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US Jobless claims diappoint
US unemployment claims increased by 386K last week, beating a 367K consensus forecast and an unexpectedly low previous increase by 350K. Today’s data raise investor’s doubts on the US labor market rebound.
Photo: Reuters
July 20: economic & forex news
This week all the high-yielding assets were benefitting from the prospects of a new quantitative easing in the US and China. The risk-on mood was also supported by the raw materials prices growth and a lack of news from Europe. As a result, US dollar was generally losing to its counterparts.
Today, however, the greenback edged higher as the market players were taking profit of the weekend. In addition, investors are preparing for some gloomy data in Europe next week and weaker Australian CPI which may show the slowest annual growth pace since June 1999.
The MSCI Asia Pacific Index (MXAP) of shares lost 0.6% today, trimming a weekly gain to 1.4%. In Asia forex trading was quiet. Demand for AUD and NZD vs. the greenback is limited on Friday. USD/CAD has reached a 2-month low, additionally supported by a speculation the Bank of Canada will be the first regulator to raise interest rates. Watch for Canadian CPI data released today at 12:30 GMT.
EUR/USD is trading on the downside. German PPI contracted by 0.4% in June (vs. -0.2% m/m expected). All attention on the market will be focused on the Eurogroup meetings. Euro zone officials are to outline the first tranche of Spain’s banks bailout. Spanish 10-year yields stayed yesterday close to the critical level of 7%.
Events to watch today:
Euro area: Eurogroup meetings
Great Britain: public sector net borrowing (consensus: 11.8B; previous: 15.6B)
Canada: CPI (consensus: -0.2%; previous: -0.1%); core CPI (consensus: -0.1%; previous: 0.2%)
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Key options expiring today
Market prices tend to move towards the strike price at the time large vanilla options (ordinary put and call options) expire. It happens (all things equal) as each side of the deal seeks to hedge its risk exposure. This action is most noticeable ahead of 10 a.m. New York time when the majority of options expire (2 p.m. GMT).
Here are the key options expiring today:
EUR/USD: $1.2200, $1.2225, $1.2250, $1.2260, $1.2300 (large), $1.2325, $1.2375, $1.2385;
USD/JPY: 78.70, 79.30;
AUD/USD: $1.0250, $1.0295, $1.0300, $1.0347;
GBP/USD: $1.5600, $1.5650;
AUD/JPY: 82.00.
Eurogroup will discuss Spain at 10:00 GMT
Eurogroup’s conference starts today at 10:00 GMT. Euro zone finance ministers are expected to approve an agreement to lend up to 100 billion euro to Spain for the recapitalization of the nation’s banks.
The region’s finance chiefs are to sign memorandum of understanding (MoU) with Spain stating the terms of the aid. The exact size of the loan will probably be determined later this year: firstly, Spanish banks have to pass stress tests (results are due in September), so that it will become clear how much money they really need. Restructuring plans are to be drawn up in October, as set out in the timeline annexed to the MoU, says euro zone official cited by Reuters.
Spain expects 30 billion euro in a first tranche of bailout that will be available immediately for state-rescued banks that urgently need funds. The first injection of capital into banks not already rescued by the state and unable to raise capital by themselves can be expected by October, after reviews by the Spanish government and the European Commission.
AUD/USD: technical and fundamental
AUD/USD declines on Friday, trading close to the $1.0400 level as the risk appetite shrinks ahead of the Euro group meeting. The Aussie hasn’t managed to overcome a strong resistance at $1.0469 (April maximum) yet despite a five-day bullish movement, but still remains close to an 11-week high and above a 200-day MA. Analysts at Westpac forecast the Aussie to be pushed up by the hopes of further global central bank action. All in all, this week was positive for AUD/USD: on Monday the pair traded at $1.0200.
Markets expect the Australian CPI release on July 25 to show the slowest annual growth pace since June 1999. According to Bloomberg survey, Australian inflation probably grew by 1.3% in Q2 y/y. However, today some positive data were released: the Australian import prices unexpectedly increased by 2.4% in Q2.
Resistance: 1.0450 (April 12-13 double top); 1.0469 (April maximum); 1.0500 (psychological); 1.0557 (March 27 maximum)
Support: 1.0400 (psychological); 1.0320/28 (July 4-5 maximums); 1.0279 (200-day MA)
Chart. Daily AUD/USD
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EUR/USD: negative bias persists
The single currency is declining versus the greenback. Euro got hurt due to weak demand at a Spanish bond auction on Thursday which pushed 10-year yields back above the critical 7% level. Eurogroup is expected to approve Spanish banking bailout later today. However, the news may do nothing to improve the outlook for euro: the markets fear that even if Spanish banks get help, the nation won’t be able to keep financing itself on its own.
In addition, as the ECB has so far cut the deposit rate, investors will likely leave the euro area searching for higher yields. Euro is now being viewed as a funding currency. While other currencies may gain versus the greenback on the talk of potential QE3 in the US, EUR will likely remain under pressure of the region’s debt crisis.
BNY Mellon: EUR/USD will test $1.2150 next week.
Commerzbank: A break below last week’s minimum of $1.2162 will bring EUR/USD down to $1.1934 (the symmetrical triangle downside target) and $1.2053 (200-month MA) and $1.1876 (2010 minimum).
Support: $1.2246 (today’s lows), $1.2230 (yesterday’s minimums), $1.2190 (Tuesday’s minimum), $1.2163 (July 13 low).
Resistance: $1.2285 (today’s maximum), $1.2317/24(Tuesday’s/yesterday’s maximum), $1.2335 (July 10 maximum).
Chart. H1 EUR/USD
NZD/USD: short-term outlook
NZD/USD has initially declined on Friday after a three-day growth as the risk sentiment worsened today ahead of the Eurogroup meeting. However, the pair has slightly pared its losses after the Finnish parliament has backed the rescue for Spanish banks in a vote held in the morning. NZD/USD trades above the 100- and 200-day MAs.
On Thursday NZD/USD overcame a strong resistance at $0.8000 (now support) and now consolidates in a $0.8000/53 range. From a technical point of view, therefore, it seems the pair is set to continue a bullish movement to $0.8075 after a short-term correction. However, further dynamics of the pair will highly depend on the news coming from the euro area and from the Fed’s and China’s monetary easing steps.
Resistance: $0.8053 (July 19 maximum); $0.8075 (July 5 maximum); $0.8231/33 (April 27 and 30 maximums)
Support: $0.8000 (psychological); $0.7991 (July 19 minimum); $0.7970/60 (100- and 200-day MAs); $0.7862 (July 13 minimum)
Chart. Daily NZD/USD
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Nomura, RBC: JPY tends to strengthen in August
Analysts at Nomura point out that Japanese yen tends to strengthen against major currencies in August. It usually happens for a number of reasons: Japanese investors get repayments for their US Treasury holdings and transfer this money to their national currency (August has the second highest concentration of coupon payments after February); Japanese corporations repatriate half year profits.
Analysts at RBC add that this phenomenon may be explained by Japan’s huge stock of overseas assets. Moreover, the effects of repatriation in August are more visible as forex turnover that month is the second lowest of the year after December, data from CLS Bank show.
As a result, the specialists are bearish on USD/JPY. Note that there are about 90 pips between the current price level and June minimums and about 250 pips to 2012 minimum. Will the Bank of Japan have enough power and willingness to overcome the seasonal yen’s appreciation?
Charts. Yen's appreciation in Ausust 2010 and 2011
GBP/USD: technical & fundamental
On Friday GBP/USD dropped below the $1.5670 area as the yield on Span’s 10-year bonds reached their highest level since the June 18 (7.158%). Moreover, public sector net borrowing in UK reached £12.08 billion in June, exceeding expectations at £11.0 billion, although lower than the previous £15.58 billion.
The pair has been moving sideways since June after trading in a bearish channel in May. Analysts at RBS claim that GBP/USD may be rangebound in the medium term. The specialists propose small shorts with a stop at $1.5800.
Support: $1.5660 (38.2% Fibonacci retracement of a May decline), $1.5600 (psychological), $1.5400 (July minimums)
Resistance: $1.5736 (July 19 maximum), $1.5750 (200-day MA), $1.5777 (June 20 maximum), $1.5800 (psychological)
Chart. Daily GBP/USD
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RBC: trading GBP/AUD
Analysts at RBC claim that the pair GBP/AUD may decline to 4-month minimum if it closes below 1.5070 (early July minimum). The downside target lies at 1.4905 (76.4% Fibonacci retracement of its advance from February minimum to May maximum).
Chart. Daily GBP/AUD