By Christopher Vecchio
Published: October 25, 2012
The Japanese Yen and the US Dollar are the worst two performing majors in the overnight as some better than expected growth data out of Europe has eased near-term global output concerns. Meanwhile, the commodity currencies are higher as well following the Reserve Bank of New Zealand Rate Decision.
High beta currencies and risk-correlated assets are the on the rebound this morning as overnight sentiment in Asia and Europe picked up on some better than expected data. Ahead of Asian markets opening today, and right at the US cash equity session close yesterday, the Reserve Bank of New Zealand kept its key interest rate on hold despite citing a weak global growth environment. Even though the Reserve Bank of Australia has cut rates quite rapidly over the past year, the RBNZ’s hold at present suggests that those “hard landing” fears about China aren’t as severe as they seem. It’s of little surprise, then, that the commodity currencies, the Australian, Canadian, and New Zealand Dollars are all firmer on the day.
Moving on to Europe, a lack of data and commentary left the market very vulnerable to momentum following the uptick in risk-appetite in Asia. The only important data this morning, the advance third quarter British Gross Domestic Product reading, came in much better than expected at +1.0% quarter-over-quarter versus +0.6% q/q forecasted, suggesting that economic activity in the region might be rebounding. This helped facilitate some buy support for the European currencies, but mainly the British Pound, which is the top performer on the session.
However, the staying power of the British economy’s rebound in growth is questionable. To wit: the London Olympics took place in the third quarter, which I suspect was good for at least +0.2% q/q and on a yearly-basis. By these standards, the British economy would have otherwise stayed in its double-dip recession. Accordingly, the fourth quarter GDP print is very important: if growth contracts, another round of QE by the Bank of England can’t be ruled out, which could lead to some short-term Sterling weakness.
Taking a look at credit, the slight rebound in peripheral European bond markets hasn’t been strong enough to help the Euro appreciate against its counterparts on Thursday. The Italian 2-year note yield has increased to 2.196% (+0.9-bps) while the Spanish 2-year note yield has decreased to 2.922% (-0.6-bps). Likewise, the Italian 10-year note yield has decreased to 4.810% (-1.7-bps) while the Spanish 10-year note yield has decreased to 5.506% (-1.8-bps); lower yields imply higher prices.
RELATIVE PERFORMANCE (versus USD): 10:55 GMT
Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): -0.19% (+0.21% past 5-days)
See the DailyFX Economic Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
TECHNICAL ANALYSIS OUTLOOK
EURUSD: The pair has rebounded at significant support, 1.2940/50 (ascending trendline off of July 24 and August 2 lows). As noted yesterday: “With 4-hour charts looking overextended to the downside, there is scope for a rebound.” Scope higher still exists. Resistance comes in at 1.3070/75, 1.3145, and 1.3165/75. Support comes in at 1.2920/40 (61.8% Fibo on February 2012 high to July 2012 low, weekly low), and 1.2830/45 (50-EMA, 200-DMA).
USDJPY: The pair has resumed its rally after two brief days of reprieve. With the daily RSI in overbought territory, we’re looking for a near-term top to develop to enter longs on a pullback. As such, we’re looking to buy the USDJPY on dips for a move towards resistance at 80.60/65 (June highs). Support is 80.00, 79.60/70, and 79.35/40.
GBPUSD: The GBPUSD has hit descending channel resistance today after bouncing at channel support at 1.5910 on Tuesday. The ‘tell’ for the rebound during the recent decline was the daily RSI holding 40 – a break below would suggest the uptrend is over. Support comes in at 1.6065 (20-EMA), 1.5975/80 and 1.5910 (weekly low). Resistance comes in at 1.6130, 1.6170/80 (last week’s highs), 1.6260 (the former April swing highs by close), and 1.6300.
AUDUSD: The pair continues higher following better than expected data out of Asia. After clearing a confluence of moving averages at 1.0310/45 (20-EMA, 50-EMA, 100-DMA, 200-DMA), the AUDUSD is comfortably. Resistance is at 1.0405/25 (former swing highs and lows, October high) and 1.0500/15. Support comes in at 1.0310/45, 1.0250/60 (ascending trendline off of October 8 and October 23 lows), 1.0230/35, and 1.0200/15.
SPX500: Nothing has changed: “A short-term top is potentially in place after support at 1420/25 (the 61.8% Fibo retracement on June 2012 low to September 2012 high, ascending trendline off of the June 4 and July 24 lows) broke yesterday following tests on three occasions the past two weeks. Targets near 1355 would come into focus as long as price holds below 1429/32. Support comes in at 1396/1400 (100-DMA) and 1378 (200-DMA). Resistance comes in at 1429/32, 1438 (20-EMA), 1460, 1470, and 1498/1504.”
GOLD: Gold continues to hold below 1715 (mid-September swing low) but above 1700, though with the daily RSI inching back above 40 (a key level in uptrends), my bias is back to neutral and looking higher. I still expect the 1700 area to be defended vigorously, and look to get long as low as 1680. Resistance is 1715, 1735, 1755/58 and 1785/1805. Support is 1700, 1680, and 1660/65 (100-DMA, 200-DMA).
— Written by Christopher Vecchio, Currency Analyst