Well, most of it at least. Purchasing managers’ indices from China showed the economy stalling or worse, but in Europe and the US they generally beat expectations. Of particular note were the good readings from some of the troubled peripheral countries, with Spain for example hitting the magic 50.0 level (forecast: 48.5) for the first time in two years. Germany was slightly disappointing, but the UK and US were solidly in expansive territory. The good economic news brought risk-taking sentiment back into the markets; European and US stock markets were higher, as were most Asian markets this morning. Commodity prices also gained, particularly the base metals that would be in demand in case of a recovery in manufacturing, followed by those precious metals with industrial uses (palladium and platinum). It’s notable that the markets can respond like this even while China lags behind; it gives hope of a more broad-based recovery. The gains in commodity prices helped the commodity currencies, with NZD and AUD being the best performing major currencies we track overnight. The increased risk appetite also lessened the need for safe havens and CHF and JPY lagged. EM currencies were mixed.
Does growth matter for a currency? Not in a consistent fashion. There are cases where a rapidly growing country attracts capital for the investment opportunities, or a country is growing because of strong exports, or a strong economy has higher interest rates, and the currency appreciates because of that. But there are also cases where a strong economy imports more and the balance of payments deteriorates, or where a weak economy stops importing and sees its trade surplus balloon and its currency rise. Looking at the DXY index of the dollar, for example, there is no clear pattern of it rising or falling in relation to the relative strength of the US economy compared with those of its counterparts. In the current environment, the strength of an economy is directly related to the likely course of its monetary policy, including any further QE or other extraordinary measures. A return to economic normality would bring a return to monetary normality as well, and that would change existing FX relationships. For now the greater surprise would be strength in the European economies rather than strength in the US, so those signs dominated activity yesterday, but in the longer run it will be the US that normalizes monetary policy first as growth solidifies and hence the USD that gains, in my view.
The only major economic indicator due out today is US factory orders for May, which are expected to be up 2.0% mom vs a 1.0% rise in April, adding to the bullish USD sentiment. New York Fed President Dudley will speak on economic conditions. His speech last week caused quite a flurry in the market, but it’s hard to see how he will say anything different than he did just a few days ago.
The Market
EUR/USD
• EUR/USD gained yesterday following, essentially, two-year high manufacturing PMIs for Italy, Spain, and even Greece, with the French PMI for June also beating expectations, coming in at the highest level since February 2012. The euro gains were also supported by the Eurozone unemployment figure, which showed a slower than forecasted increase in the unemployment rate. The overall gains, however, were restrained by the German PMI figure, which deteriorated more than had been initially forecasted. The higher-than-anticipated expansionary US ISM manufacturing PMI triggered a break down from 1.3030 support but the effect was short-lived as the ISM survey showed a weak employment component that may impact the non-farm payroll figure on Friday.
• Overnight resistance came at 1.3071, which sees the 200-day MA, with the area until 1.3077 also seeing the 50-day MA and the 38.2% retracement level of the July 2012 – February 2013 rally. Further resistance levels are seen at 1.3110 and 1.3160. Support comes at the well-tested 1.3055, 1.3030 and 1.3005.
USD/JPY
• USD/JPY managed to breakout yesterday from 99.35 resistance as the Nikkei was gaining, spiking later to 99.90 on the announcement of the US ISM manufacturing reading. The weak employment data reported through the ISM survey, which may be of some concern with regard to the timing of future tapering, and the failure to break the 100-mark initiated a retracement that may find initial support at 99.35.
• A break of 100 sees the next resistance levels at 100.35 and 100.80 and 101.35. Support below 99.35 is found at 99.15, the 50-day MA, and thereafter at 98.80.
NZD/USD
• NZD/USD is continuing consolidating in the 0.7710 – 0.7850 area, looking to gradually recover from oversold levels as the daily RSI and Stochastic oscillator trigger bullish crossovers. However, the breakout from 0.7790, following the gain of more than 70 pips on the ISM manufacturing index, and the subsequent failure to retest resistance at 0.7850 point to a further test of support at 0.7790 as the 1-hour momentum indicators look bearish with the 4-hour Stochastic in overbought territory.
• Resistance above 0.7850 comes at 0.7930, the 61.8% retracement level of the rally from June 2012 to April 2013. Key support comes around the one-year lows of 0.7710.
Gold
• Gold was lying around $1244 resistance for the greater part of the morning yesterday, falling to $1234 as the data reported from the Eurozone were showing a recovery. A breakout from the $1244 – $1247 area was triggered on the possibility that the Fed may scale down its asset-purchases later than initially thought, with effective resistance coming at $1259.
• Resistance above $1259 is seen at the tested lows around $1269 - $1273 with further resistance in the $1285 - $1289 area, which sees the 38.2% retracement level of the major gold rally following the onset of the financial crisis. Tested support comes in the $1244 – $1247 area and thereafter at $1234.
Oil
• WTI was a major gainer yesterday, rebounding from $96.05 Fibonacci support, amassing 2% in gains relative to yesterday morning. The technical momentum which initiated the rebound from the low following the weak Chinese PMI was thereafter fuelled by the generally strong PMI data in Europe and the U.S., with equities also reporting gains.
• Strong resistance came at $98.10 with support currently seen at $97.75. Further resistance is seen at $98.50 and $98.85. Support below the $97.75 61.8% Fibonacci level of the down move from March to June 2012 is seen at $96.95 and then again at $96.05.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
Does growth matter for a currency? Not in a consistent fashion. There are cases where a rapidly growing country attracts capital for the investment opportunities, or a country is growing because of strong exports, or a strong economy has higher interest rates, and the currency appreciates because of that. But there are also cases where a strong economy imports more and the balance of payments deteriorates, or where a weak economy stops importing and sees its trade surplus balloon and its currency rise. Looking at the DXY index of the dollar, for example, there is no clear pattern of it rising or falling in relation to the relative strength of the US economy compared with those of its counterparts. In the current environment, the strength of an economy is directly related to the likely course of its monetary policy, including any further QE or other extraordinary measures. A return to economic normality would bring a return to monetary normality as well, and that would change existing FX relationships. For now the greater surprise would be strength in the European economies rather than strength in the US, so those signs dominated activity yesterday, but in the longer run it will be the US that normalizes monetary policy first as growth solidifies and hence the USD that gains, in my view.
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The only major economic indicator due out today is US factory orders for May, which are expected to be up 2.0% mom vs a 1.0% rise in April, adding to the bullish USD sentiment. New York Fed President Dudley will speak on economic conditions. His speech last week caused quite a flurry in the market, but it’s hard to see how he will say anything different than he did just a few days ago.
The Market
EUR/USD
• EUR/USD gained yesterday following, essentially, two-year high manufacturing PMIs for Italy, Spain, and even Greece, with the French PMI for June also beating expectations, coming in at the highest level since February 2012. The euro gains were also supported by the Eurozone unemployment figure, which showed a slower than forecasted increase in the unemployment rate. The overall gains, however, were restrained by the German PMI figure, which deteriorated more than had been initially forecasted. The higher-than-anticipated expansionary US ISM manufacturing PMI triggered a break down from 1.3030 support but the effect was short-lived as the ISM survey showed a weak employment component that may impact the non-farm payroll figure on Friday.
• Overnight resistance came at 1.3071, which sees the 200-day MA, with the area until 1.3077 also seeing the 50-day MA and the 38.2% retracement level of the July 2012 – February 2013 rally. Further resistance levels are seen at 1.3110 and 1.3160. Support comes at the well-tested 1.3055, 1.3030 and 1.3005.
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USD/JPY
• USD/JPY managed to breakout yesterday from 99.35 resistance as the Nikkei was gaining, spiking later to 99.90 on the announcement of the US ISM manufacturing reading. The weak employment data reported through the ISM survey, which may be of some concern with regard to the timing of future tapering, and the failure to break the 100-mark initiated a retracement that may find initial support at 99.35.
• A break of 100 sees the next resistance levels at 100.35 and 100.80 and 101.35. Support below 99.35 is found at 99.15, the 50-day MA, and thereafter at 98.80.
NZD/USD
• NZD/USD is continuing consolidating in the 0.7710 – 0.7850 area, looking to gradually recover from oversold levels as the daily RSI and Stochastic oscillator trigger bullish crossovers. However, the breakout from 0.7790, following the gain of more than 70 pips on the ISM manufacturing index, and the subsequent failure to retest resistance at 0.7850 point to a further test of support at 0.7790 as the 1-hour momentum indicators look bearish with the 4-hour Stochastic in overbought territory.
• Resistance above 0.7850 comes at 0.7930, the 61.8% retracement level of the rally from June 2012 to April 2013. Key support comes around the one-year lows of 0.7710.
Gold
• Gold was lying around $1244 resistance for the greater part of the morning yesterday, falling to $1234 as the data reported from the Eurozone were showing a recovery. A breakout from the $1244 – $1247 area was triggered on the possibility that the Fed may scale down its asset-purchases later than initially thought, with effective resistance coming at $1259.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads.
• Resistance above $1259 is seen at the tested lows around $1269 - $1273 with further resistance in the $1285 - $1289 area, which sees the 38.2% retracement level of the major gold rally following the onset of the financial crisis. Tested support comes in the $1244 – $1247 area and thereafter at $1234.
Oil
• WTI was a major gainer yesterday, rebounding from $96.05 Fibonacci support, amassing 2% in gains relative to yesterday morning. The technical momentum which initiated the rebound from the low following the weak Chinese PMI was thereafter fuelled by the generally strong PMI data in Europe and the U.S., with equities also reporting gains.
• Strong resistance came at $98.10 with support currently seen at $97.75. Further resistance is seen at $98.50 and $98.85. Support below the $97.75 61.8% Fibonacci level of the down move from March to June 2012 is seen at $96.95 and then again at $96.05.
BENCHMARK CURRENCY RATES - DAILY GAINERS AND LOSERS
MARKETS SUMMARY
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