USD strengthens as EUR, GBP, Gold lose field

Forex News and Events:

As markets adjust risk appetite to ongoing geopolitical tensions, the economic data come in focus. USD is broadly better bid against its G10 and EM peers before June durable goods data (due at 12:30 GMT), as gold tests critical short-term support. In the Euro-area, the deterioration in German business climate and expectations weigh on the EUR-complex, while pound’s negative correction deepens despite supportive preliminary reading in UK growth in the second quarter.

Euro-zone money supply accelerates, German IFO soft

The recent EUR strength remained short lived as soft IFO survey in Germany offset the previous PMI enthusiasm. According to IFO institute’s July survey, the business climate and expectations deteriorated in Germany. Euro-zone’s leading growth engine suffers from international tensions according to Bundesbank which assess 1.9% growth to German economy through 2014 (almost twice more than ECB’s predictions for the Euro-area).The July final PMI numbers are due next week (on Aug 1st) while preliminary CPI readings over the same month are expected to remain soft.

On the currency markets, the single currency remains fragile. The bias is clearly negative given the modest economic recovery, ongoing financial and political risks and ECB’s commitment for additional monetary stimulus. The Euro-Zone M3 money supply accelerated at the pace of 1.5% in year to June, the expansion has been faster than the 3-month average (1.2%).

Soft German IFO survey and faster than expected M3 growth send EUR/USD down to 1.3443 (at the time of writing). Option related offers are likely to keep the downside pressures tight before the closing bell, especially given the optimistic expectations on US data. Bids are seen at 1.3400 (optionality). The next key support stands at 1.3296 (November 7th 2013 low).

UK growth meets consensus

According to Office of National Statistics’ first release, the UK GDP expanded 0.8% in the second quarter. The UK economic recovery should reach 3.1% on yearly basis confirming the positive momentum behind UK macro dynamics. Yesterday, the IMF also raised its growth forecast to 3.2% for this year.

While GBP/USD remains comfortably in its year-to-date uptrend channel (1.6894/1.7367), the short-term negative technicals suggest deeper downside correction. The first line of support is seen at 1.6923/64 (June 18th low/50-dma). On the upside, option barriers remain at 1.7000/25 before the weekly close. EUR/GBP remains offered pre-21-dma. We remain seller on rallies as long as resistance at 0.79385/0.79664 (21-dma today & June-July downtrend top) holds.

Gold declines as risk sentiment improves

Despite the ongoing tensions in Middle East and Ukraine, traders seem to have adjusted their risk aversion to current turmoil. As the attention shifts to market news/events, flows are redirected to higher risk assets. In addition, the improvement in US jobless claims in week to July 19th revived appetite before June durable goods reading due today (12:30 GMT). The DXY index gains field at the highest levels over a month, thus impacting gold demand negatively. XAU/USD fell to $1,287.80 in New York yesterday. The short-term critical support stands at $1,286.15/1,287.45 (200-dma/Fibonacci 50.0% on January-March rally). Before the closing bell, we will be closely monitoring US data. Any positive surprise should help XAU/USD clearing support at these levels. Trend and momentum indicators are marginally bearish and should intensify for a weekly close below 200-dma. Light option related offers wait to be activated at $1,286 for today expiry.

Today's Key Issues (time in GMT):

2014-07-25T12:30:00 USD Jun Durable Goods Orders, exp 0.50%, last -1.00%, rev -0.90%
2014-07-25T12:30:00 USD Jun Durables Ex Transportation, exp 0.50%, last -0.10%, rev 0.00%
2014-07-25T12:30:00 USD Jun Cap Goods Ship Nondef Ex Air, exp 1.30%, last 0.40%, rev 0.50%
2014-07-25T12:30:00 USD Jun Cap Goods Orders Nondef Ex Air, exp 0.50%, last 0.70%
2014-07-25T16:00:00 EUR Jun Total Jobseekers, exp 3399.5k, last 3388.9k
2014-07-25T16:00:00 EUR Jun Jobseekers Net Change, exp 10.5, last 24.8

The Risk Today:

EURUSD EUR/USD has broken the key support area defined by 1.3503 (see also the long-term rising trendline from the July 2012 low) and 1.3477 (03/02/2014 low), confirming an underlying downtrend. Hourly resistances for a short-term rebound can be found at 1.3496 (intraday high) and 1.3513 (21/07/2014 low). In the longer term, the break of the long-term rising wedge (see also the support at 1.3673) indicates a clear deterioration of the technical structure. Downside risks are given by 1.3379 (implied by the double-top formation) and 1.3210 (second leg lower after the rebound from 1.3503 to 1.3700). A strong support stands at 1.3296 (07/11/2013 low). A resistance lies at 1.3549 (21/07/2014 high).

GBPUSD GBP/USD is in a corrective phase. An hourly support can be found at 1.6953. The key support at 1.6923 is expected to cap short-term downside risks. Hourly resistances now stand at 1.7054 (24/07/2014 high, see also the declining channel) and 1.7118 (18/07/2014 high). Another resistance stands at 1.7192. In the longer term, the break of the major resistance at 1.7043 (05/08/2009 high) calls for further strength. Resistances can be found at 1.7332 (see the 50% retracement of the 2008 decline) and 1.7447 (11/09/2008 low). A support lies at 1.6923 (18/06/2014 low).

USDJPY USD/JPY continues to improve and is now challenging the top of its horizontal range defined by the support at 101.07 and the resistance at 101.86 (see also the declining channel). Hourly supports can be found at 101.60 (22/07/2014 high) and 101.32 (23/07/2014 low). Another resistance lies at 102.36. A long-term bullish bias is favoured as long as the key support 99.57 (19/11/2013 low) holds. However, a break to the upside out of the current consolidation phase between 100.76 (04/02/2014 low) and 103.02 is needed to resume the underlying bullish trend. A major resistance stands at 110.66 (15/08/2008 high).

USDCHF USD/CHF is consolidating near the key resistance at 0.9037 (see also the declining channel). An hourly support can be found at 0.9001 (intraday low). Another support lies at 0.8969 (17/07/2014 low). From a longer term perspective, the bullish breakout of the key resistance at 0.8953 (04/04/2014 high) suggests the end of the large corrective phase that started in July 2012. The long-term upside potential implied by the double-bottom formation is 0.9207. Furthermore, a break of the resistance at 0.9037 would favour a second leg higher (echoing the one started on 8 May) with an upside potential at 0.9191. A strong resistance stands at 0.9156 (21/01/2014 high).

Resistance and Support: