Forex - This Weeks Cyclical Economic Data to be Supportive of Risk

Forex News and Events:

Risk appetite continued to be robust, as traders were encouraged by the better than expected reading of the US GDP figures on Friday. The smaller than expected contraction in the world’s largest economy encouraged FX traders to position themselves on the side of recovery and build risk correlated positions. This week will test the recovery story, with a wealth of economic data as well as central bank rate decisions. Overall, we expect the cyclical economic data to be supportive of risk, as most are expected to show improvement (during writing, UK July PMI manufacturing printed at 50.8 vs 47.8 exp). This includes Friday’s critical NFP, which we believe will show its smallest decline since the financial crisis began. In regards to Central Banks rate decisions, we expect the ECB to hold steady, while the policy statement should remain relatively unchanged from July. However, there is a slight risk that members will voice a bit of optimism towards recent economic data. The BoE meeting will prove more interesting. While the markets universally believe that the MPC will hold rates steady, we also expect the announcement of a pause in asset purchases. Event a temporary pause should be sterling positive. The first G10 meeting on the docket might provide FX traders with the greatest opportunities. Markets widely expect that the RBA will hold rates steady. However, there is a growing belief that members will use this event to gently shift from an easing to a neutral bias. Should this come to pass, we expect the AUD to benefit especially against the NZD. Last week, the RBNZ accompanying statement took a surprise dovish turn (although forced in this direction by a stronger currency) and traders responded by selling NZD. The acknowledgement that the next move by the RBA will be higher should pressure the pair higher.

Today's Key Issues (time in GMT):

06:00 EUR Germany: Real retail sales, ex-cars/petrol, % m/m (to 7/8) Jun 0.3 (0.9) exp
06:30 SEK Manufacturing PMI, index Jul 50.5 prior
07:00 TRY Manufacturing PMI, index Jul 53.9 prior
07:30 CHF Manufacturing PMI, index Jul 43.3 exp
07:53 EUR Germany: Final Manufacturing PMI, index Jul 45.2 exp
07:58 EUR Final Manufacturing PMI, index Jul 46.0 exp
08:28 GBP Manufacturing PMI, index Jul 47.7 exp 47.0 prior
00:00 USD Total vehicle sales, mn (saar) Jul 9.9 exp
14:00 Trade Balance, $ mn Jul 3800 exp
14:00 USD ISM manufacturing, index Jul 46.5 exp, 44.8 prior
14:00 USD Construction spending, % m/m (y/y) Jun -0.6 (-10.9) exp, -0.9 (-11.6) prior
14:00 TRY Consumer Prices (% y/y) Jul 5.3 exp, 5.7 prior
22:45 NZD Labour cost index % q/q 0.5 exp, 0.6 prior

The Risk Today:

EurUsd A brief look at the daily chart today in preparation for the possibilities of breaking 1.4338. The medium term trend is obviously still up and the retest of the downtrend breakout last week was solid confirmation for the bulls, moving from 1.4015 to 1.4279 in two days. The attempted break outs of 1.4338 are reaching slightly higher levels each and every time and the 4 hour RSi has now broken its downtrend so all good news for the bulls. Expect some consolidation for the early part of today with support at 1.4191, 1.4161 and 1.4118.

GbpUsd Fridays breakout from the 1.6630 resistance and downtrend channel has left the pair incredibly overbought on a 4 hourly chart. There is one last hurdle to clear at 1.6751 before the pair can make a move towards the 1.70 mark so expect some range bound action between 1.663 and 1.6880 with medium term long entries at 1.6546 in preparation for the bigger move.

UsdJpy Friday's global sell off in USD saw the pair come crashing down from the short term resistance at 95.85 directly to one of the lower uptrends 94.45/50. Since then it has been catching a small bid and hugging the trend higher so despite the heavy handed action on Friday the trend is still up with resistance at 95.29 and 95.849. A revisit to 94.45 should see strong interest from the bulls. 4 hourly RSI is giving good confirmation of the uptrend, having never dropped below 40 (bearish) throughout the whole of this 3 week move.

UsdChf It would appear that all the hard work put in by the USD CHF bulls last week was wiped out in one fell swoop with the USD sell off and the uptrend is now broken with a resumption back to range bound trading. First resistance and test of the uptrend breakdown is at 1.0739 with support around 1.0654. 60 minute stochastics are looking a little overbought here so the 2nd resistance at 1.0764 looks likely to cap any upside this morning.

Resistance and Support: