New York Forex Report: Sterling Sliding South
New York Forex Report: Markets navigated their way through a series of potential shocks last week with relative ease; only the awful performance of the Conservatives in the general election had a significant impact and that was only really confined to the GBP. Generally market volatility remains exceptionally low across a range off asset classes. Seasonal trends reveal that the latter part of June usually sees equity markets underperform, volatility increase and the JPY outperform. That observation resonates somewhat with the situation facing the markets this morning, with global stocks lower as tech continues to sell off and the JPY at the top of the overnight performance league, leaving the USD general lower against its major currency peers. The GBP remains offered as political risk remains a dominant factor.
USD enjoyed a bit of a recovery this week, rising to its highest level in 10 days following yesterday’s ECB meeting, Comey testimony and U.K. election. With no major bombshells delivered by the former FBI director in yesterday’s testimony, investors were able to shift their focus onto next week’s FOMC meeting, were the Fed is widely expected to deliver the year’s second interest rate hike. Key for the dollar will be the extent to which the Fed keeps the door open to another rate hike in the second half of the year, even if it also plans to begin the process of tapering the bank’s massive balance sheet in the coming months. Such a scenario would likely keep the greenback biased higher.
EUR last weeks ECB meeting saw the bank as expected leave its key lending rates and its asset purchase program unchanged. And while the ECB statement did drop a reference to rates remaining “at or below current levels”, the tone of President Mario Draghi’s comments in the post-meeting press conference maintained a hint of caution and importantly, the bank’s own inflation forecasts over the coming years were cut. On balance, Thursday’s ECB meeting likely dashed some hopes that the bank would announce a tapering of its assets purchases at an upcoming meeting and reinforced the notion that an actual interest rate hike from the ECB remains a very distant prospect.
GBP Sterling tumbled by well over two percent at one point, hitting its lowest level against the dollar in eight weeks and its lowest level against the euro in seven months, following the shocking results of yesterday’s snap election. Prime Minister Theresa May’s ruling Conservative Party failed to secure a parliamentary majority and was forced to enter a fragile coalition with Norther Ireland’s DUP. The gamble that Mrs. May had taken by calling a snap election in April was designed to capitalized on a perceived wave of popular support for the Tories and consolidate her power ahead of the Brexit negotiations. The move however backfired as the Conservatives ceded seats to the opposition Labour Party and as a result, now stands on much weaker footing with just 10 days to go until the U.K.-EU Brexit talks begin. The pound stabilized as Theresa May managed hold onto her position as the nation’s Prime Minister, despite a chorus of calls for her to step down, and as she announced a coalition partnership with the DUP
JPY The Bank of Japan (BoJ) concludes a two-day policy meeting on Friday. Whilst we do not expect any significant changes to monetary policy, there is speculation that the BoJ may communicate about an exit policy. The decision is announced around midday in Tokyo. BoJ Governor Haruhiko Kuroda will gives a press conference. While no changes to policy are expected, commitment to keeping long-term bond yields in Japan anchored could keep the JPY pressured, especially if the Fed sounds even remotely hawkish.
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Neutral
Technical: 1-3 Day View – Breach of 1.12 from above reaffirms range trade delaying attempts at equidistant swing objective of 1.1291 en-route to a test of broader symmetry swing objective at 114.30. As 1.1220 caps upside near term downside objective is sited at 1.1125 symmetry swing support.
1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.1450 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives
Retail Sentiment: Bearish
Trading Take-away: Long
Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Breach of 1.2750 concerns near term bullish bias and opens a move back to test the 1.26 pivot ahead of symmetry swing support sited at 1.2450, the near term upside hurdle is sited at 1.2770 ahead of symmetry swing resistance sited at 1.2842
1-3 Week View – The weekly failure to close above 1.3045 ahead of the broader symmetry swing objective sited at 1.3238 suggest underlying weakness persists 1.2450 becomes pivotal for the medium term perspective
Retail Sentiment: Bearish
Trading Take-away: Long
Outlook: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks): Bearish
Technical: 1-3 Day View – Near term as 110.30 contains upside reactions 108 will be a key downside objective. Over 110.50 opens 111 symmetry swing resistance a closing breach of this level would reset focus on upside objectives.
1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Bullish
Trading Take-away: Short
Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Neutral
Technical: 1-3 Day View – 129.44 is the medium term upside objective, near term upside objective of 126.84 equidistant swing objective, only below 122 concerns near term bullish bias.
1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, resetting focus on pivotal 124.40 a weekly breach of this level opens 129.44 as the broader upside objective
Retail Sentiment: Neutral
Trading Take-away: Neutral