I’ve said before that a currency is not the stock price of a country, and today’s action proved it. All the fundamental news pointed to a higher dollar, and yet the dollar is lower against almost all the G10 currencies (it’s basically unchanged against JPY). The July Philadelphia Fed manufacturing survey rose to +19.8 from 12.5, whereas a decline to 8.0 was expected. This was the highest since March 2011. Gains in the six-month outlook were equally impressive, and the employment component reached the highest level since March 1984. Meanwhile the weekly jobless claims had been expected to fall to 345k but instead fell even further to 334k. Moreover, Moody’s raised the outlook for the US to stable from negative as the US deficit picture has improved so much. All this should make tapering off much less controversial and thereby support the dollar, but it didn’t. There was some favorable political news from Italy and Portugal, but that certainly should not have been enough to turn around US sentiment.
Fed Chairman Bernanke’s second day of testimony went off without revealing any major new insights, except perhaps when he was asked about the gold price: “Nobody really understands gold prices and I don’t pretend to really understand them either,” he admitted.
CAD was the biggest gainer, just a day after it was one of the biggest losers, after Canadian wholesale sales for May rose at the fastest pace in more than two years to a record level. This helped to counter Bank of Canada Gov. Poloz’s rather more subdued view of the economy. I think this also must have reflected profit-taking after Thursday’s large decline in CAD and so I would argue it just represents a new opportunity to get on board USD/CAD for those who missed the boat the first time. I think the central bank governor’s view is more important than one month’s indicator, especially at the wholesale level.
There are no major numbers out of Europe or the US today. In the UK, the Public Sector Net Borrowing for June is expected to be down a bit from May, but hardly enough to close the gap and until it is closed, the government will have to rely on monetary policy to take up the slack. The Bank of Canada’s core measure of CPI for June is expected to be -0.2% mom, a turnaround from +0.2% in May. That would confirm what new Gov. Poloz said on Thursday about the “muted” outlook for inflation and could revive the higher USD/CAD trend. Outside of that, we’ll wait to hear some news from Moscow from the G7 deputy Finance Ministers and Central Bank Governors’ meeting, which takes place over the weekend. Also over the weekend we have the Japan Upper House elections, which the ruling Liberal Democratic Party and its allies are expected to win. That should aid PM Abe in achieving his political goals, which should boost the stock market and hence USD/JPY too. The only question is how much is already discounted in the price, since a win is widely assumed. The combination of some accommodation for Japan from the G20 and an Abe win in the elections should prove positive for USD/JPY, in my view.
The Market
EUR/USD
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• EUR/USD moves higher as the 1.3060 support level holds and pair reaching oversold region. Once again breaks above 200 Moving Average in Daily and 4 Hour timeframes. Resistance levels at 1.3200 and 1.3290, support at 1.3060 and 1.3000.
USD/JPY
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• USD/JPY fell along with Japanese stocks after an adviser to PM Abe said that the nation’s consumption tax must be raised “at some point” because of the governments’ dodgy finances. This has been common knowledge since the 1990s and so cannot possibly have surprised anyone in the markets, but apparently the idea that the government might actually do what’s necessary comes as a shock.
• USD/JPY moves higher and then collapses below 100.00 in early trading hours after reaching overbought region and failing to break above the 100.70 resistance (top Bollinger Bands level) .Resistance levels come at 100.70 and 101.30, support at 99.30 and 98.42.
USD/CAD
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• USD/CAD breaks below its 200-day moving average and moves lower reaching its bottom Bollinger Bands level. Stochastic in oversold region so some up move plausible. Resistance at 1.0440 and 1.0510, support at 1.0330 and 1.0270.
Gold
• Gold moves higher as it continues to trade within its tight Bollinger Bands region. Resistance levels can be found at 1300.00 and 1343.00, support at 1260.00 followed by 1226.50.
Oil
• WTI skyrockets to a new yearly high after breaking two key resistance levels and tests 108.40. A break of this level should see WTI reach 109.75 and 112.20 levels. With stochastic being highly overbought more likely to see a pullback today. Support levels come at 106.50 and 104.60.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY