Quiet FX trading, Turkey's Basci gives verdict

Market Brief

Nothing much happened overnight, the G10 currencies traded through a quiet Asian session. USD/JPY and JPY crosses were mixed before PM Abe’s speech on policy due today. We expect to hear little about Abe’s “third arrow” (structural reforms) which may lead to disappointment for traders given that the reforms in GPIF and corporate rate cut are mostly priced in. USD/JPY remains bid above 101.82, the key support stands at the 200-dma (101.67). On the upside, a breakout above 102.80/103.02 is needed to talk about a fresh positive momentum. EUR/JPY remains offered below its 200-dma (139.00). The 21-dma crossed below the 200-dma favoring fresh bears from technical players.

EUR/USD traded in the tight range of 1.3593/1.3605. Light bids above the 21-dma (1.3595), timid attempts towards 200-dma (1.3671) keep the direction unclear. We remain sellers on rallies as long as the market values the EUR/USD below its 200-dma. EUR/GBP remains capped by solid offers at 0.80000+. The current levels being well absorbed by the markets, the bias remains on the downside.

The Cable holds aground above 1.7000, trend and momentum indicators are comfortably positive. Decent option related offers are eyed at 1.6960 in today’s expiry. The key short-term support is seen at 1.6923.

AUD/USD tests 0.9445/0.9461 resistance zone. The short-term positive trend slowly fades; the first line of support is placed at 0.9325/50 (including 21 & 50-dma and June 17&18 support). RBA’s Edwards wrote in his paper “Beyond the Boom” that Australia can get over the decline in mining industry with the aid of low interest rates and infrastructural spending to spur other industries. Edwards added that low AUD would help.

In Switzerland, the significant decline in exports (-5.0% m/m vs. 0.6% prev.) has partly been offset by -2.5% m/m drop in imports expanding the trade surplus from 2.45bn francs to 2.77bn (2012 highs). USD/CHF sold-off from 0.8953 (session high) post-data; resistance remains at 0.8957/67 (200 & 21-dma respectively). The bias in EUR/CHF remains negative yet the pressures remain subdued. Decent bids are eyed at 1.21500. The key support stands at 1.21044 (March 3rd & 2014 low).

Else, Turkey Central Bank gives policy verdict today and is expected to proceed with 50 bp cut in the bank rate and leave the overnight corridor unchanged at 8.00-12.00%. Given the unsupportive macro picture, we will be closely monitoring the reaction from international capital markets. Will the carry traders continue favoring the lira?

The economic calendar of the day is quite light. Traders watch Swiss May Trade Balance, Exports & Imports m/m, IFO Business Climate, Current Assessment and Expectations for June in Germany, Italian May Hourly Wages m/m & y/y, UK May BBA Loans for House Purchase, US April S&P/CaseShiller Home Price Index, Richmond Fed June Manufacturing Index, US June Consumer Confidence and US May New Home Sales m/m.