Yesterday the USD sold off massively on back of risk aversion in the US market as Standard & Poor placed 612 tranches from sub-prime mortgage transactions on review for possible downgrade.
MAJOR HEADLINES – PREVIOUS SESSION
EURUSD and GBPUSD in new highs!
A massive sell-off in the USD despite no important data-releases made the EURUSD test and brake the recent highs at 1.3680 and continued higher overnight before being rejected at 1.3787. The next key level to the upside is at 1.3840 which is the top of the extended bull channel along with 138.2% fibo projection (1.3680-1.3260). In our view the move above has happened to soon and we're expecting a day with correction especially in USD- and JPY- crosses.
GBP extended gains after rising by the most in three months yesterday as Moody's Investors Service cut ratings on $5.2 billion of bonds backed by U.S. subprime mortgages. Ten-year gilts advanced, after gaining the most since November 2005 yesterday, as the U.S. subprime problems prompted investors to seek the safety of government debt. We expected GBPUSD to test 2.025 and 2.03 within the short term, but as we currently are trading above this, the next psychological level is at the 2.04 figure before possibly moving higher.
In JPY-crosses, USDJPY traded in the lowest level in a month as the negative stock markets spilled over in JPY-crosses on back of risk-aversion as well as profit taking. Technically next key resistance is at current wave low at 120.8, but we see the pair coming back tomorrow as we expect the Bank of Japan to continue their dovish stance with regards to rates and keep the benchmark rate fixed at 0.5 pct.
News from yesterday:
CAD
Most important data release today was the Canadian rate announcement, where the Bank of Canada raised rates 25bp as expected. The market reacted by selling CAD acrosse the board despite a somewhat hawkish statement from the BoC. They raised 2007 growth projection to 2.5% from 2.2% on back of stronger growth and inflation than expected. Target rate may need "some modest further tightening". Growth to be slower in 2008-2009. Higher interest rates stronger currency to "moderate" growth. Crude oil has fallen from a 10-month high. Commodities make up about half of Canada's exports. Canadian new-home starts fell in June, a report showed today. Housing starts fell to 225,500 units on an annual basis, from a revised 235,200 in May, Canada Mortgage and Housing Corp. said. Canada's so-called annual core inflation rate, which excludes fuel and some food, rose to a four-year high of 2.5 percent in April. The measure, which central bankers use to gauge future trends, slowed to 2.2 percent in May, remaining above the central bank's target of 2 percent. The currency's gains are hurting the nation's manufacturers, who export about half of what they produce.
In other pairs, the EURUSD tested and broke recent highs at 1.3680 and has currently topped at 1.3717. GBPUSD also broke recent highs at 2.02 on back of a stronger trade balance and is currently trading at 2.0228 - within range of the 123.6% fibo projektion at 2.0250 (2.013-1.962). Bernanke speech later today will be key for the USD - we expect him to state that inflation still is too high, but is coming off later in the year as the Fed has forecasted.