Market Commentary, June 28
Yesterday saw the USD weakening largely as expected, but then stronger than expected Personal Income and Personal Spending numbers (not to mention a higher than expected PCE Deflator (2.5% vs. 2.2% expected YoY), which the Fed uses to judge the US inflation picture), sent bonds tumbling and the USD surging. This erased much of the gains for our scenario, and now we are forced to take a cautious stance, at least in EUR/USD. The chart is beginning to look a bit messy with large retracements following every surge upwards. AUD/USD is faring better and has much "cleaner" technicals. The scenario is bent, but not broken, so the best we can do is hope that part of yesterday's action was stop-running and overexuberance brought on by the Iraq handover news, which is irrelevant for the markets. Today will provide the answer one way or another.
An article out in the New York Times overnight shows that Bush's approval rating is the lowest ever. This leaves me scratching my head a bit at the latest University of Michigan Confidence numbers, which are extremely high. I would have suspected a tighter correlation between a country's feeling about its president and their confidence in general - in other words that sentiment would be falling. I studied the correlation of the Consumer Confidence numbers with the University of Michigan Confidence numbers over the last several years and discovered that while they are very tightly correlated over long time periods, individual months can show dramatic differences. I tend to think, with the latest Bush poll, that the Consumer Confidence number today will be a disappointment.
Japanese data out overnight was weakish, with a 0.5% vs. 2.5% expected in industrial production the worst of the numbers and a cause for concern. Also disappointing were household spending and small business confidence. This, plus the spike in interest rates yesterday, were a double whammy for the JPY, which weakened markedly against the USD and EUR. This process may continue as long as interest rates remain on the rise, and EUR/JPY may see 134.00 again, while USDJPY could consolidate higher to the 109.20 area
The Canadian elections: the Liberals won, an outcome that was possible, but not favored by recent polls. I've seen 13 different interpretations of what this means for CAD - and I've decided to toss the analysis in the bin, because none of the arguments are very compelling. The technicals tell me that USD/CAD looks like it could break lower and head toward 1.3050.
New Trades
- Long EUR/USD - The sell-off from just below the 1.2240/50 area swing level is cause for concern, so one may want to wait for renewed strength before buying. Buy at 1.2225 with a stop at 1.2140 offered and a target of 1.2330.
- Long AUD/USD - If not long already, buy here around 0.6985 and put a stop at 0.6910 offered. Target is 0.7180.
- Long EUR/GBP - EUR/GBP is consolidating in a very tight range and may not dip lower to provide the ideal entry level. Buy here (around 0.6660) with a stop at 0.6600 offered and a target of 0.6780.
Maintenance of Trading Strategies from :
- Long GBP/USD - Cable rallied, but fell short of our target. Sell for small profit at current levels (1.8280)
- Long EUR/GBP - See New Trades
- Long AUD/USD - Move stop to 0.6910 offered.
- Long EUR/USD - Maintain stop at 1.2080 offered or sell and wait for break higher to buy again (see New Trades).
Economic Data Today:
- Nationwide House Prices for June (UK) at 06:00 GMT
- Business Confidence Indicator for June (France) at 06:45 GMT
- PPI for May (France) at 06:50 GMT
- Retail Sales for May (Norway) at 08:00 GMT
- Retail Sales for May (Sweden) at 08:00 GMT
- GfK Consumer Confidence Survey for June (UK) at 09:30 GMT
- Industrial Product/Raw Materials Prices for May (Canada) at 12:30 GMT
- NBNZ Business Confidence for June (NZ) at 13:00 GMT
- Consumer Confidence for June (US) at 14:00 GMT
Important Data this week:
- Wednesday: Leading Indicator (Switzerland), FOMC Rate Decision (US), Tankan Survey (Japan), Chicago PMI (US)
- Thursday: Retail Sales (Australia), CPI (Switzerland), Deposit Rates (Norway), Manufacturing PMI (Europe), ECB Announces Rates (EU), PMI (Swizerland), ISM Manufacturing (US)
- Friday: Unemployment Rate and Nonfarm Payrolls (US)
