EUR/USD Technical Analysis: 1.32 Mark Under Pressure

EUR/USD Technical Analysis– Prices turned lower as expected, snapping the rising trend prevalent since mid-May. Sellers are now testing support at 1.3178 marked by the 38.2% Fibonacci retracement, with a break below that exposing the 50% level at 1.3105. Near-term resistance is at 1.3268, the 23.6% Fib, with a move above that eyeing the 14.6% retracement at 1.3324.

 

Source: http://dld.bz/cFfGw

The (Big) Problem With a Stronger Dollar

The Fed-inspired US dollar rally has caused tremendous volatility across the world’s financial markets, and virtually nothing, from equities to commodities to currencies, was safe from massive price swings.

The US dollar (USD) continued to power higher against all major currencies, wreaking havoc across the financial markets in the process. While we can't blame all of the volatility on the dollar since ten-year US Treasury yields also spiked above 2.4%, the latest moves have unsettled investors around the world.

Consequently, the S&P 500 dropped 2.59%, European equities fell 3%, and major indices in Asia lost anywhere between 1.5% and 3%. Most of this weakness can be attributed to the spike in global bond yields, which boosted the cost of borrowing around the world. This accelerated deleveraging in the forex market, and dollar strength only added to the pain.

The rally in the US dollar has driven the Australian dollar (AUD) to a fresh 2.5-year low and the New Zealand dollar (NZD) to a one-year low, but the biggest moves were in commodities. Gold prices fell more than 5% and silver prices a whopping 8%. These are the lowest levels seen in both commodities since September 2010. Even oil prices fell 2.9% and closed near $95 a barrel.

While the world may wind up thanking the Federal Reserve for keeping inflation at bay and boosting the US export sector by weakening the currency, right now the focus is on volatility and its impact on confidence.

Central banks around the world are not going to be happy with the pace of depreciation in their respective currencies, as well as the spike in bond yields and decline in stocks. Unfortunately, given the amount of re-pricing that needs to occur, the latest moves could extend further.

However, the selloff in US stocks and the panic across global markets are not completely justified.

Investors should realize that the Federal Reserve is planning to reduce asset purchases due to increased confidence in the US economy. The latest upside surprises in the Philadelphia Fed survey and existing home sales only supports that decision.

The central bank would not be taking steps that will drive Treasury yields higher if policymakers did not feel that the US economy and corporations could handle it. So eventually, the selloff in US stocks should stabilize, allowing US yields and the dollar to hold on to their gains and grind slowly higher.

Big Problems Brewing in China, Too

Meanwhile, the "cash crunch" in China has only made investors more nervous. Interbank overnight lending rates in China spiked to a record high of 13.44%, up from 7.66% the previous day!

One month ago, the rate that banks used to borrow from each other was less than 4%. The rise in the interbank rate began two weeks ago before a three-day holiday when demand for cash increased and rates followed.

In the past, the central bank would inject money into the system to offset demand, but when they refrained from doing so, rates started to climb higher, and the situation was made worse by weakening economic data.

Now China finds itself in a liquidity crunch and begging for the central bank to step in. Unfortunately the People’s Bank of China (PBoC) refuses to do so because it wants to punish speculators and is in the midst of reforming the economy. The longer the banks hold off, however, the more disruption it will have on China's economy and the global financial markets.

 

Source: http://dld.bz/cFfE4

Yen to Rise if Post-Fed Unwinding Becomes Full-On Risk Aversion

The Japanese Yen is likely to rise amid carry trade liquidation if broad-based risk aversion grows out of investors unwinding Fed QE-dependent trades.

Talking Points

• S&P 500 Futures Hint Sentiment May Recover But Ample Threats Remain
• Japanese Yen to Rise on Carry Liquidation if Larger Risk Aversion Triggers
• Significant Policy Breakthrough Not Expected at Eurozone FinMin Summit

S&P 500 futures are pointing higher overnight and arguing for a recovery in risk-geared assets through the end of the trading week. A period of correction seems reasonable after yesterday’s bloodletting that snapped a seven-month uptrend in US equities and forced sharp reversals in crude oil and gold, particularly given an absence of high-profile releases on the economic data docket. An interesting bit to consider going forward will be whether the latest round of selling in the stocks and commodities space translates into wider risk aversion.

Fixed income and foreign exchange markets noticeably diverged yesterday, with bonds falling alongside share prices – breaking with the familiar risk vs. safety dynamic – while Yen-funded carry trades largely opted out of the fireworks altogether. This hints the volatility seen over the past 24 hours reflected an unwinding of the “Fed levitation” trade, whereby investors dumped assets dependent on continued Fed support in the wake of the FOMC rate decision, rather than a full-blown meltdown in risk appetite.

Looking beyond the Fed policy outlook, reemerging threats to the global economic recovery may well justify a true risk aversion move. The prospect of a cutback in US policy support comes against a backdrop of lingering recession in Europe and continued signs of slowdown in China. In fact, the Fed’s signal of an end in sight to the “levitation” trade has compounded an already significant outflow of foreign capital out of China’s banking system, sending overnight borrowing costs soaring to record highs. If this credit crunch translates into global contagion fears, a far broader risk-off dynamic may grip financial markets.

A meeting of Eurozone Finance Ministers in Luxembourg highlights an otherwise lackluster helping of event risk due in European trading hours. Policymakers are expected to discuss proposals for region-wide bank supervision scheme. The creation of a single regulator is a prerequisite for direct recapitalization of troubled lenders via the EFSF/ESM bailout funds and traders will be watching officials’ commentary for signs of progress, although concrete policy details are not expected to emerge.

 

Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
22:00	NZD	ANZ Job Advertisements (MoM) (MAY)	-1.7%	-	0.7%
1:00	NZD	ANZ Consumer Confidence Index (JUN)	123.9	-	123.7
1:00	NZD	ANZ Consumer Confidence (MoM) (JUN)	0.2%	-	3.8%
6:35	JPY	BOJ Governor Kuroda Speaks at NASB	-	-	-

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
-	EUR	Eurozone Finance Ministers Meet in Luxembourg	-	-	High
7:00	CHF	Money Supply M3 (YoY) (MAY)	-	10.2%	Low
8:00	EUR	Euro-Zone Current Account s.a. (€) (APR)	-	25.9B	Low
8:00	EUR	Euro-Zone Current Account n.s.a. (€) (APR)	-	24.8B	Low
8:00	CHF	KOF Institute June Economic Forecast	-	-	Medium
8:30	GBP	Public Sector Net Borrowing (£) (MAY)	13.5B	8.0B	Low
8:30	GBP	Public Finances (PSNCR) (£) (MAY)	-2.5B	-10.8B	Low
8:30	GBP	PSNB ex Interventions (£) (MAY)	12.6B	6.3B	Low

Critical Levels:

CCY	SUPPORT	RESISTANCE
EURUSD	1.3153	1.3294
GBPUSD	1.5444	1.5582

 

Source: http://dld.bz/cFfAr

Dollar Looks Higher on Flight to Safety- Buy Dips in USDJPY

Index	Last	High	Low	Daily Change (%)	Daily Range (% of ATR)
DJ-FXCM Dollar Index	10734.1	10751.55	10644.6	0.76	117.43%

 

The Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) added another 0.76 percent on Thursday as U.S. Existing Home Sales increased 4.2 percent in May to mark the biggest advance since August 2012, and the greenback may track higher over the remainder of the week as fight to safety heightens the appeal of the reserve currency. However, the dollar looks poised for a small pullback as the 30-minute relative strength index continues to find resistance around the 84 figure, and we may see a move back towards the 100 percent Fibonacci expansion around 10,689 as it looks for near-term support, Nevertheless, we should see the dollar continue to retrace the decline carried over from the previous month as it breaks out of the bearish trend, and we will look to buy dips in the greenback amid the shift in market sentiment.

Indeed, the dollar looks poised for a higher high as the relative strength index appears to be breaking out of the bearish trend, and the flight to safety may gather pace over the remainder of the week as headlines coming out of China fuel fears of a banking crisis. In turn, the rise in safe-haven flows should produce further USD strength over the near to medium-term, but the lack of momentum to clear the 61.8 percent expansion around 10,764 may produce a move back towards former resistance – the 50.0 percent Fib around 10,652. Still, we will retain a bullish outlook for the reserve currency as it carves out a higher low in June, and the shift in the policy outlook along with the drop in risk appetite should foster greater demands for the USDOLLAR as the fundamental outlook for the world’s largest economy improves.

The greenback rallied across the board, led by a 1.60 percent decline in the Japanese Yen, and the USDJPY looks poised to resume the upward trend from earlier this year as it carves out a higher low around 93.77. As the Bank of Japan (BoJ) remains poised to further embark on its easing cycle in the second-half of the year, the deviation in the policy outlook warrants further upside for the dollar-yen, and we should see a more meaningful run at the 104.00 handle as the Fed Chairman Ben Bernanke sees scope to taper the asset-purchase program in the coming months. In turn, we maintain our game plan to buy dips in the USDJPY, and the policy outlook should continue to serve as a key driver of price action for the dollar-yen as BoJ Governor Haruhiko Kuroda maintains his pledge to achieve the 2 percent target for inflation.

 

Source : http://dld.bz/cFbzS

US Dollar Screams Higher as Risk Aversion Grips Globe Post-FOMC

ASIA/EUROPE FOREX NEWS WRAP

First, a mea culpa. The past several days I’ve been suggesting that the Federal Reserve wouldn’t cut its QE3 program down from the current $85B/month pace its currently pursuing. This idea had three roots: inflation, both core and headline, remain well-below the Fed’s +2% y/y medium-term target and the +2.5% y/y circuit breaker per “The Evan’s Rule”; the Unemployment Rate remains above the 6.5% circuit breaker; and NFP growth is below +200K on the headline, three-, six-, and 12-month trends. To me, these factors should have contributed to the idea that the Fed would stay in the market. So far, so good.

The err in judgment, however, was underappreciating the Fed’s desire to wind down its QE3 program, a chord that has been struck around the globe today as equity markets in Asia and Europe (as well as North American futures) have been scorned, while European bond markets are under intense fire. There’s one line in particular from the Fed’s policy statement that has spurred taper speculation – “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall” – which spurs the belief that a few more months of even modest labor market growth will be enough for the Fed to call it quits on QE3.

With the bar lowered on the Unemployment threshold necessary to warrant a Fed exit, investors have jettisoned US Treasuries overnight, sending the 10-year note yield above 2.400% at the time of writing, the highest rate since October 2011. Likewise, turmoil has enveloped emerging markets, the commodity currencies have hit fresh lows against the safe havens (CHF, JPY, USD) once more, and there’s now the potential for a deeper pullback in risk assets globally – not just today by any stretch of the imagination. US labor market data is paramount going forward, starting with Initial Jobless Claims (JUN 15) today.

Taking a look at European credit, peripheral bonds have been hit hard today on the announcement of the Fed’s stimulus wind down, with peripheral yields continuing to widen out relative to their German counterparts. The Italian 2-year note yield has increased to 1.863% (+18.0-bps) while the Spanish 2-year note yield has increased to 2.215% (+15.2-bps). Similarly, the Italian 10-year note yield has increased to 4.470% (+21.7-bps) while the Spanish 10-year note yield has increased to 4.788% (+27.3-bps); higher yields imply lower prices.

RELATIVE PERFORMANCE (versus USD): 10:45 GMT

GBP: -0.19%

CHF: -0.55%

CAD: -0.71%

EUR:-0.74%

AUD:-1.07%

JPY:-1.35%

NZD:-1.60%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.63% (+2.22%prior 5-days)

ECONOMIC CALENDAR

 

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/cFakQ

Trade FOMC With Breakout Entries

Market ranges occur when a currency pair lacks a specific directional trend. This can often happen as the market awaits specific direction from a news event like todays FOMC release. Instead of being deterred by sideways pricing, short term Forex traders can take advantage of them by identifying the range define and preparing to trade the news using entry orders. Today we will review a trading plan for taking advantage of these scenarios.

The first step for trading a breakout of the range is to identify current levels of support and resistance. These levels should be easy to identify as price will trade flat in a range. Resistance will be found overhead by connecting a series of near identical highs, while support is below can be found by matching current lows in price action. Looking at the EURUSD chart below, current resistance can be found near 1.3415. Support is currently holding up price near 1.3385, creating a tight 30 pip trading range on the pair. These points will be the basis for our strategy, and should be clearly marked on our chart before progressing.

Learn Forex –EURUSD Range

 

Next, once support and resistance have been updated and a trading range identified, we can begin to prepare our trading strategy. Even though price is moving sideways at present, traders may look to take a directional bias when trading a breakout of the range. Currently price action has been headed towards higher highs, creating an uptrend on the EURUSD. Knowing this, short term trend traders can look for entries to buy on higher highs.

In order to create a higher high, price will have to move through the resistance levels that we described above. If prices trade above the previous high at 1.3415, breakout traders will look to buy the EURUSD. This method can be used by placing an entry order above this value, or traders may even consider to manually entering into the market once the breakout has been confirmed with a candle closing above current resistance.

Learn Forex –EURUSD Breakout

When trading breakouts, it is always important to consider risk. In the event of a false breakout, traders can set stops underneath levels of current resistance. I recommend placing stops at half the value of the initial range. This way if you use a full extension of the range as a profit target, you will naturally develop a 1:2 Risk/Reward ratio.

 

Source: http://dld.bz/cEXme

USDOLLAR to Benefit from Fed Exit Strategy- Higher High on Tap

 

Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.19 percent lower from the open, the Federal Open Market Committee (FOMC) interest rate decision could be the game-changer for the greenback should the central bank look to taper its asset-purchase program. As the reserve currency carves a higher low in June, a less-dovish Fed may prompt the USDOLLAR to breakout of the downward trend carried over from the previous month, and we may see the index resume the upward trend from earlier this year as the central bank appears to be moving away from its easing cycle. In turn, we should see the rebound from 10,469 gather pace over the remainder of the week, and currency traders may turn increasingly bullish against the USD should we see a growing number of Fed officials strike an improved outlook for the world’s largest economy.

With all the headlines highlighting a reduction in the Fed’s quantitative easing program, the FOMC may use this opportunity to outline a more detailed exit strategy, and the central bank may sound more upbeat this time around as it anticipates a stronger recovery in the second-half of the year. Rather than outlining a timeframe to taper its asset-purchase program, the central bank may lay out a tentative amount to reduce the $85B monthly purchases at different intervals, and the shift in the policy outlook may spark a more meaningful run at the 10,900 handle as market participants scale back bets for additional monetary support. In turn, we may see the rebound in the USDOLLAR turn into a more meaningful rally in the coming days, and we will look for a higher high in the index as the bullish trend continues to take shape.

All four components strengthen against the greenback, led by a 0.46 percent advance in the Australian dollar, but the higher-yielding currency remains poised to face additional headwinds over the near to medium-term as the policy outlook continues to point to another rate cut from the Reserve Bank of Australia (RBA). As headlines coming out of China – Australia’s largest trading partner – continues to highlight the risk of seeing a ‘hard-landing,’ central bank Governor Glenn Stevens may look to further insulate the $1T economy, and we should see the RBA continue to embark on its easing cycle over the coming months in order to encourage a stronger recovery. Although the AUDUSD looks poised for a large rebound, we may see a muted correction in the exchange rate as interest rate expectations remain tilted to the downside, and the bearish trend dating back to 2011 should continue to take shape as the fundamental outlook for the region remains weak.

 

Source: http://dld.bz/cEXkC