The USD added 0.1 percent to 101.47 yen

Good morning from beautiful Hamburg and welcome to our latest Daily FX Report. On Monday, the three major indexes in the U.S. experienced significant losses as investors still remain cautious about instability in Ukraine and Gaza. The S&P 500 fell as much as 0.6 percent, the Dow Jones industrial average fell 0.28 percent and the Nasdaq Composite dropped 0.17 percent. In total about 61 percent of stocks traded on the New York Stock Exchange ended the day with losses.

Anyway, we wish you a successful trading day!

Market Review – Fundamental Perspective

In the U.S. an increase in short-term Treasury yields signaled investors mounting expectations the Federal Reserve will raise interest rates. The USD reacted and was 0.1 percent from the highest in almost a month. Yesterday, the 20-day correlation beween dollar-yen and yields on two-year Treasuries climbed to the highest level since March and was at 0.66 percent. Treasury two-year yields climbed to 0.50 percent, a level not seen since July this year. The appreciation of the USD is also stimulated by the assumption that the consumer-price inflation held at the fastest pace since October 2012. After the EUR depreciated against the USD and fell to a level below $1.35 per EUR, traders are expecting even a further depreciation and it is likely that the EUR reaches the $1.30 level in the near future. The euro is also losing its connection with Europe`s bond market. A look on the correlation of the euro with the yields spreads of Italy, Spain and Portugal reveals a correlation of almost zero. The euro`s 14-day correlation to peripheral euro-region bond spreads dropped to 0.19 on Monday. In January this year the correlation was at 0.75 and even 0.71 in the beginning of July.

The USD added 0.1 percent to 101.47 yen. It traded at $1.3525 per EUR and even touched $1.3491 on July 18, which marked the strongest level since February 2014. The EUR appreciated versus the JPY by 0.1 percent to 137.25 yen. The AUD was little changed at $0.9368. The key theme of this week was and will still remain the higher oil price caused by the geopolitical risks. Oil prices have risen in the younger past due to the threat of escalating tensions between Russia and the West over the crisis in Ukraine. U.S. crude oil reached a three week high on Monday and crude oil for August delivery shot up 1.4 percent to settle at $104.59 ahead of Today`s contract expiry.

Daily Technical Analysis

GBP/JPY (Daily)

Overall, the chart shows a clear upward movement of this currency pair since the end of May. At the moment the currency pair is moving into the direction of its lower Bollinger Band. Whenever we had this scenario before, the pair rebounded. As the MACD and the RSI indicate, the upward movement lost its strength. However, it can be expected that a future appreciation of the GBP versus the JPY may occure. The Adrews`Pitchfork trend channel supports this assumption.

Support & Resistance (Daily)