FOREX TRADING

Two stories rippled through the currency markets this weekshocking the euro into a four percent decline versus the US dollar and a threepercent drop against the yen. On Tuesdaythe FOMC statement offered a view of diminishing American economic growth,underlined by its decision to reinvest the proceeds of maturing Treasuries backinto the government bond market. The bond purchases will keep the Fed balancesheet at $2.3 trillion and will not contract the money supply, which increasedin May and June after four months of minor contraction.

Despite the initialnegative reaction in the dollar to the Fed announcement, the euro rose from1.3110 to 1.3234, continuing the trend of benefit to the euro of poor USeconomic developments of the past several weeks, reconsideration began in the Asianmarket Wednesday morning. Tokyo soldthe euro to 1.3080 a figure below the New York close and London pushed on to1.3020 by the New York open. In the American session the dollar ascendancybecame more pronounced, with the euro sinking to 1.2860 by early afternoon,even as the equity averages suffered major losses. The Dow closed off 256 pointson the day. In the blink of a Fed eye riskavoidance and volatility came roaring back into the markets. (more…)

EURUSD Outlook

The EURUSD finally made a clear break above 1.3000 resistance yesterday, topped at 1.3106 but closed a little bit lower at 1.03075. This fact could trigger further upside pressure testing 1.3213/70 region before testing 1.3340. However, as you can see on my daily chart below, we have a trendline resistance which is located around 1.3120 that need to be broken to the upside before continue the bullish pressure. Immediate support at 1.3045/20 region. Break below that area could lead us into neutral zone in nearest term testing 1.2950/30 support area but overall we are still in strong upside phase and I still prefer buy on dips.

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Asia has a moribund day on the currency front; Bourses in the red.

MAJOR HEADLINES – PREVIOUS SESSION

• CA May Building Permits out at -10.8% m/m vs. -2.0% expected and revised +5.9% prior
• US Jun. Non-manufacturing ISM out at 53.8 vs. 55.0 expected and 55.4 prior
• US Weekly ABC Consumer Confidence out at -42 vs. -43 expected and -41 prior
• AU Jun. AiG Performance of Construction Index out at 46.4 vs. 53.2 prior

THEMES TO WATCH – UPCOMING SESSION

• Sweden Budget Balance (0730)
• Norway IP (0800)
• EU Q1 Final Euro-zone GDP (0900)
• GE Factory Orders (1000)
• US Weekly MBA Mortgage Applications (1100)
• CA Ivey PMI (1400) (more…)

Euro 1.2345

Initial support at 1.2242 (June 17 low) followed by 1.2045 (June 11 low). Initial resistance is now located at 1.2453 (May 28 high) followed by 1.2672 (May 21 high)

Yen 91.05

Initial support is located at 89.81 (May 27 low) followed by 88.97 (May 20 low). Initial resistance is now at 91.48 (June 21 high) followed by 92.12 (June 14 high). (more…)

Good morning and welcome to the first Daily FX Report of June 2010 and we’re curious if the EUR may continue its bearish trend or if the markets will trust Europe’s policy makers again. However, today we expect some interesting economic data from Europe as well as the U.S. and the rate decision in Australia.

We wish you a nice and successful trading day.

Markets review

The EUR started bearish into the June and fell against 14 of its 16 most-traded counterparts, extending its longest monthly decline versus the USD in 10 years; on concern Europe’s efforts to reduce budget deficits will derail the region’s recovery. The 16-nation currency weakened against the GBP for a second day before a report may show today that the unemployment rate in Italy, Europe’s fourth-biggest economy, increased and the index of executive and consumer sentiment in Euro-Zone tumbled. The EUR/CZK tumbled from 25.5055 at its opening to 25.1815 at its closing after parties that pledged to cut spending on the most votes in parliamentary elections ended on May 29th.

The CAD strengthened versus the USD for the second day on speculation that the Bank of Canada will increase the key interest rate today. Furthermore the CAD benefits after a report showed on Monday the economy expanded at the fastest pace in a decade in the first quarter of 2010. Statistics from Canada said that the gross domestic product climbed 6.1 percent in the period from January to March, more than forecasted.

The Reserve Bank of Australia let the key interest rate unchanged at its meeting today. Even before the meeting the AUD weakened for the third day versus the USD on speculation the central bank may signal a slower pace for future increases.

The NZD rose also for the second day against the USD as swaps traders bet New Zealand’s central bank will increase benchmark interest rate from a record low on June 9th. (more…)

Today saw risk making another attempt at a comeback. Friday’s attempt at a risk comeback was a red herring and looked a bit fishy anyway since it was only a flurry of trading at the close of the US equity session that created the impression of a reversal. Today’s reversal in risk has far more technical credibility because of the way in which equities gapped lower and traded at new lows for the cycles before seeing a long rally from almost the open of trading and then all the way into a very strong close, with a closing level slightly above yesterday’s close. The Dow closed back above the psychologically critical 10,000 level that gave way during the day. Another boost came in the form of a strong surge in the May US Consumer Confidence survey, certainly a surprise considering the developments in markets this week and the ongoing tragedy of the Gulf of Mexico oil spill.

Looking at other risk indicators, however, we see little or no improvement in the likes of risk spreads and signs of accelerating interbank stress levels and we wonder if equities and currencies are playing some crazy little reflexive game based on short term trading flows. Still, one important market that at least partially supported the risk-on stance today in the US was the bond market, where a somewhat weakish 2-yr. note auction (yield about 1 bp. higher than expected and bid to cover at 2.93 vs. 3.06 six-month average, though one still has to note that the yield at the auction was a record low), so this also took the pressure of the JPY crosses after EURJPY had crossed below 109 briefly earlier in the day. (more…)

EUR/GBP

Current level – 0.8659

Longer term biasis neutral for the pair, the wide range between 0,8600 and 0,9100 needs resolution.

Intraday:  Capped by short term bearish trendline. Needs a brake above 0.8680  to consider a bullish continuation up to 0.8750 resistance. Favour the downside.

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News and Events:

Pressure continues to mount on Greece as markets remained unconvinced that the EU and IMF aid package will come in time. Greek 2-year bond yields jumped to 13.53% and 1-year CDS rose to 1078. Worryingly Portugal ‘s and Spain CDS prices are now being pulled higher, increasing the markets concern over EU contagion. As to be expected the EUR remained choppy as news, analysis and comments hit the wire with regular frequency. In Asian sessions, risky assets sold off as an article in FT Deutschland reported that the Netherlands would support Germanys call for tougher austerity measure in return for financial aid. Yesterday German Chancellor Merkel said Germany would support Greece if preconditions were met as Germany was obligated to insure the stability of the EMU. Recent IMM data has shown that EUR short positions have increased and the longer the Greece situation goes without a resolution, the harder it will be for the EU and EUR to pull out of what G. Soros’ referred to as a ‘Death Spiral.’ (more…)