.
Further brinkmanship is being played out in negotiations between the IMF, the EU, and Greece. The IMF refuses to release the next tranche of aid before funding guarantees are made by the EU, while the EU will not pledge funding until the IMF commits. As the two parties negotiate an agreement the market appears to have priced in a new loan package for Greece that at least buys additional time to work out a final settlement. Risks remain in the afternoon session of an off the cuff remark by an EU official that could send the euro lower, albeit temporarily.
Sterling is lower following weak UK PMI data (52.1 on expectations of 54.2) with the GBP/USD falling briefly below 1.6400 before recovering to 1.6420. A previous attempt to establish a beachhead above 1.6500 failed and risks remain for further declines. The support at 1.6300 may be a likely target.
The Swiss franc rebounded from yesterday’s weaker than expected GDP numbers after strong PMI data were released this morning. The USD/CHF traded at a new low of 0.8442 while the EUR/CHF fell back to 1.2180. The next support for the pair stands at Friday’s low of 1.2100.
This afternoon risks run high for disappointing US ISM data as well as the ADP jobs report. Based on the stagnant GDP growth in the US as well as a slowdown in global manufacturing (see the above Chinese, EU, and UK PMI numbers above) the USD could receive a bid in the afternoon trading session.
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The Australian Bureau of Statistics released its gross domestic product (GDP) report this morning, revealing a 1.2% contraction in its national economic growth. The figure has so far had little effect on the value of the Australian dollar (AUD) considering the news happening elsewhere.
With concerns about employment and manufacturing growth in the United States, the potential for Greece to dodge a debt restructuring, and a possible downgrade of Japan’s bond rating by Moody’s, a downtick in Australia’s GDP was hardly significant enough to shift investors away from the higher yielding Aussie. For now, the AUD appears to have simply shrugged off the news and continued its bullish hike.
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Moody’s Investor Services may end up placing Japan’s Aa2 local and foreign currency bond rating up for review this month; a move which has placed significant strain on the value of the Japanese yen. The move by Moody’s comes just days after the Fitch ratings agency downgraded its debt outlook for Japan.
The JPY was recently seen plummeting against several of its currency rivals as traders anticipate a shift in value for their yen holdings. A Moody’s report noted that faltering industrial data and a dovish response by the Bank of Japan (BOJ) to address debt has instigated a review of Japan’s bond rating in lieu of its ability to effectively tackle a deficit reduction.
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Yesterday’s US consumer confidence survey, manufacturing numbers, and housing data all showed sharp drop offs from their previous readings. However, the negative economic data was largely ignored in the FX markets as traders chose to focus on events in the euro zone and gains in equity markets. Today’s ISM data may indicate a slowdown in US economic growth with further evidence coming on Friday from the monthly jobs report.
Today’s Economic Data Releases:
GBP – Manufacturing PMI – 08:30 GMT
Expectations: 54.2. Previous: 54.6
After a respectable run for the pound during the previous week the rally has stalled, particularly in the Cable where the pair made three unsuccessful attempts to form a beachhead above the 1.6315 mark. A close above this level would target the April high of 1.6745. To the downside, initial support is found at 1.6300 followed by the rising trend line off of the 2010 May low which comes in today at 1.6120.
USD – ADP Non-Farm Employment Change – 12:15 GMT
Expectations: 177K. Previous: 179K.
The ADP report has a low success rate of predicting the jobs report from the Department of Labor. However, a strong ADP report may feed into USD selling today.
USD – ISM Manufacturing PMI – 14:00 GMT
Expectations: 58.1. Previous: 60.4.
A pullback in US economic data was apparent yesterday but was largely ignored by FX traders. Today market participants may look past the euro zone crisis and focus on the slowdown in the US economy. A sharp decline in today’s ISM data may cause some economists to scale back their Q2 GDP estimates and induce a bout of USD buying. EUR/USD support comes in at 1.4345 off of the May 20th high followed by 1.4130. To the upside the overnight high at 1.4440 is the first resistance level. A break here opens the door to 1.4590 and1.4750.
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By CountingPips.com
June 1, 2011 – Economic News Releases – Times GMT
01:00 Chinese Manufacturing PMI
01:30 Australia GDP Report
02:30 Chinese HSBC Manufacturing PMI
07:15 Switzerland Retail Sales
07:50 Eurozone Manufacturing PMI
08:30 United Kingdom Manufacturing PMI
12:15 United States ADP Employment
14:00 United States ISM Manufacturing
Economic Calendar
Cable Technical Analysis 31st March
The current GBP/USD price action is at the 61.8 percent Fibonacci level from the 1.6745 – 1.6056 move down.
Cable has formed a bearish engulfing bar on the daily time frame after a failed attempt at the 1.6500 level.
There have been four straight up days in a row excluding yesterdays bank holiday inside day with a 490 pip move higher since 24/5/2011.
This price action suggests there may be further GBP/USD downside potential if the daily low is taken out. Conservative traders will possibly be looking for additional bearish confirmation.
USDCAD’s fall from 0.9816 extended to as low as 0.9655. Deeper decline to test 0.9639 key support could be seen later today, a breakdown below this level will indicate that the uptrend from 0.9444 had completed at 0.9816 already, then the following downward move could bring price back towards 0.9444 previous low. However, as long as 0.9639 support holds, the price action from 0.9816 is treated as consolidation of uptrend, another rise towards 1.0000 is still possible after consolidation.
The South China Sea is up for grabs — the world will soon see if any nation is ready to play for keeps.
Don’t look now, but the geopolitical structure of Asia is about to get very interesting.
As is often the case, it all comes down to crude oil. The South China Sea appears to have a decent amount of it — probably no game-changers, but more than enough to add to the wealth of companies and nations.
And, perhaps, enough to be strategically important.
At least, it appears China thinks so. China has unilaterally declared all of the South China Sea its property, and has sold lots for development that are up to three times as far from the Chinese coast as, say, Vietnam’s.
Both Vietnam and the Philippines dispute those claims, and have been selling lots of their own — in some cases, identical to the ones China has sold.
There’s no doubt that China has the stronger military — and it’s been using military boats to harass surveyors and others operating in cooperation with other countries.
There is also little doubt that China doesn’t have a legal leg to stand on — and the other nations are taking the matter before the UN next year. In all, Vietnam, the Philippines, Taiwan, Malaysia, Brunei and Indonesia have overlapping claims on waters in the South China Sea — and all that lays below the surface.
A Familiar Pattern
China has long been acting to secure as much additional oil as it can. Not only has it worked out numerous agreements with Arab nations… and African nations… and South American nations… it has sometimes traded favors for oil rights (like its blind eye turned toward Sudan).
What’s more, China’s crude oil reserves have shrunk nearly 40% just since 2001. With its appetite only growing stronger, China is in a dangerous position.
That’s why the South China Sea may wind up being a very contentious place, very soon.
Suppose the UN finds in favor of the smaller nations surrounding the South China Sea. Will China back down? Will it continue to use its military to bully the others?
And if it does — what will America do? Recently, Secretary of State Clinton spoke out on sovereign rights and maritime rights while in Vietnam, emboldening the smaller nations to begin asserting their claims.
Will America, long the naval power in the Pacific, push back against Chinese aggression? Not only principle, but crude oil is at stake.
Not Likely to Be a Hot Zone — Yet
We’re still many steps away from military skirmishes — though there has already been plenty of saber-rattling. Not only from China — the Philippines has flown military aircraft to scare off Chinese naval vessels.
Still, nothing beyond posturing has yet occurred. And it’s likely that nothing more will occur — that China and its neighbors will sit down at the negotiating table, and come up with some split of revenue and resources that all will find suitable.
But that’s no guarantee. And, as the finite amount of oil in the world continues to be slurped up, it’s only a matter of time before one of these disagreements blows up into something much larger.
Let’s just hope it doesn’t occur in the South China Sea, next year.
Now, the South China Sea isn’t the only location China has targeted for its crude oil. Workers are going around the clock to put the finishing touches on a massive — and secret — source of emergency oil that’s thousands of miles from Beijing.
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