High beta currencies and risk-correlated assets have traded slightly lower against the world’s reserve currency, the US Dollar, ahead of the most important data release this week: the US Nonfarm Payrolls report for June. A significantly disappointing figure in May stoked expectations of a third round of quantitative easing from the Federal Reserve; and even though the Federal Reserve did not deliver on those hopes, as expected, there is speculation that another bombshell could reignite the conversation.
Meanwhile, some discouraging developments out of Europe have stunted any rebound in the Euro after the EURUSD broke out of its Symmetrical Channel to the downside in the wake of yesterday’s European Central Bank rate decision. As noted earlier this week, the performance of Italian and Spanish bond yields, especially on the shorter-end of the yield curve (in light of the two longer-term refinancing operations (LTRO), yields within the three-year umbrella are the most accurate gauge of funding stresses in the Euro-zone) have disappointed. The Italian 2-year note yield has risen to 3.733% (+10.3-bps) while the Spanish 2-year note yield has risen to 4.838% (+39.7-bps). The Italian 10-year note yield has risen to 6.015% (+6.3-bps) while the Spanish 10-year note yield has risen to 6.936% (+23.8-bps); higher yields imply lower prices.
RELATIVE PERFORMANCE (versus USD): 10:54 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.05%
Alongside the aforementioned US Nonfarm Payrolls report for June, there’s also the Canadian Net Change in Employment report for June due as well at 08:30 EDT / 12:30 GMT. However, the Canadian labor market report will be largely overlook (barring a major surprise) as traders weigh their bets on high beta currencies and risk-correlated assets with respect to the probability of more easing from the Federal Reserve.
EURUSD: The Symmetrical Triangle on the daily chart has broken to the downside; it thus appears recent price action off the June 1 low was a mere consolidation and we look to continue lower. With a close below 1.2405/20 on the 4-hour and daily charts, we now look lower towards 1.2285/90 (yearly low). Given the measured move and Fibonacci extensions, we are looking for a move towards 1.1695-1.1875 over the next eight-weeks. Resistance now comes in at 1.2440/80, former support on the Symmetrical Triangle.
USDJPY: The USDJPY is working on an Inverted Head & Shoulders pattern off of the June 1 low, with the neckline coming in at 80.60/70. Only a daily close above this level will signal the commencement of this pattern. With the Head at 77.60/70, this suggests a measured move towards 83.60/70 once initiated. Near-term support comes in at 78.90/95 (200-DMA). Price action to remain range bound as long as advances are capped by 80.60/70.
GBPUSD: The GBPUSD’s failure to achieve new highs in the post-Euro-zone Summit world draws into question the underlying strength of the Sterling, and the suggestion is that diverging monetary policies between the Bank of England and the Federal Reserve (with the Bank of England increasingly dovish and the Federal Reserve in wait-and-see mode) are hurting the pair. Resistance comes in at 1.5600/05 (20-DMA) then the weekly high at 1.5720/25. Near-term support lies at 1.5480/1.5500 (yesterday’s low, last week’s low) and 1.5465 (Bollinger Band).
AUDUSD: The AUDUSD has put in a lower high thus far today. The two consecutive closes above the 100-DMA give scope for a move higher towards 1.0365/85, but with hourly charts indicating a Rounding Top, a pullback may be warranted first. Near-term support comes in at 1.0250/60 (200-DMA, 100-DMA) and then the weekly low at 1.0210/15. A move below would signal an intraweek reversal and signal further losses.
--- Written by Christopher Vecchio, Currency Analyst
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