USD:The Dollar continues to see vicious price action this week, and is in-line for a second large-scale reversal in as many sessions. While a weak reading on Chinese manufacturing helped to take prices up to a fresh 91/2-month high, last night’s events in Japan have driven large amounts of safe-haven funds out of Dollar and into the Yen. There may also be second and third thoughts on Fed Chairman Bernanke’s testimony during yesterday’s trading, as any chance of “tapering” Fed asset purchases will clearly depend upon stronger US data results. This will put additional emphasis on this morning’s Jobless Claims and New Homes Sales data, as a decent reading from either number could help to put the brakes on this morning’s downdraft. While risk aversion may be the flavor of the day in global markets, the Dollar is likely to be playing second-fiddle to the Yen as a safe-haven destination this morning. The Dollar may find near-term support around the 83.80 level, and may need to see better than expected results from US data in order to regain any large portion of overnight losses.
EUR: The June Euro was able to find moderate support this morning, but will still have trouble overcoming yesterday’s sharp negative turnaround from the 130.00 level. This morning’s set of “flash” PMI numbers provided better than expected results, although Germany was the only major EU nation to come anywhere close to the 50.0 level. Unless there is stronger and sustained strength in Euro zone economic data, sluggish global risk sentiment is likely to keep further Euro gains in check. As long as EU problems stay out of the market’s focus this morning, however, the Euro should be able to consolidate this morning’s recovery. The June Euro may climb up towards the 129.15 area later today, but will clearly need to see much improved global risk appetites in order to move above and beyond yesterday’s spike highs.
GBP: The June Pound was able to grind out a modest recovery from a new 2-month low this morning, but still has a long way to go to recover from recent chart damage. Today’s UK GDP reading may have been in-line with market expectations, but the Pound has been unable to fully shake off yesterday’s sluggish UK Retail Sales and CBI numbers. Improving UK economic data was a critical factor with keeping the Bank of England sidelined, so the Pound may need to see positive vibes from both inside and outside the UK in order to regain stronger upside momentum. The June Pound may climb up towards the 151.04 level later on during today’s session, and will be looking for improvement in global risk appetites in order to sustain this rebound.
JPY: The June Yen has seen a massive recovery rally during overnight trading, and while pulling back from early highs is still holding onto huge gains coming into this morning’s trading. With JGB yields already spiking higher after Fed Chairman Bernanke’s testimony, last night’s sluggish Chinese manufacturing reading was the catalyst for a 7% sell off in Japanese equity markets. A sizable wave of flight-to-safety support has combined with large amounts of short-covering to take the market far above this week’s and last week’s trading range. While this sort of JGB volatility is clearly what the Bank of Japan had in mind with their post-meeting comments this week, today’s price action is unlikely to put a near-term end to their aggressive easing measures. Another run at the 99.00 level will provide a fresh opportunity to enter the short side of the Yen using long put option strategies. The June Yen may climb back towards the 99.10 area if today’s US data comes in weak, but safe-haven support is likely to evaporate quickly once Japanese equity and interest rate markets are able to stabilize.
CHF: The June Swiss has been the other big winner this morning, although today’s rebound is likely due more to short-covering after yesterday’s fresh 91/2-month low than to any fresh inflow of safe-haven support. While the SNB’s threats of negative interest rates and raising their floor rate versus the Euro helped to drive the Swiss Franc into new low ground, a 1.26 handle on the Swiss/Euro spread may have been a bit too rich given recent lukewarm Euro zone economic readings. The June Swiss may be able to retest the overnight high of 103.83 later today, with any rally up to the 104.20 area presenting a near-term selling opportunity given the prospects for fresh SNB activity on the horizon.
CAD: The June Canadian was able to bounce back from a new 101/2-month low this morning, but is clearly fighting headwinds from last night’s lukewarm Chinese manufacturing reading and from sluggish energy prices this morning. With nearly 3.5 cents in losses over the past two weeks, there is plenty of shortcovering potential for the Canadian Dollar – if Canadian economic data can start to show consistent strength. The June Canadian will have a near-term upside target of 96.82 later this morning, and would be a major beneficiary if global risk sentiment sees a positive turnaround later today.