After a violent close to the week across all asset classes, not just FX, the last full week of June has opened up with more of a whimper than a bang, although the same themes that closed last week have continued thus far. Accordingly, the US Dollar remains the top performer amid higher US Treasury yields, with the 10-year yield hitting 2.632% today, the highest level since August 4, 2011 – the day before Standard & Poor’s stripped the US of its ‘AAA’ credit rating.
Needless to say, global markets have come a long way since the summer of 2011, yet price action in FX today is eerily similar to that seen at the beginning of the Euro-zone crisis spiral that consumer the better part of the past two years. Three of the more berated currencies during this time frame, the Japanese Yen (‘Abenomics’), the Swiss Franc (the SNB’s EURCHF floor at Sf1.2000), and the US Dollar (the Fed’s massive balance sheet expansion and suppression of yields) are leading the pack as signs of crisis renewed begin to creep back into the foreground. Certainly, with the non-safe haven European currencies as well as the commodity currency bloc (high yield FX) sliding further today, we are inclined to believe that global market participants are starting to feel a bit uneasy.
Certainly, this week will be quieter than the past few, with little significant data on the docket, although there is potentially market moving data out from Germany, Japan, and the US between Tuesday and Thursday. Outside of these key events, we suspect that the coming days will continued to be shaped by speculation over the Fed’s QE3 taper talk, which has hit Gold and other risk-correlated assets significantly.
Taking a look at European credit, peripheral bonds continue their selloff, with peripheral yields continuing to widen out relative to their German counterparts. The Italian 2-year note yield has increased to 2.040% (+6.9-bps) while the Spanish 2-year note yield has increased to 2.315% (+0.5-bps). Similarly, the Italian 10-year note yield has increased to 4.665% (+5.2-bps) while the Spanish 10-year note yield has increased to 4.934% (+0.8-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 10:35 GMT
CHF: 0.00%
JPY: -0.05%
EUR: -0.11%
AUD:-0.28%
GBP:-0.40%
CAD:-0.48%
NZD:-0.50%
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.03% (+2.43%prior 5-days)
ECONOMIC CALENDAR
There are no significant data due during the North American session on Monday, June 24.
TECHNICAL ANALYSIS OUTLOOK
EURUSD: The past week I’ve been suggesting that a Right Shoulder on a Head & Shoulders formation, dating back to September 2013, might be forming with implications for a retest of the June 2010 low near $1.1875. After six gut wrenching days of nearly seeing the pattern nullified in the near-term, the FOMC decision provided the necessary catalyst for a turn. The EURUSD now finds itself back in the formerly key 1.3185/45 zone, which produced highs in mid-April and late-May, before breaking in the first week of June. Support is thus here now, alongside the 21-EMA at 1.3195. A deeper pullback eyes 1.3075.
USDJPY: While I’ve been looking for a bearish scenario, I previously noted: “the USDJPY is close to breaking out of the daily RSI downtrend in place since May 17, suggesting a turn may be on the horizon.” This fringe observation proved to be correct, given the outcome of the Fed meeting, and the USDJPY has happily surged alongside rising US Treasury yields. A close above the 38.2% Fibonacci retracement (May 22 high to June 7 low) at ¥97.58 would be viewed as constructive into 99.25/35.
GBPUSD: Earlier this week I said: “The pair is attempting to crack the 200-SMA at $1.5700 again, after several rejections last week and the week before. Once more, the GBPUSD finds itself in a state trepidation as it makes little headway above the key moving average, as the daily RSI breaks its late-May/early-June uptrend at the top rail of the ascending channel off of the March and May lows (drawn to the early-May high). In terms of daily RSI, the uptrend has broken before achieving overbought conditions, suggesting that a near-term top may be in place.” Price has fallen back to the 38.2% Fibonacci retracement of the year high/low at1.5408, meaning that we may yet see momentum slow in the short-term.
AUDUSD: Fresh selling has provoked an even steeper decline in the AUDUSD, with the pair falling towards the 38.2% Fibonacci retracement off the 2008 low to the 2011 high at $0.9141. While fundamentally I am long-term bearish, it is worth noting that the most readily available data shows COT positioning remains extremely short Aussie.
S&P 500: No change: “The S&P 500 held the 38.2% Fibonacci retracement of the late-February low to the late-May high at 1610, and is trading back to the conflux of the 8-/21-EMA at 1631/33 again – price has touched one of these two moving averages every trading session since June 7. Resistance now comes at the top of the Evening Star candle cluster that formed June 7 to June 11) at 1650. The index is also close to breaking the daily RSI downtrend, which would be supportive of further gains as well (a Symmetrical Triangle on RSI is breaking to the upside). Firm support is at 1595/1600, and a break here would lead to a sharp pullback towards 1585 and 1561.”
GOLD: No change: “If the US Dollar turns around, however (as many of the techs are starting to point to), then Gold will have a difficult gaining momentum higher. Indeed this has been the case, with Gold failing to reclaim the 61.8% Fibonacci retracement of the April meltdown at $1487.65, only peaking above it by 35 cents for a moment a few weeks ago.”
Source: http://dld.bz/cFxfa
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