EURUSD is drifting back higher within the range after the pyro-technics of late last week. The next potential trigger for the major currencies this week is tomorrow’s FOMC meeting and major Bernanke speech.
FTAlphaville ran a chart from Credit Suisse showing that June’s bond fund outflow was the largest flow of any kind in or out of any fund class in the history of record keeping – with a negative 60 billion moving out of bond funds. Given the economic backdrop, the backup in yields appears premature from where I sit. One interesting thing to note is that AUDUSD and bonds have been tightly correlated on this move from early May – sure it could be a spurious correlation, but it’s worth noting if the bond market corrects higher here. The Aussie is putting up a reasonable fight in places at the moment, though it was unable to take out 0.9200 earlier this morning against the US dollar. As I covered late yesterday, positioning suggests the risk of an AUD squeeze at any time, particularly against the Euro.
And speaking of other asset classes, the quarterly earnings season has kicked off in the US and will be important for testing equity market confidence, which also heavily sways the action in JPY crosses in particular at the moment, in particular.
After a bit of drama, Greece managed to get its next tranche of funding, but there are a series of caveats attached to the funding related to public sector job reductions and selling off state assets. EU peripheral spreads were generally quiescent after a recent flare-up related to the worries that Portugal’s government is failing.
Looking ahead
The market is likely to react on the back of the UK data up shortly, which includes manufacturing production readings for May and the Trade Balance. The 0.8600 level in EURGBP and GBPUSD level of 1.5000 are the pivot levels of interest at the moment.
Look out for the Japanese CGPI figures tonight for further evidence that Abe’s inflation hopes are materializing. The May reading was a positive 0.6% and thus the highest level since late 2011. There’s an obvious correlation with energy prices in this series, however, and the market is more interested in whether Thursday’s BoJ meeting brings anything of note. The JPY crosses have gone a bit quiet this week – I’m watching that EURJPY 130.00 area with considerable interest.
Chart: EURJPY
If JPY gets in a corrective mood post-BoJ, EURJPY could be an interesting one to watch for potential downside as considerable shine has come off the Euro after the ECB meeting - note the weakness against the dollar and commodity currencies, though it does remain resilient thus far against the Swiss franc and sterling. Levels of interest in the coming days include the recent 128.62 area lows as this was a twice-tested level. Otherwise, we’re obviously within the Ichimoku daily cloud as the chart shows and the downside level of interest there is the 126.50 area, while the upside of the cloud has been tested and is currently around 131.20. Stay tuned and don’t be fooled by the sluggish trading range here – I think we’ll see an expansion in trading ranges soon.
EUR/JPY" width="455" height="323">
Tomorrow we have both the FOMC minutes and Bernanke out speaking with a very wide angle lens on the “first 100 years of the Federal Reserve; The policy record, lessons learned, and Prospects for the Future.” As he is clearly not running for another term, this is a major speech that will see Bernanke trying to position his legacy. There will also be a question and answer session.
Economic Data Highlights
- New Zealand Jun. Credit Card Spending rose +1.1% MoM vs. +0.6% expected
- UK Jun. BRC Sales Like-for-Like rose +1.4% YoY vs. +1.9% expected and +1.8% in May
- UK Jun. RICS House Price Balance out at 21% vs. 8% expected and 5% in May
- New Zealand Jun. QV House Price rose +7.6% YoY vs. +7.1% in May
- Australia Jun. NAB Business Conditions out at -8 vs. -4 in May
- Australia Jun. NAB Business Confidence out at 0 vs. -1 in May
- China Jun. CPI out at 2.7% YoY vs. 2.5% expected and 2.1% in May
- China Jun. Producer Price Index out at -2.7% YoY in Jun. vs. -2.6% expected and -2.9% in May
- Japan Jun. Preliminary Machine Tool Orders out at -12.4% YoY vs. -7.4% in May
- Switzerland May Retail Sales out at +12.8% YoY vs. +3.1% in Apr.
- UK May Industrial and Manufacturing Production (0830)
- UK May Visible Trade Balance (0830)
- US Jun. NFIB Small Business Optimism (1130)
- Canada Jun. Housing Starts (1215)
- UK Jun. NIESR GDP Estimate (1400)
- UK BoE’s Bailey to Speak (1430)
- Euro Zone ECB’s Asmussen to Speak (1500)
- Japan Jun. Domestic Corporate Goods Price Index (2350)
- Australia Jul. Westpac Consumer Confidence (0030)
- China Jun. Trade Balance (0200)
- Japan Jun. Consumer Confidence Index (0500)