WORLD FOREX INFORMATION

Daily Market Commentary


EUR/USD Continues to Slip Towards 7/20-7/28 Lows


Friday’s large pullback is following through into Monday while the S&P futures continue to dangle just above their highly psychological 1000 level. Friday’s pullback came on abnormally large volume, giving ample reason for the EUR/USD to continue its slide today. Weakness in the EUR/USD comes despite better than expected French Industrial Production data. However, positive data from the EUR/USD is likely giving the Euro relative strength, as exhibited by the bounce taking place in the EUR/GBP. We recognize similar downturns in both the GBP/USD and gold as well, indicating a broad-based market weakness. The USD/JPY is also trading lower today, deviating from Friday’s theme of a stronger Dollar. Meanwhile, crude and the S&P futures are holding strong above their psychological levels, $70/bbl and 1000 respectively. The continual strength in the U.S. marketplace despite the overall appreciation of the Dollar is puzzling. Could the Dollar’s latest round of appreciation indicate an approaching pullback in the S&P futures, or are the crisis-prone correlations shifting? We will closely monitor the S&P’s correlation with the Dollar for any sort of confirmation. There is always the possibility that an appreciation in the Dollar was overdue and doesn’t detract from the S&P’s rise.

Meanwhile, we shifted our trend lines to form new 1st tier and 2nd tier uptrend line. The EUR/USD is quite a ways from our 2nd tier uptrend line. However, if the EUR/USD can’t stay above our 1.4155 support a pullback towards the 2nd tier seems probable. Our 1st tier turned 3rd tier uptrend line is reaching an inflection point with our 1st tier downtrend line. Therefore, there’s the possibility of heightened volatility over the next 24 hours. While we maintain our negative outlook on the EUR/USD for the immediate term, the EUR/USD’s medium-term uptrend still has two uptrend lines and the psychological 1.40 acting in its defense to the downside. As for the upside, the EUR/USD will just build more obstacles to the upside the more it declines. The immediate-term hurdles to the upside are intraday highs and our 1st tier downtrend line. A recovery into the meat of the 7/20-7/28 trading range could be a positive develop and allow the EUR/USD to build a new base. However, Friday’s high volume shows immediate-term momentum is still in favor of the downside


GBP/USD Sinks Towards its Psychological 1.65 Level


The Cable snapped after August 3rd lows failed to hold their ground. Friday’s sell-side action was simply too much for the currency pair to handle, and the GBP/USD has proceeded to flop towards the 1.66 area as we anticipated. There’s continual downward pressure on GBP/USD and EUR/USD as FX investors head for safety. Meanwhile, the Pound is experiencing relative weakness in light of the BOE’s $84 billion QE injection last week, as indicated by an upturn in the EUR/GBP. However, even though further immediate-term losses in the GBP/USD appear likely, the currency pair has a strong support zone approaching. The Cable has experienced immense consolidation around the 1.65 level in the past, and there’s no reason to believe this behavior should change any time soon. Therefore, with 1.65 and our 1st and 2nd tier uptrend lines within reach, we believe any immediate-term losses could be halted by these technical cushions. In the meantime, crude and the S&P futures are consolidating above their respective psychological levels, $70/bbl and 1000. As long as these investment vehicles hold strong, the Cable should forego any further technically significant setbacks. Meanwhile, investors should keep an eye on sell-side action to deem whether the Cable’s pullback has the juice to drop below its aforementioned technical cushions.

All is quiet on the data front until Britain releases its BRC Retail Sales Monitor and RICS House Price Balance numbers late Monday. A continual rise in housing prices could help solidify a temporary bottom in the Cable. Furthermore, investors will keep a close eye on key Chinese economic data. We could witness a broad-based Dollar depreciation if the Chinese numbers come in better than expected. China is helping pull the entire global economy out of the gutter, so outperformance in China could lift both the Pound and the Euro. Meanwhile, we’ll monitor the Cable’s correlation with the S&P futures since we witnessed a large appreciation of the Dollar on Friday despite stability in U.S. equities. Though we are not tossing the GBP/USD’s positive correlation with the S&P futures, we are certainly monitoring the situation closely.

As for the upside, an encouraging development would be for the GBP/USD to solidify above our 3rd tier uptrend line. However, the Cable has quite an uphill battle, including July 31st highs and our 2nd tier downtrend line. On the other hand, any climb above our top 1.6651 resistance could result in an additional immediate-term pop in the Pound. We maintain our negative immediate-term outlook on the GBP/USD, though losses should be limited with strong supports on the horizon. The Cable’s medium-term uptrend is still safe, and the currency pair would need a hefty technical reversal to alter its path.