Currency markets on hold ahead of Yellen testimony – Tuesday. Draghi speaking today.

Aud slightly softer after RBA’s Stevens w/e press article.

While most currencies remain rangebound, yen strength was an underlying theme following the news that a Portuguese bank had missed a debt repayment late week. The coming week will be busy, with the highlight being Janet Yellen’s testimony to Congress. Other important events will include the China Q2 GDP, US Retail Sales (Tues), UK CPI (Wed) and EU CPI (Thur). Mario Draghi will be speaking later today, which may cause the Euro to come under some pressure, should he address the possibility of further accommodative measures to promote increased economic growth in the EU.

EUR/USD: 1.3605

There is little to add on the Euro at the start of the week as it continues to hug close to 1.3600, which appears as though will be the case over the next few days,especially as interest in the northern hemisphere turns more to summer holidays than in trading 30 point ranges such as we saw on Friday. The Portuguese banking concerns, seen last Thursday, were put to one side but they have not gone away and could yet come back to weigh on the Euro.

The coming week will produce some data that could provide some volatility, with the ZEW and US Retail Sales (Tues), and the EU CPI (Thurs) being the probable highlights, along with Janet Yellen’s testimony to Congress on Tuesday, where she will be outlining her view on the state of the economy. The US also gets the PPI (Wed) and Housing data (Thur) next week and if this all adds up to a firmer growth outlook it will have the market second guessing as to the chances of a Fed rate hike, so Janet Yellen’s thoughts will be closely monitored and may see the dollar take a stronger tone over the course of the coming week. The market will be hoping for her to be more upbeat than recently, but more likely, I suspect that she will remain extremely cautious, taking the wind out of the sails of the dollar bulls once again. Before then, Mario Draghi will be speaking today , testifying  on monetary policy to the Committee on Economic and Monetary Affairs of the European Parliament,   and he may do the Euro bears a favour by talking the it lower, reiterating once more, the possibility of some form of QE from the ECB, so keep an eye out for that.

As before, the technical points on both sides remain unchanged and given that the longer term indicators look pretty flat, I suspect the overall outlook for the week will be another one of choppy but directionless trade.

We are currently sitting back just above 1.3600 (daily Kijun) and minor rising trend support, now at around 1.3590, below which would see more bids at 1.3575 (4 July low;1.3573). Beyond there would head towards 1.3557 (76.4%) a break of which would head to the greater degree of Fibo support at 1.3518 (38.2% of 1.2754/1.3995) but which looks unlikely to be seen today. If wrong, a break would see good bids ahead of the post-ECB spike low at 1.3502. The base of the rising wedge now lies at around these levels as well, so if we see 1.3500, I think I would be squaring up short positions at the first attempt to break through it as it should be strong support. If wrong on this, a break of the wedge base would hint at a further move south towards 1.3415 (200 WMA), 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3300 (100 WMA) and 1.3294 (7 Nov ’13 low).

On the topside, the 200 HMA is now at 1.3620 and this may prove difficult to break today. If it does head higher though and can take out the minor Fibo resistance at 1.3652 (61.8% of 1.3700/1.3573), the Euro could then head on to 1.3670 (76.4%/ daily cloud base/200 DMA). Further out, it would find sellers at 1.3700, a break which would see a run up towards 1.3730(100 DMA), which should be solid resistance although a break of this level would head on towards 1.3803 (61.8%).

For today, use 1.3585/1.3620 as a rough guide. The DXY does suggest that there is room for an underlying bid tone to the dollar over the next few days, albeit nothing very sgnificant.

Many the US financial houses release their Q2 results this week which will be worth keeping an eye on.

Economic data highlights will include:

M: French Holiday, EU Industrial production, Draghi speech

T: ZEW Survey, US Retail Sales, NY Empire Mfg Index, Yellen testifies to Congress.

W: EU Trade Balance, US PPI, Industrial production, Capacity Utilisation

T: EU CPI, US Building permits, Housing Starts, Jobless claims

F: EU Current Account, Rts/Michigan Consumer Sentiment Index.

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EUR/USD: Daily

USD/JPY: 101.30

US$/Jpy was pretty much a non-event on Friday, trading a 15 point range, although the Yen shorts continue to be squeezed after renewed safe haven demand following the missed debt repayment by a Portuguese bank, with the dollar so far unable to produce any sort of bounce, and looking as though a test of 101.00 is imminent. US yields give little scope for optimism for any imminent dollar rebound, with the 10 years having closed the week at  2.52% down from the previous week’s high of 2.69%.

US$ bulls will be hoping for some help on Tuesday from Janet Yellen’s testimony to Congress, but if she remains as cautious as she has previously been, then 101.00 may not be so far away. That being the case, below here would see a return to strong support at the 9 May low at 100.80, and if this were to give way, then look for a run towards 100.60 (50% pivot of 95.78/105.43), below which we could be in for a sharp run towards 100.00 and 99.47 (61.8%).

If she is more positive in her outlook, causing US bond yields to rise, then the dollar would follow, heading back to initial minor resistance at 101.50 (100 HMA), above which 101.70 (200 HMA), 101.85 (200 DMA) and 102.00 will all see sellers. We are unlikely to see the dollar above here before Wednesday (morning – Asian time), but if Yellen is more hawkish than expected, 102.15 (100 DMA) will provide some resistance, above which could see a run up to the recent high at 102.35. Right now this looks rather doubtful.

For now, look for some quiet trade, above 101.00, using something like 101.10/50 as a guide, but with a good chance of further yen strength as the week wears on. The BOJ has a monetary policy announcement this week although, with rates generally expected to remain unchanged, it would seem doubtful that  the statement will greatly do anything to alter the near term outlook on the Yen.

EURJPY: 137.80. The cross is slightly lower once more this week, as it continues to ratchet lower, although overall it is not doing a great deal. Having broken down below the 200 DMA a couple of weeks ago, now at 139.25, it has so far been unable to recover its ground and is slowly moving further away from it and it looks as though it may be in for more of the slow drift lower in the days ahead. Having broken back below the top of the weekly cloud, now at 138.20, we may eventually be headed for a move, below last weeks base at  137.49 towards 137.00 and eventually down to the 4 Feb low at 136.22.

On the topside, we now need to regain the 138.25 level in order to provide some stability, above which the daily Tenkan (138.37) and the daily Kijun (138.80) will see sellers. If the 200 DMA can be regained then we could be in for another squeeze back to 139.45 (daily cloud base) and towards 140.00, (weekly Kijun/Tenkan: 139.95) but this also looks a bit unlikely right now. Selling rallies seems to be the plan.

GBPJPY: 173.20. The cross has retreated from its recent strong run up to 175.35 and is currently sitting on strong rising trend support, which if it gives way could see deeper losses towards 172.35 (30 June low) and then to 171.65 (100 DMA).

With the dailies now turning down, I think the upside is a little limited and that rallies towards 1.73.80 are probably a sell opportunity. Above 174.00 would see a retest of 1.74.40 and I think it unlikely we go above here, so would leave stops on shorts fairly close by, as a break could take us back to 175.35. As with EurJpy, selling rallies seems to be the plan.

AUDJPY: 95.15. The cross has come under some pressure this week, but all the same has mostly held its ground within the recent 95/96 range. We did get a nasty but brief spike down to 94.70, and having broken rising trend support now at  95.35, we could be in for a retest of the downside, towards the 100 DMA at 94.50 and then 94.35 (61.8% of 93.04/96.50).

If the cross turns higher once more, 95.35 will be the first hurdle to overcome, above which would suggest a run back towards 95.50 and then to 96.00. I don’t really see it up here and the overall outlook would appear to favour further Yen strength on the crosses.

Economic data highlights will include:

M: Industrial Production, Capacity Utilisation

T: BOJ MP Statement/Press Conference.

W: Monthly economic Survey

T:

F:

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USD/JPY: Daily

GBP/USD: 1.7110

Cable headed a bit lower, back towards 1.7100 on Friday, unable to overcome the strong selling interest in the 1.7150/80 range and not helped by weak UK construction data. We have the UK CPI coming up on Tuesday, which remains below 2%, with the consensus being that this week’s reading will be 1.6% yy. Below here would see thoughts of an impending BOE rate hike recede, and with the market still long, would most likely send Cable back below 1.7100, possibly quite sharply, as everyone rushes for the exit.

Initial support would be seen at last week’s low at 1.7085, below which, buyers would be seen at the previous 1.7060 peak. Under here there is some congestion starting at around 1.7050, the base of which would see more bids at 1.7000. A break of 1.7000 seems unlikely, but if wrong would head towards 1.6975 (23.6% of 1.6692/1.7062). A break of this level would head back to the June 25 low at 1.6950, below which, would see 1.6921 (38.2%).

If the UK data turns out to be stronger than expected and Carney remains hawkish in his outlook, then Cable will again test the topside, and if it can overcome the 1.7180 high it could make a more concerted attempt on the barrier protecting 1.7200. Above this, there is not a whole lot of resistance until 1.7331 (50% pivot of the long term move from 2.1160/1.3547). Beyond that, there is not a great deal to stop Cable heading to the August 2008 high, which is not to be seen until 1.7516. If we do break 1.7200, it could be rather volatile, so keep stops tight.

EURGBP: 0.7950. The cross made a new trend low of 0.7914 last Monday, since when it has squeezed higher, reaching 0.7970 at one stage before settling back to mid range. Further short term gains do look possible though, and if 0.7970 can be overcome, then we may be in for another look at 0.8000 where I would be a seller, with a SL place above 0.8040. Further out, the longer term charts still point lower and below last week’s base the target would be at the bottom of the descending channel at round 0.7885. Further out, the longer term target would be at 0.7753 (23 July 2012 low) albeit that this is a long way off. Watch the EU/CPI readings this week, which will largely provide the direction.

Economic data highlights will include:

M:

T: UK CPI, PPI, RPI, Mark Carney speech

W:

T:

F:

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GBP/USD: Daily

USD/CHF: 0.8920

The dollar finished the week pretty much unchanged from Thursdays close and thus still remains within the channel that currently dominates the price action. More sideways trade looks likely, but below 0.8900 would see a potential test of 0.8885, with stronger support at the 100 DMA at 0.8870. While I don’t think we are likely to see it down here today, a break of 0.8870 would see the chance of a run back to last week’s low at 0.8855, below which, look for further support at 0.8830/40.

On the topside, the 200 HMA and 100 HMA are converging close by at around 0.8925. A break above this would suggest a run up to minor resistance at 0.8935.  Above this the descending channel and the 200 DMA are now converging at around 0.8948 and should be strong resistance, although a break would hint at a run back up towards the previously troublesome 0.8995/0.9005 area.

Look for 0.8930/0.8890 to cover it today and for the 100/200 DMA’s to contain it, at least until Yellen’s testimony to Congress.

Economic data highlights will include:

M:

T:

W: UK Unemployment

T:

F:

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USD/CHF: Daily

AUD/USD: 0.9392

The Aud finished the week at 0.9390 having earlier climbed to a session high of 0.9408 in NY before turning sharply lower after the release of a press interview with RBA Governor Johnson, who reiterated his opinion that the Aud is too high, while at the same time warning of complacency over Australian economic growth. The Aud immediately dived to 0.9375, but recovered some of its losses going into the close, to finish where it had started the day, where the 100/200 HMA’s are in the process of crossing.

More choppy trade looks likely over the next session or two, although the RBA minutes on Tuesday might weigh if they are seen to be overly cautious. The China data, also on Tuesday, will be a key focus, although I suspect any real direction will be delayed until Janet Yellen testifies to Congress – early Wednesday – Australia time. Later in the week sees the NAB Business Confidence reading and another soft tone will add to any downside pressure on the Aud.

The charts are giving us little help in either direction, but if the Aud does head back below 0.9375, the major rising trend support will see decent buyers at around 0.9360. A break of this could be a different matter as stops get triggered and could see the Aud accelerate down towards support at 0.9320 (61.8% of 0.9220/0.9505/18 June low) and then possibly to 0.9300. If Janet Yellen is more hawkish than is expected and ignites a bid tone under the US$, then we could see the Aud come under further pressure, and below 0.9300 would see a run towards 0.9275 (76.4%). As we said before, if the Aud breaks under 0.9250, then the downside could really accelerate, but at this stage is considered unlikely.

Should Yellen indicate that US rates will remain low for the foreseeable future, then the Aud is likely to make a more concerted test above 0.9400, indicating another run up to 0.9425, and beyond, to the recent  high at 0.9455 and  to the 10 April high at 0.9460. Beyond this would then head on towards 0.9495(76.4% of 0.9757/0.8660) and last week’s top at 0.9505, a break of which, there would be little to stop the Aud heading towards the 6 June high at 0.9543. Above here, the long term objective from the major head/shoulder reversal is now at 0.9665.

Neutral today. Use 0.9370/0.9410 as a guide.

EURAUD: 1.4490. The cross failed to build on the expected positive momentum last week and instead chopped sideways, providing little interest.

On the downside, below 1.4450  would suggest another decline towards the 1.4360/80 area, which would be strong support.

Back above 1.4500 – where the daily Kijun/Tankan are crossing- would head back up towards last week’s top at 1.4562 and then on towards 1.4600. Although unlikely, if we get above here, then above this look for a run up to 1.4700 (23.6% of 1.5831/1.4358/daily cloud base). Sidelined for now.

GBPAUD: 1.8225. Sterling ran out of steam on the topside and the cross finished the week 70 points below where it started as the general consolidation continues, which looks likely to be the case again, at least early in the week.

On the topside, we need to regain 1.8300 in order to see any chance of further advances towards the recent 1.8375 top. Above this would then have the potential to reach 1.8455 (50% pivot of 1.9195/1.7747/ Weekly Kijun) and possibly 1.8620 (61.8%). If we saw this I would be taking profit on longs and going short, as this is where the neckline of the long term S-H-S lies and should therefore be strong resistance but keep stops on any shorts, up here, pretty tight at just above 1.8700, as above here the cross could be headed strongly higher, back to 1.9200. Not yet I suspect.

On the downside, if the cross remains heavy and falls below 1.8200 then look for a possible decline towards 1.8160 (minor Fibo support) and to 1.8130 (100 DMA).

Right now, sitting on the sidelines seems prudent as the Aud crosses are not currently where the best action is to be found.

Economic data highlights will include:

M: New Vehicle Sales, RBA Minutes, China FDI, Leading Economic Index

T: China GDP, Retail Sales, Industrial Production, Urban Investment

W:

T: NAB Business Confidence

F: China House Price Index

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AUD/USD: Daily

NZDUSD: 0.8810

The Kiwi made a session high on Friday at 0.8833 but was unable to approach the July 2011 high at 0.8843 before turning lower to finish the week at around 0.8810

Wednesday sees the NZ Q2 CPI which is expected to be 1.8% (previous 1.5%). An inline or above forecast result will see the Kiwi give the 0.8843 level a real test, above which would head to the top of the rising wedge resistance at around 0.8860 and then to the top of the long term channel, now at around 0.0.8910, where, if long, I would be taking profit and possibly going short.

If the Kiwi heads back below 0.8800, then it could make for the recent low at 0.8781 where the rising trend support should initially hold it. A break though, would head down towards Fibo support at 0.8733 (23.6% of 0.8401/0.8835) and then to 0.8700. Below here would suggest 0.8670 (38.2%), but seems unlikely for a while.

Use 0.7885/0.8835 today.

Economic data highlights will include:

M: REINZ House Price Index

T:

W: NZ CPI

T:

F:

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NZD/USD: Daily

CROSS: 0.0000

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Meta Trader – AxiTraderCROSS: Daily

CROSS: 0.0000

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Meta Trader – AxiTraderCross: Daily

USD/DXY: 88.16

The DXY consolidated this week, finishing at 80.18 and with not too much to go on, although the daily MACD’s have crossed higher and would appear to have the chance of some mild further upside momentum in coming days.

The Index has however failed to finish above the 200 DMA at 80.25 and needs to do so before we can gain any real confidence of any sort of acceleration higher for the dollar. If this can be successfully overcome over the course of the week, then we could see another run back to the previously troublesome 80.60 area. Beyond here may be a stretch too far this week, but further points to watch would be at the 100 WMA (80.88) and then at the 5 June high at 81.02.

On the downside the 100 DMA, at 80.04, again provides the initial support. Below 80.00 would see losses back towards the recent low (79.74) and then possibly towards 200 WMA at 79.56, although I think for now that this is the less likely scenario.

For the time being, look for some further mild dollar gains, but the overall consolidative mood looks set to be extended, particularly as the northern hemisphere heads into full swing.

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USD/DXY: Daily