USD/JPY Starting to Move Higher, AUD in Trouble

Last week’s currency trading review

The USD/JPY was the currency in the spotlight last week as technical resistance was broken and daily highs saw the major sitting at Y79.50 by the weeks close. Analysts are pointing to the recent string of better than expected US data and the dampening call for more QE3. US Treasury Yields are creeping higher and widening the gap between US and Japanese funding costs. The Bank of Japan is expected to keeps low for an extended period of time and it is the comparison with the US FED monetary policy that creates most of the USD/JPY movement.

The AUD/USD was another currency in focus last week with substantial losses across the board as the AUD crosses led by EUR/AUD and GBP/AUD finally reversed direction. The AUD has been a favorite for many months and has built up very large long positions against nearly all currencies. Growing concerns about the slowdown in the Chinese economy added to the selling pressure and on Friday we saw the pair break month lows at 1.0430 to hit 1.0410 before a small recovery. Longer term bulls will likely step back and see if the underlying strength in the Aussie still remains.

Currency Movement last week

EUR/USD was up +0.33% closing at 1.2330, after opening the week at 1.2289.

USD/JPY was down +1.62% closing at 79.54, after opening at 78.25.

GBP/USD was up +0.03% closing at 1.5689 after opening at 1.5684.

AUD/USD was down -1.53% closing at 1.0416 after opening at 1.0575.

This Week’s Trading Preview

Pivot: 79.55

Our preference: Short positions below 79.55 with targets @ 79.2 & 79.05 in extension.

Alternative scenario: Above 79.55 look for further upside with 79.7 & 79.85 as targets.

Comment: the pair has broken below its support and should face further weakness as the RSI is badly directed.

Forex Economic Data Preview

In the States; On Wednesday, July Existing Homes Sales forecast at 4.52m vs. 4.37m. Also released, July FOMC meeting minutes. On Thursday, Weekly Jobless Claims forecast at 365k vs. 366k previously. Also, July New Home Sales forecast 363k vs. 350k previously. On Friday, July Core Durable Goods forecast at 0.5% vs. -1.4% previously. We will provide our previews and reviews of these data releases in the daily summary.

In the Eurozone; On Thursday, German Manufacturing PMI forecast at 43.6 vs. 43.0. German Services PMI forecast at 50.2 vs. 50.3 previously. In the UK, On Tuesday, Public Sector Borrowing forecast a t-2.7bn vs. 12.1bn previously. On Friday, Q2 Revised GDP forecast at -0.5% vs. -0.7% previously. We will provide our previews and reviews of these data releases in the daily summary.

In Japan; On Wednesday, July Trade Balance forecast at -0.46T forecast at -0.3T. In Australia; RBA July Minutes are released Tuesday. On Friday RBA Govenor Stevens Due to testify before congress.