Daily Commentary : August 23, 2013

Risk on again as PMIs please: The dollar is slightly higher against most G10 currencies this morning. It gained most vs JPY. Is the USD/JPY up because Japanese stocks are up, or stocks up because of USD/JPY? Perhaps both were up in anticipation of BoJ Gov. Kuroda’s participation at the Fed’s Jackson Hole seminar tomorrow, or perhaps it’s just part of the general “risk on” sentiment today that may be encouraging JPY-funded carry trades. On the other hand, SEK recovered further vs USD in a continuing reaction to yesterday’s better-than-expected Swedish employment data for July. The stronger dollar followed a continued decline in the four-week moving average for jobless claims and a further rise in Fed funds expectations to a new cyclical high. The Fed’s latest survey on tapering shows that primary dealers expect the Fed to reduce the pace of its asset purchases in Sept by $15billion to $70billion a month, falling to $45billion a month in December and then ending entirely in June 2014. This implies that professional investors have now fully discounted tapering. Bloomberg noted that outflows from bond funds in August, as of 19 Aug, were already the third largest on record and the retail market is positioning itself accordingly.

The big story overnight though was the rebound in EM currencies despite the USD-positive news. All of the 15 that we track were up vs USD, lead by MXN (+2.1%) and ZAR (+1.5%). Even the beleaguered IDR was up 1.2%. Yesterday’s announcement of improvement in purchasing managers’ indices world-wide, including China, eurozone ,and the US, appears to be countering the fears of lower liquidity as the Fed tapers and dampening the sell-EM frenzy (for now).

Data today includes the details of Q2 GDP from the UK (not usually market-affecting) as well as new home sales in the US. The components of German GDP showed a rise in investment but a fall in private consumption from Q1.

The Market

EUR/USD

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EUR/USD moved slightly lower and then rebounded at the 1.3300 (S1) psychological level. Currently the pair is trading between the 1.3300 (S1) and 1.3400 (R1) psychological levels. A break of one of them should indicate the next direction of the price. However, the EUR/USD remains in an uptrend, since it is forming higher highs and higher lows, also confirmed by the rate’s reading above the 200-period moving average.

Support: Support is found at the 1.3300 (S1) psychological level, followed by the 1.3231 (S2) and the 1.3152 (S3) respectively.

Resistance: Resistance levels are the 1.3400 (R1), followed by the 1.3448 (R2) and 1.3517 (R3) (daily chart).




USD/JPY

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USD/JPY moved higher during Thursday’s session, completing an inverse head and shoulders reversal formation and breaking above the 98.56 (S1) level. If the bulls are strong enough to maintain that momentum I expect them to lead the pair towards the psychological resistance of 100.00 (R1). Meanwhile, the price has crossed above both the 20- and 200-period moving averages, confirming its bullish attitude.

Support: Support levels are the 98.56 (S1), 98.06 (S2) and 97.00 (S3).

Resistance: Resistance levels are the psychological level of 100 (R1), followed by the 100.84 (R2) and the 101.52 (R3).



GBP/USD

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GBP/USD moved slightly lower Thursday, reaching the 1.5569 (S1) support level. If selling pressure overcomes buying pressure at that level, I expect the price to continue correcting its uptrend towards the 1.5431 (S2), near the uptrend line. Furthermore, the MACD oscillator supports the weakness of the pair since there is negative divergence between the indicator and the price action.

Support: Support levels are at the 1.5569 (S1), 1.5431 (S2) and 1.5200 (S3).

Resistance: Resistance is identified at 1.5674 (R1) followed by the 1.5752 (R2) and 1.5840 (R3) (daily chart) levels.




Gold



Gold moved higher Thursday and is currently near the 1376 (R1) resistance level. The bulls do not seem to give up and we expect them to retry once more breaking above it, leading the precious metal towards the resistance of 1394 (R2). If they fail to break through that level, a retracement towards the 1347 (S1) is likely. On the long term (daily) chart the 20-day moving average remains below the 200-day moving average, thus we believe gold is still correcting its long term downtrend.

Support: Support levels are at 1347 (S1) followed by the 1320 (S2) and 1271 (S3).

Resistance: Resistance is identified at 1376 (R1), followed by 1394 (R2) and 1422 (R3).




Oil



WTI moved higher on Thursday, returning back to the 105.00 (S1) psychological level. A clear break above it might lead the pair towards the 107.53 (R1) resistance level, encouraging the bulls for even more upward pressure. However, since WTI remains in a trading range between the 102.62 (S2) and 108.85 (R2) boundaries, we should wait for the exit direction in order to have a better picture.

Support: Support levels are at the psychological level of 105.00 (S1), the 102.62 (S2) and 100.80 (S3).

Resistance: Resistance levels are at 107.53 (R1), 108.85 (R2) and the 110.40 (R3) (weekly chart)



BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS:



MARKETS SUMMARY: