USD/JPY Drags as Investors Head for Safety

The USD/JPY is edging lower again with investors exiting crude while sending the Cable and EUR/USD lower.  Although the S&P hasn’t logged as large of losses as the aforementioned correlations, they are trading right at June lows, an important level technically.  The slight pullback in the USD/JPY reinforces a theme of negative market sentiment.  However, the USD/JPY remains above 6/29 lows, and we’ve yet to witness significant volume to the downside.  Therefore, the consolidation of the USD/JPY carriers on with our 1st tier uptrend line slowly creeping into the picture.  We expect the consolidation to continue until investors make a more concrete directional decision in the S&P.  The trend decision could come sooner than later with the 2nd quarter earnings season beginning Wednesday while most of the USD/JPY’s correlations trade at or near important technical levels.  The amount of investor uncertainty is increasing in regards to the sustainability of the present economic recovery.  This uncertainty is reflected by the negative tendency of the USD/JPY.  Any retracement below our 1st tier uptrend line and March lows could signal the beginning of a new leg down.

Japan will release a set of economic data points tomorrow, including core machinery orders, bank lending, current account and the M2 money stock.  Investors will pay close attention to see if core machinery orders can continue their positive performance, or whether the data point experiences a setback along with the recent Tankan number.  It seems Japan’s manufacturing and export sectors are stuck in a rut due to declining global consumption coupled with an abnormally appreciated Yen.

Present Price: 95.26

Resistances: 95.73, 96.33, 96.90, 97.45, 98.05

Supports: 94.99, 94.45, 93.76, 93.32, 92.57

Psychological: 95

GBP/USD’s Tight Mid-June Trading Range Fails

The Cable finally broke below the bottom-end of the mid-June trading range we were eyeing before, represented by our previous 1.6212 support.  There are whispers floating around Monday in regards to the reason behind the Cable’s pullback, but we don’t see any concrete evidence.  We believe investors are setting a tone for the week ahead, highlighted by the beginning of the 2nd quarter earnings season and the G8 meetings.  The upcoming earnings season will be a determining factor in settling the battle between the bulls and the bears.  The bulls have suffered a large setback today, though we’ve yet to see a confirmation in high volume to the downside.  The GBP/USD is balancing along our new 2nd tier uptrend line as it approaches an inflection point with our 1st tier downtrend line.  Our 3rd tier uptrend and 2nd tier downtrend lines are also colliding today, meaning volatility could rise over the next few trading sessions.

The FX market seems to be waking from its daze, and it appears investors may be ready commit to a direction.  Crude futures are posting large losses as they freefall below $65/bbl while the S&P futures trade at June lows.  Unfortunately for the bulls, the downtrend is picking up momentum, and we may be a confirmation away from settling on a near-term downtrend outlook.  Investors are indicating they expect economic struggles in the near-future with recent economic data coming in mixed.  Britain’s surprisingly negative GDP and current account data last week shook the bulls from their comfort zone.  Therefore, investors will be paying close attention to tomorrow’s Halifax HPI and manufacturing production data points.  Since Britain’s manufacturing PMI came in shallow last week, we expect a negative manufacturing production number.  If both British data releases are negative tomorrow, this could apply considerable immediate-term downward pressure on the Cable.  More disappointing economic data releases would stoke the concern that we may have witnessed a large head-fake in global economic performance in the first half of the year.

With investors and analysts focused on the beginning of the earnings season and the G8 meeting, the BoE’s monetary policy decision on Thursday has fallen to the background.  However, volatility in the Pound could pick up as the BoE meeting draws nearer.  Investors will be curious to see how the BoE handles its current quantitative easing program, and whether the central bank increase its injection of liquidity.  As for the immediate-term, if the Cable can’t hold our 2nd tier trend line, we will likely see a retest of the psychological 1.60 area.

Present Price: 1.6132

Resistances: 1.6133, 1.6152, 1.6183, 1.6212, 1.6245, 1.6278

Supports: 1.6082, 1.6052, 1.6018, 1.5978, 1.5924, 1.5887

Psychological: 1.60

EUR/USD Pulls Back Sharply Towards Bottom-End Support

The EUR/USD is starting off the week on a negative note as investors seemingly price in a troublesome earnings season.  We don’t have any news moving the markets other than the EU’s disappointing Sentix investor confidence number.  The Cable is faring worse than the EUR/USD, and is also moving on little to no news.  Therefore, we conclude investors are giving into the downside as they lose some confidence in regards to the sustainability of the global economic recovery.  Crude and the S&P futures are also logging substantial losses Monday, reflecting a lack of confidence in the 2nd quarter earnings season.  As a result, the tug of war may be swinging in favor of the bears.  However, before investors jump to conclusions, we will have to see how the EUR/USD interacts with our new 2nd tier uptrend line.  If this trend line doesn’t hold, we could witness a contraction towards key June lows and our new 1st tier uptrend line.

Meanwhile, the S&P futures are playing with fire again as they break from their own June lows.  We expect the EUR/USD to experience a tight positive correlation with U.S. equities this week since investors will receive a relatively light load economic data from both the EU and U.S.  The focus will be on the U.S. earnings season which kicks off Wednesday with Alcoa.  The 2nd quarter performance of U.S. corporations and their guidance for the 3rd quarter should be critical for the near-term direction of U.S. equities.  Investors will be paying close attention to the corporate outlook to see whether officers believe the economic recovery has legs.  Hence, the next few trading sessions could end up being an important turning point concerning trend for the U.S. Dollar.

Today’s development in the EUR/USD is certainly disconcerting, and investors should monitor whether volume picks up to the downside.  Bulls appear to be giving in after weeks of battle, and it will be interesting to see where the new bottom forms.  A near-term retest of our 1.3826 support seems likely, and if the bottom-end of our new support structure doesn’t hold, the EUR/USD may enter a more prolonged downturn.  On the other hand, the bulls have an opportunity to salvage the uptrend at our 2nd tier uptrend line, though the near-term momentum clearly lies in favor of the bears.

Present Price: 1.3895

Resistances: 1.3923, 1.3942, 1.3964, 1.3985, 1.4018

Supports: 1.3889, 1.3865, 1.3848, 1.3826, 1.3802

Psychological: 1.40

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