Good morning from cloudy Hamburg and welcome to our last Daily FX Report this week. After her Canada visit, German Chancellor Merkel indicated support for the ECB’s efforts of resolving the European debt crisis and boosted the EUR up to a six-week peak against the JPY.
However, we wish you a relaxing weekend and a further successful trading day.
Market Review – Fundamental Perspective
Yesterday, unexpectedly the GBP rallied to a two-week high against the USD as the retail sales in July were stronger than estimated and economists upgraded their June figures. According to a survey by Capital Economics Ltd., the recession of UK’s business was lower in the past three months than forecasted by the Office for National Statistics and remained below 0.7 percent contraction. Recently, government bonds kept its level after a 1.5 billion GBP purchase with an interest rate of 4.5 percent and a validity period of 24 years. 10-year government bonds remained unchanged at 1.69 percent. Latest data of the development of the gross domestic product will be released on the 24th of August. Therefore, the GBP enforced against nearly all of its most traded currency counterparts. Especially, versus the USD, the British currency advanced 0.4 percent and traded at 1.5743 by touching 1.5744, the strongest since the 30th of July, while dropping 0.2 percent to 0.7850 against the EUR. The recovery of the economy is occupied by the Bloomberg Correlation-Weighted Indexes, which showed a 0.8 percent surplus in the last seven days compared to a 0.5 percent gain of the 17 nation’s currency. But other news of the economy like the labor market figures or industrial output is weaker than estimated.
Rising commodity prices and stocks curbed the demand for riskier assets and NZD as well as AUD are set to establish its seven day increase versus the USD and the JPY. Speculations were known that the Reserve Bank of Australia will probably downgrade the key benchmark by 25 basis points at its next meeting in September to bolster the economy, according to estimates by Bloomberg. On the 21st of August, the spokesmen will present the latest decisions of the RBA, when the overnight cash-rate target will be kept at 3.5 percent. The AUD traded at 83.42 JPY from 83.51 the day before as it reached the highest level since the 30th of April and is set to realize a weekly win of 0.8 percent. The NZD appreciated 0.1 percent to 64.40 towards the JPY, establishing a weekly gain of 1.1 percent.
Daily Technical Analysis - (In this section we provide chart analysis)
EUR/USD (Daily) – Price Action Still Stuck In Consolidation
An increasing risk appetite which was especially reflected on the stock market yesterday also helped the Euro to lift and pushed it clearly north against the USD. Europe`s leading currency managed to put in a daily high at 1.2373 USD and failed only marginally to meet its Tuesday`s high at 1.2385 USD. However, the pair confirmed the upper level of the consolidation zone in its narrower sense.
"Consolidation" is the term in all EUR/USD analyses` headlines going along with increasingly consistent neutral market technical indicators. The directional filter has turned sideways and might shift to a “short” set-up. Momentum also moves sideways. The relevant key chart marks remain in place ranging from 1.2385 USD as resistance towards the upside (in its narrower sense) as well as 1.2242 USD as support towards the downside (also seen in a narrower sense).
With regard to the practical realisation of transactions we further remain “trading neutral”. The situation becomes more interesting in the event that either of the two range ceilings is breached, either above or below. We assume a “strong” strategic indication towards the upside should the pair EUR/USD manage to surpass the analytical key barrier in the 1.2444 USD region.
EUR/GBP (Daily) – Despite Fresh Action Low Absence of Additional Buying Interest
In our analysis yesterday we outlined a scenario of EUR/GBP according to which a potential broader downtrend could likely be forming. Within this scenario we interpreted the recent interim consolidation as a reaction sliding the pair into a continuation of its downside movement of the last days, but only in case the 0.7879 GBP level will be broken.
In fact, the Euro dropped against the British Pound down to 0.7811 GBP yesterday marking a fresh action low which, however, did not trigger additional buying interest. Instead Europe`s leading currency recovered clearly forming a positive daily pattern, a hammer formation on the candle charts.
Coupled with consistently weakening market technical indicators a continuing consolidation might become increasingly realistic. We set the anticipated consolidation zone within a range around 0.7883 GBP towards the upside and 0.7811 GBP towards the downside. However, these range ceilings have not been confirmed yet.