A stack of negative fundamentals rose to the surface in unison to pressure the euro; Irish fiscal woes, a drop in German manufacturing data, and European banking system concerns.
Today’s Economic Data Releases:
GBP – Halifax HPI m/m
Expectation: -0.3%. Previous 0.6%.
Housing data for Britain has been weak since the beginning of the economic recession. The trend of a struggling British housing sector should continue and hurt the pound versus the majors.
Support and resistance levels for the GBP/USD are found at 1.5320 and 1.5490.
EUR – German Industrial Production m/m – 10:00 GMT
Expectation: 1.1%. Previous -0.6%.
Yesterday’s disappointing German factory orders may have been a prelude to today’s data release, highlighting the difficult month of August for the global economy.
The EUR/USD has declined for the past two days, pulling back into the symmetrical triangle pattern that had formed. Support is found at the rising lower leg of the triangle pattern at a price of 1.2660 followed by 1.2580.
CAD – Overnight Rate – 13:00 GMT
Expectation: 1.00%. Previous: 0.75%.
The Bank of Canada is expected to slow monetary policy by hiking interest rate by 25 basis points. This data has already been priced into the market, but should the BAC surprise traders by holding interest rates steady at 0.75%, the USD/CAD could rise to its resistance level of 1.0670.
USD – Beige Book – 18:00 GMT
The Fed’s analysis of the markets helps the central bank set policy decisions and interest rate levels. Negative remarks in the Beige Book could spark renewed safe haven buying.
The USD/CHF should target last week’s low of 1.0064.
The US dollar’s resurgence in today’s early morning hours has led to a number of significant support levels on USD crosses being tested. The EUR/USD pair has dipped towards the 1.2790 support line, while the GBP/USD hit 1.5350 and seems to be holding steady at that mark. With today’s news focusing primarily on Australia and Japan, we should see thin trading conditions continue while USD crosses shift in response to this morning’s movements.
Today’s leading events:
04:30 GMT: AUD – Cash Rate
Taking place during the early morning hours before most of Europe awakens means that this announcement will likely see a latent result on the value of the AUD throughout the day’s trading and investors shouldn’t rule out the fluctuations in the Aussie follow this figure’s release.
The Cash Rate is the Reserve Bank of Australia’s (RBA) official short-term interest rate and therefore is one of the most important figures released regarding the direct value of a currency. The importance of interest rates in currency valuation makes today’s announcement vital to the future movement of the AUD over the next few weeks.
Tentative: BOJ – Press Conference
The Bank of Japan’s (BOJ) post-interest rate press conference is one of the most significant events for the Japanese yen. With all of the speculation surrounding possible bank intervention against the continuously rising JPY, this announcement will likely shed further light on the situation of the yen and give traders a better idea on how likely, or how close, Japan’s central bank is on attacking what they view as the over-strengthened JPY.
Hawkish statements could lead to a strong depreciation of the yen as this will likely signal future steps at weakening the currency to help boost Japanese exports.
The USD/SEK is fast approaching both a minor and a major support level as the bearish trend looks set to continue.
The long term downward trend for the Swedish krona continues at the falling trend line from the June high. A downward sloping 20-day simple moving average also supports the resumption of the downward trend.
As the pair heads lower, the USD/SEK is coming into a congestion area from February until May. This should serve as a resistance area for any upward correction near the price of 7.3000 (R1).
The first support comes in at 7.1650 (S1) from the beginning of August.
The second major support is found below the March and August low at 7.0400 (S2).
An increase in risk taking as of late has led to significant gains for the Scandinavian kroner against both the US dollar and euro. Positive news, most importantly Friday’s US Non-Farm Payrolls figure, has led to increased confidence in the pace of the global economic recovery. The figure, while still negative, came in well above expectations, and led to a significant boost for more volatile assets. Chief among these assets have been the Scandinavian currencies.
EUR/SEK has tumbled almost 1000 pips over the last week and is currently trading around the 9.3020 level. The Swedish krona saw significantly more gains against the greenback, with USD/SEK falling over 2000 pips in the same amount of time. Meanwhile, over the last week, the Norwegian krone saw gains of 1650 and 2200 pips against the euro and dollar respectively.
Whether the kroner can maintain its current bullish trend will largely be determined by global news events in the week ahead. Traders will want to pay attention to the UK Manufacturing Production figure and Official Bank Rate on Wednesday and Thursday respectively. The US trade Balance and Unemployment Claims figures, also set to be released on Thursday may generate significant volatility for Scandinavian crosses. Should any of these news releases come in above these forecasted levels, the kroner will likely maintain its upward movement.
The most significant trend in last week’s trading was the bearish U.S. dollar. The dollar fell last week following several positive economic releases form the U.S. economy. Reports have shown that confidence in the U.S. regarding current and future economic conditions has unexpectedly risen in August. In addition, the number of contracts to purchase U.S. previously owned houses unexpectedly rose in July by 5.2%, beating expectations for a 1.3% fall. The Non-Farm Payrolls report on Friday also provided better-than-expected figures. This has eased concerns that the economy is falling back into recession, and as a result turned investors to look for higher-yielding assets, such as the euro.
It currently seems that for as long as the U.S. economy will continue to provide positive signals, the dollar might weaken further, especially vs. the euro.
As for today, U.S. banks will be closed in observance of Labor Day, and no significant publications are expected from the leading economies. Traders are advised to follow global equity markets as positive trading is likely to put further bearish pressure on the dollar.
