EUR stalking to pounce higher

The majority will be surprised to see the EUR testing Friday’s highs again this morning, especially with the amount of negative EU copy being distributed since the weekend. EU fear mongering from inadequate ‘stress testing’, which may be unable to dictate hidden losses to unmanageable sovereign debt issues, has had a limited negative impact on the currency thus far. The negative Swiss CPI print for June this morning may have re-awakened a fear that, despite what Hildebrand communicated to the market earlier this month, there may be an SNB intervention. Even reports that China is expanding its investment in JGB’s, coinciding with Europe’s fiscal crisis, has done little to dissuade the market. Technically, the market is still trying to decipher the fundamental data. Gut reactions are expensive in this market volatility.

The US$ is weaker in the O/N trading session. Currently it is lower against 12 of the 16 most actively traded currencies in another ‘volatile’ trading range.

Enough has been written about last weeks NFP numbers. There was a certain amount of relief that the headline print came in close to expectations. That been said, it’s difficult to put a positive spin on a release that saw +650k people remove themselves from the labor force and an average work week falling. The trickle down effect will lead to less monies being pumped back into any economy. This week is a slow week for US data. This morning we get the ISM non-manufacturing index for last month. Market consensus has the past several months trend remaining intact. Various chain store sales data/index will keep us occupied Wed. and on Thursday, expect the market to focus on the weekly claims report. Over the last few weeks the trend has been itching to test the upside. Will a ‘break-out’ be sustainable? Amongst the various Cbanks interest rate releases this week, investor’s sentiment will determine what risk actions we should be taking, risk-on or off. Equity markets are pushing for risk-on this morning.

The USD$ is lower against the EUR +0.41%, GBP +0.38%, CHF +0.24% and higher against JPY -0.14%. The commodity currencies are stronger this morning, CAD +0.48% and AUD +1.08%. The loonie again underperformed yesterday, amidst the US holiday, on the back of questionable global growth directly affecting interest and growth sensitive currencies. This morning, global bourses have managed to push it higher. The CAD has been the worst performing currency vs. its southern neighbor from a basket of most traded currencies over the past month. In the grand scheme of things, fear and hesitation is supporting risk aversion currencies like the CHF, JPY and USD for the time being. Dealers are somewhat backing down and even questioning whether the BOC remains in a ‘normalizing’ rate mood after last months expected rate hike. Over the past few week’s the global economic landscape and attitude has definitely changed, pointing to a tough 3rd Q, and even a negative 4th Q. Last week the loonie plummeted to a three week low as GDP data showed that the Canadian economy unexpectedly stalled in April and below market expectations +0.0% vs. +0.2%. With the risk-off trading scenario, the CAD was down -4.2% last quarter, recording its first quarterly decline in a year. On the crosses, CAD is trying to hold its own and under normal conditions is seen as a safer way to play a global economic recovery with links to commodities and less banking. Speculators had been betting that Cbanks will up the ante and use the currency as a safe haven destination for capital. Technically, if USD support around 1.0585 remains intact short term, coupled with risk-aversion trading strategies, could threaten the top-side resistance levels of 1.0750-800.

There was certainly some trepidation about last nights RBA interest rate announcement. Consensus had expected rates to remain on hold. However, various other voices were being heard from the market. Governor Stevens left the cash O/N rate unchanged for a second consecutive month (4.50%). The currency rallied, aided by the regional bourses and investor demand for higher yielding assets. In its following communiqué, the RBA stated that consumer spending and business investment are expanding, this again pushed the currency to outperform all its major trading partners. Policy makers are ‘reinstating their view that domestic growth will be about trend’ and are ‘not alarmed by the global demand backdrop’. In retrospect, policy makers remain ‘very upbeat’. This is certainly disappointing the ‘doves positioning’. The market continues to speculate that the Fed will keep interest rates at a record low to aid a ‘waning US recovery’, is preserving the regions yield advantage. With the crisis in Europe not having a material impact on the Australian economy has ‘bulls’ better buyers on pull backs. Be wary of commodity prices (0.8478).

Crude is higher in the O/N session ($72.62 up +48c). Crude, for a sixth consecutive trading session yesterday fell on global concerns over slower growth and demand for fuel. With China and the US economies showing signs of fatigue, by default would reduce the demand for the black-stuff. Weaker manufacturing and employment reports is keeping the ‘black-stuff’s’ prices at the lower end of a tightly defined trading range. Fear that the global economy is heading for a double dip recession will have crude fighting for every dollar uptick as the bear’s continue to have a stranglehold on prices since last week. Last week’s EIA report showed that gas inventories rallied for the first time in 2-months while crude stocks fell. Gas stocks rose +537k barrels to +218m vs. an expectation of a decline of -400k barrels. On the flipside, crude stockpiles fell -2.01m barrels to +363m vs. an expectation loss of -1m barrels. Supplies of distillate fuel (heating oil and diesel) also managed to climb to a two month high print. Distillate fuel climbed +2.46m barrels to +159.4m. The market had been expecting a +950k barrel gain. It was a market bearish report as the build in gas and distillates are offsetting the larger than expected drop in crude. Oil was down -9.8% for the quarter and -4.8% this year. Crude stocks remain well above the five-year average level, and are +3.2% above a year ago, the biggest year-on-year surplus in 6-months. Currently there are too many negative variables that support the bear’s short positions. Direction is dictated by demand and investor confidence, with ample supply and global growth worries, speculators continue to sell on rallies.

Gold fell -3.4% last week, again retreating from the record $1,264 print recorded last month, as the extreme risk-aversion linked to fears over sovereign debt issues in European countries abated. A firmer dollar over the US holiday period had also limited the gains. Fundamentally, in the short term the metal will find it difficult to rally aggressively, as historically, this is the ‘slower’ season for physical demand and naturally after reaching such heights, in a strong first 6-month, has investors booking profits and limiting their exposure. Despite this, on the longer term view, market concerns over global economic growth are expected to support the ‘yellow’ metal and push prices to new record highs in the 4th Q. The upward bias trend remains intact as long as $1,185 holds. Year-to-date, the commodity has gained +12.5%. Generally, it has become the benefactor when all other currencies fail. Thus far, Europeans have been content in using the commodity as a hedge against their European holdings, believing that the EUR has not bottomed out just yet ($1,212 +400c)!

The Nikkei closed at 9,338 up +71. The DAX index in Europe was at 5,907 up +91; the FTSE (UK) currently is 4,901 up +78. The early call for the open of key US indices is higher. The US 10-year had backed up 5bp since Friday (2.97%) and is eased 2bp in the O/N session (2.95%). Treasury prices for the safer-haven product eased after the NFP headline was not as bad as had been feared, leading to a mild bout of profit-taking. This is a new week with little data. Where does the market go from here? With the US economic outlook not looking so hot will have the market providing some support on these pull backs in the short term (3.00%). Investors are still trying to decipher recent headline prints. Is the US economy sliding into a double-dip recession or are we witnessing a tepid recovery from the worst downturn in 70-years? No matter what, yields will remain low for ‘an extended period of time’.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.