Markets rangebound, despite Iraq, ahead of the FOMC. DXY hinting at US$ weakness

Aud, Kiwi consolidating. RBA Minutes, Glenn Stevens’ speech today.

It has been  pretty much a rangebound session, with the US$ generally a little bit softer, and it could be much the same today ahead of the US CPI. The markets seem to be taking the Iraq situation in their stride, with US equities closing flat and both WTI & Gold also finishing pretty much unchanged on the session, having given up earlier gains.  Asia will get the RBA Minutes today ahead of a speech later in the day from RBA Governor Glenn Stevens. Europe’s highlights will be the ZEW survey and the UK CPI.

EUR/USD: 1.3570

Some safe haven buying of the US$ on the back of ongoing concerns in Iraq/Ukraine took the Euro down to 1.3512 at the European open before bouncing back to 1.3630 where it sat and did nothing once the EU CPI came in as expected at +0.5%yy.

Later on, the data from US was mixed but provided little inspiration either way. The NY Empire State manufacturing index rose to 19.3 in June exp (15.7). The TIC report recorded a USD -24.2b outflow in capital in April (exp  USD 41.3b inflow) while Industrial Production rose 0.6%, in line with expectations, and the Capacity Utilization climbed to 79.1%.

Technically there is little change, although the Euro does appear to be picking up some mild short term positive momentum and if the descending trend resistance at around 1.3580 can be taken out we could see a bit of a squeeze towards 1.3590 (50% of 1.3676/1.3502) and possibly on to 1.3607 (61.8% of 1.3676/1.3502) and then on to 1.3615 (23.6% of 1.3994/1.2502) 1.3630 (76.4% of 1.3676/1.3502). I would be a bit surprised to see it above there today, and ahead of this, the solid offers at 1.3580 may continue to cap it unless a weak US CPI puts the dollar under pressure, but if the Euro does find some legs, it could eventually reach up towards the 6 June high at 1.3676, which in turn lies just ahead of important Fibo resistance at 1.3687 (38.2% of 1.3994/1.2502).

On the downside, good support remains intact towards and below the bottom of today’s range. Despite briefly reaching down to 1.3512 today, the Fibo support at 1.3518 (38.2% of 1.2754/1.3995) will again find bids ahead of the post-ECB spike low at 1.3502, which will again be strong support.  A break below 1.3500 would head towards the medium term target at the base of the rising wedge, at around 1.3440, where we would be squaring up shorts and looking for a bounce, but think that this is unlikely to be seen today. A break of the wedge base would hint at a further move south towards 1.3370 (50% pivot % of 1.2754/1.3995) and then to 1.3294 (7 Nov ’13 low).

The ZEW will be the focus in Europe and may see the Euro squeeze a bit higher, but it will be the US CPI that will be the main driver (exp +0.2% mm May, 2.0% yy).

In the short term I would prefer to trade the Euro from the long side, as it looks as though the support in the 1.3500/20 area could continue to hold it. Maybe it will be another rangebound session as we wait for the FOMC tomorrow afternoon US time, but I suspect today we should use 1.3520/1.3600 as a guide.

Note that  - as per yesterday’s outlook – the DXY is still unable to make a sustained move above the important 80.60 level (see chart below). Having made a run up to 80.70 earlier, it is now back at 80.44, with the daily indicators looking as though they may be building some downside momentum, suggesting that the dollar is going to be under a bit of pressure in the days to come.

Economic data highlights will include:

EU/German ZEW Economic Sentiment/Current Situation, US CPI

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EUR/USD: 4 Hour

DXY: Daily

USD/JPY: 101.85

US$Jpy has bounced around in a range of 101.75/102.07 not really knowing what to do. While risk aversion and safe haven demand kept the Yen bid, it was unable to make any decent gains because of the higher WTI price, which is a Yen negative, due to Japan’s total reliance on imported oil.

It looks as though we could expect a similar sort of session today, and with the 4 hour charts now pointing a bit higher, I would not be surprised to see another run to 102.00 (100 HMA) and possibly a bit higher. Above 102.00 the dollar needs to overcome Friday’s high of 102.13, where it would then run into further offers at the daily Tenkan/200 HMA at 102.20 and then at the 100 DMA at 102.30. The daily cloud base is at 102.44 while the cloud top is at 102.65, with the recent high being at 102.79, beyond which heavy offers are reportedly lined up at 103.00/10. Plenty of sellers on the way to 103!

On the downside, the daily Kijun is at 101.80 which currently continues to prop the dollar up and comes ahead of Friday’s low of 101.65 and the 200 DMA at 101.55.

As with yesterday, I suspect that 101.60/102.10 may well hold it as the market awaits the release of the BOJ minutes tomorrow. In the meantime keep an eye on the Oil price as another spike would see the Yen come under some downside pressure.

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USD/JPY: 4 Hour

GBP/USD: 1.6980

Cable finally took out the stops above 1.7000 but only made it up to 1.7010 before reversing back to 1.6960 as fears of escalating tensions in Iraq moved the markets to risk-off mode and underpinned the dollar in early Europe, before recovering towards 1.6980 in NY. Today’s focus will be on the UK CPI (exp  0.2% mm, 1.7% yy), and another above par reading would see Cable retest 1.7000 and possibly higher as the market begins to focus more sharply on the chances of a 2014 BOE rate hike.

If we do head back above 1.7010, look for further resistance at the 2009 high at 1.7041. Beyond this, there is not a great deal to stop Cable heading to the August 2008 high, which is not to be seen until 1.7516, so it could be a wild ride if/when it does decide to carry on. Don’t get too excited – yet.

Back below the session low of 1.6958 would see bids at 1.6935 (23.6% of 1.6692/1.7010) and then at 1.6900.  I would be surprised to see Cable much below here in the short term, although the 4 hour charts are overbought and look to be rolling over, possibly for another test of 1.6950/60, and i suspect we could be in for another rangebound session, similar to yesterday. If wrong and we do head lower, then below 1.6900, further bids would be seen at 1.6885 (38.2% of 1.6992/1.7010) and at 1.6840, where the top of the daily cloud, the daily Tenkan and Kijun all coincide and should therefore be very strong.

For the time being I suspect that 1.6950/1.7010 should cover it.

Economic data highlights will include:

UK CPI, PPI, RPI

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GBP/USD: 4 Hour

USD/CHF: 0.8975

US$Chf appears to be breaking minor rising trend support and is possibly heading back towards 0.8960 below which could see a deeper run towards 0.8950 and 0.8930. I would be doubtful of seeing it much below here today, but if wrong, then we could see a decline to the recent 0.8908 low. Below 0.8900, look for further losses towards 0.8880 where the 100 DMA would provide support.

On the topside, 0.9000 again provides decent resistance, beyond which 0 .9010 will see sellers, but above which would take the dollar on towards the recent ECB inspired spike high of 0.9036 and then on towards 0.9050. It may eventually attempt a more concerted test of 0.9100, above which the top of the descending wedge is at 0.9125 which, if/when seen should be very strong resistance.

For today, the 200 DMA at 0.8970 may well again act as a pivot, but the 4 hour charts do point a bit lower and the dailies may be turning too, so I think that selling rallies in the 0.9000/10 area, with a SL above 0.9040 maybe the way to go, but looking for a run towards 0.8940/50.

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USD/CHF: 4 Hour

AUD/USD: 0.9400

The Aud made it up to 0.9416 in late Asia yesterday but quickly retreated towards the earlier session lows at around 0.9385 as the US$ traded firmer against most currencies at the European open, before some short covering in EurAud in early NY pushed the Aud down to a low of 0.9373, where the 100 HMA propped the it up. Softer US yields then allowed a bounce and helped the Aud to head back to 0.9400 which is where it has sat for the latter half of the day.

Today sees the RBA minutes and then later in the session (2pm GMT) Glenn Stevens will be speaking. This will follow up Asst Governor Kent’s speech yesterday when he mentioned that the Aud is high by historical standards, particularly given recent fall in commodity prices. Stevens always likes an opportunity to talk down the Aud, and if the RBA Minutes are also dovish, we could see a bit of downside pressure fairly soon.

While on commodities, as we said yesterday, keep an eye on the Iron Ore price, which has today fallen below $90 per tonne, with some analysts suggesting that $70 could be on the cards. That being the case, the Aud is going to find it very hard to maintain its current levels and the ASX won’t be at 5400 either.

For the time being, attempts by the Aud to run above 0.9415 look to be running out of some steam. If we do see a break higher, then last week’s 0.9438 high would see sellers, above which, 0.9440 will trigger stops possibly taking the Aud up to the 10 April high at 0.9460. Beyond this would suggest an attempt on 0.9500 (0.9495: 76.4% of 0.9757/0.8660) and then there would be little to stop the Aud heading towards the 6 June high at 0.9543.

On the downside, the initial support is at the low of the last two sessions, at around 0.9375. Below there, further bids will arrive at 0.9360(200 HMA/38.2% of 0.9227/0.9438) and at 0.9350 (38.2% of 0.9220/0.9438). Back below 0.9340 would signal a false upside break of the descending trend resistance – now support – and would hint at a deeper run back towards 0.9300 although this looks unlikely for now.

I think a fairly neutral stance is currently needed for the Aud right now and I don’t have too much of a bias either way for the coming day. I would not be surprised to see another session confined roughly by 0.9420/0.9370, with a mild preference to trading it from the short side.

Economic data highlights will include:

 New Vehicle Sales, RBA Minutes, China FDI, RBA Stevens Speech

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AUD/USD: 4 Hour

NZDUSD: 0.8677

The Kiwi continues to consolidate below 0.8700, as the 4 hour charts unwind. Firm US bond yields underpinned the US$ early in the NY session, pushing the Kiwi down to a 0.8660 low, before it turned higher as US rates eased back, and currently sits in the middle of the day’s range.

More of the same looks likely today as the 4 hour charts continue to unwind and another test of 0.8660 would not surprise. The dailies look positive though and if/when 0.8700 can finally be taken out, look for a run up towards the years highs at 0.8778 (6 May) and maybe even the 2013 high at 0.8842 but this too is some way off and I would be surprised to see it above 0.8700 today.

On the downside, below 0.8660, the points to watch are at 0.8650 (daily cloud top), 0.8630 (100HMA) and then, below 0.8600, at 0.8585 (38.2% of 0.8401/0.8699), although it does not look likely to be bothered in the near term.

Look for a similar 0.8650/0.8700 today

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NZD/USD: 4 Hour