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By XE Market Analysis July 3, 2014 2:25 am
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    XE Market Analysis: Europe - Jul 03, 2014

    AUD weakness on RBA-speak was the main theme in an otherwise quite session in pre-Europe Asia trade, with today's slate of risk events serving to quell market activity, which include the June ECB meeting, June Eurozone services and composite PMI figures, and the U.S. June payrolls report. EUR-USD drifted fractionally lower to levels around 1.3650, but didn't threaten yesterday's 1.3640 low. Cable and other dollar-Europe pairing posted a similar price action . USD-JPY drifted to a nine-day high of 101.94 amid continued reports of yield-seeking investment flow out of Japan. The AUD, meanwhile, took, a tumble after RBA Governor Stevens said that investors are underestimating the risk of a sharp fall in Australian currency, which is overvalued by more than "a few cents." Stevens said also that a tightening in monetary policy was not being contemplated. Australian data were mixed, with retail sales weak but the building approvals posting a m/m rebound.

    [EUR, USD]
    EUR-USD downside stalled at the 1.3640-50 support zone, which is encompasses Monday's low and a series of daily highs that were seen before the early-week break higher. A cluster of sell-stop orders are reportedly sitting under 1.3635-30, while the technically minded will be looking for a sub-1.3640 close today to help confirm that Monday's move above of the 200-day moving average at 1.3675 was false break. Today brings key risk events, including the June ECB meeting, June Eurozone services and composite PMI figures, and the U.S. June payrolls report, which collectively we expect to be EUR-USD bearish. EUR-USD resistance is at 1.3698-3700, and 1.3723 (the May-21 high).

    [USD, JPY]
    USD-JPY drifted to a nine-day high of 101.94 amid continued reports of yield-seeking investment flow out of Japan. Bigger picture, USD-JPY remains entrenched amid a broad sideways range, roughly contained within 100.00-105.00, which has been in place since early January. This stasis may persist for some time yet, though technical analysts will be marking this as a potential topping formation after the steep rally from levels around 75.0 that was seen during the second part of last year.

    [GBP, USD]
    We remain sterling bullish with the BoE having left the hawkish starting gates ahead of the Fed and ECB. The BoE's stance has been backed-up by a solid manufacturing and construction PMI reports for June, and today's services PMI is expected to follow suit. BoE's Bean said over the weekend that market expectations of a rise in interest rates at the turn of the year are "reasonable." A big-picture Fibonacci retracement level at 1.7330, which is a 50% retracement level of the 2007 to 2009 decline, provides bulls with a target. Our EUR-GBP target is provided by the major trend lows of July 2012 at 0.7755.

    [USD, CHF]
    EUR-CHF breached 1.2150 this week and extended to a 1.2133 three-and-a-half month low, as the situations in Iraq and Ukraine continues to underpin the Swiss currency's safe-haven premium. Technically, the break of a former uptrend channel support line at 1.2190 opened the way to the mid-1.21s. The cycle low of 1.2104 and 1.2100 are key support levels, so far remaining unchallenged. We would expect that the threat of SNB intervention into its 1.2000 peg to deter franc buying below 1.2100. SNB's Jordan repeated recently that the central bank remains committed to defending the currency cap.

    [USD, CAD]
    USD-CAD has found a toehold after logging a fresh six-month low at 1.0628 on Wednesday, which was the sixth consecutive lower low on the daily chart. The pair breached below the 200-day moving average at 1.0783 last week and has been trending lower since. The move reflects a broad dollar-bloc bid that was initially sparked by much stronger than expected PMI data out of China and Japan, which has underpinned the commodity-correlating currencies as investors adjust a more optimistic world outlook. The BoC is also under pressure to reconsider its dovish policy stance. Resistance is pegged at 1.6996 (Friday's high) and 1.0700. Former congestion around 1.0580-1.0600 is support.

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