EURUSD: One more yearly low in the books

This is becoming a slightly repetitive topic but last week, the EURUSD recorded another yearly low (1.3332). Downside pressure resumed after investors reacted unfavorably to Wednesday’s news that German Factory Orders unexpectedly declined, alongside Italy falling back into recession. In regards to Italy, Gross Domestic Product contracted by 0.2% in the second quarter of 2014. This followed the 0.1% economic contraction in Q1.

The other major headlines from the EU was that as expected, the European Central Bank (ECB) left monetary policy unchanged. In reference towards notable comments from Mario Draghi’s press conference, the ECB President expressed that the EU recovery remained “weak, fragile and uneven”. Additionally, Draghi proclaimed that the “fundamentals for a weaker exchange rate are better now than a few months ago”. This could be seen as a clear signal that the bear run, which the EURUSD has been on since the 1st week of May (near 700 pip decline) could be far from over.

This week, the major economic releases to keep an eye out for are likely to be the latest German ZEW Survey (Tuesday), German Inflation (Wednesday), EU GDP (Thursday) and EU Inflation (Thursday).

Although at first sight, the EU GDP and EU Inflation release appear higher risk, the ECB are prepared to offer time to recently implemented stimulus before deciding on the possibility of further action. Therefore, patience may be awarded to these releases, in the event that they raise a few eyebrows. My personal pick to watch out for is the German ZEW Survey. Reason being, is that the German economy has been impacted by the geo-political conflict in Eastern Europe and bearing in mind that Germany is the majority contributor to the EU GDP, downside risks to the EURUSD will be likely if the ZEW survey disappoints.

In regards to the technicals on the Daily timeframe, a bearish channel remains in control of the overall EURUSD direction. Any upside moves will find resistance located at 1.3452 and 1.3506. Support can be found at 1.3332 (yearly low) and if we do encounter heavy selling, 1.3295. A move to the latter would represent the lowest EURUSD valuation since 6th November 2013.

GBPUSD: An unsuccessful attempt to regain momentum

Following two impressive fundamental performances to begin the week, it appeared the GBP bulls were looking to regain some of their lost momentum from the past few weeks. For example, Monday’s Construction PMI came in at 62.4, where economists were expecting a fall to 62.0. Additionally, Tuesday’s UK Services PMI (around 70% of the UK GDP) rose to a nine-month high. The Services PMI reading rose to 59.1, surpassing expectations for 57.9.

Unfortunately for the GBP bulls, Wednesday’s announcement that Industrial and Manufacturing Production fell below expectations denied the GBPUSD any chances of a comeback. Further losses were felt when the Bank of England (BoE) left monetary policy unchanged on Thursday, alongside Friday’s news that the UK Trade Deficit widened slightly in June.

Next week is a critical week for the GBPUSD. On Wednesday, the latest UK Jobless Claims are announced. Bearing in mind that BoE Governor, Mark Carney has hinted that a UK unemployment rate below 6% might influence the BoE’s decision to raise interest rates, this is not a release to miss. At present the UK unemployment rate is stated to be around 6.5%, but there is a reason to be cautiously optimistic Wednesday’s UK Jobless Claims. As mentioned above, the UK Services PMI was recently recorded at a 9-month high. The UK Services sector is also responsible for 80% of the UK labor force. If the UK unemployment rate is announced as having declined on Wednesday morning, then expect the GBP bulls to take notice.

Also next Wednesday, the scheduled BoE Inflation Report will feature a speech from Governor Carney. Part of the recent GBPUSD decline has been correlated by investors losing patience with the BoE, with the Central Bank were accused of sending contradictory messages regarding the timing of a BoE rate hike. Carney is reportedly going to provide clarity on this issue on Wednesday. On Friday, the second estimate of the UK GDP Q2 is announced.

The technicals on the Daily timeframe currently show the Cable being traded in a downward channel. However, if there is high optimism following the UK data on Wednesday, expect this channel to be tested. At the beginning of the week, there is a low volume of UK releases. In addition with the possibility that investors should be attracted to the USD as a safe-haven, following an escalation of political tensions in the Middle East – this pair looks likely to begin the week moving lower. Support can be found at 1.6782 and 1.6760.

Upside moves can will find resistance levels located around 1.6845 and 1.6888. Both the Stochastic Oscillator and RSI appear to edging very close to the oversold boundaries, indicating that the GBPUSD’s recent selling might be heading for a conclusion.

USDJPY: Throwing back all gains

As mentioned last week, the 103 resistance level has become a psychological ceiling for this pair in recent months. Despite the previous weeks positive news, such as US Initial Jobless Claims dropping to an 8-year low, the United States economy adding over 200,000 jobs to its economy for the sixth successive month (something not achieved for around 15 years) alongside the US 2Q GDP estimate surpassing expectations, this pair failed to close above 103. This resulted in the pair pulling back substantially last week.

Economic news headlines from both economies were light. The only major notable releases consisted of US Initial Jobless Claims falling to an impressive 289,000, as well as the Bank of Japan (BoJ) monetary statement expressing that the Japanese economy is recovering moderately. Although, the BoJ did appear to concede that the after effects of an April sales tax increase is negatively impacting recent expenditure releases, alongside displaying a bleaker view on exports. In the mid-term, this provides a future possible opportunity to exploit potential JPY weakness.

Next week sees a far greater quantity of economic data announced for this pair. United States economic releases include; Small Business Optimism and Monthly Budget Statement (Tuesday), Advance Retail Sales alongside Business Inventories (Wednesday) and University of Michigan Confidence (Friday). Japanese economic announcements consist around Consumer Confidence (Monday), Industrial Production (Tuesday) and 2Q Gross Domestic Product on Wednesday. Reuters are reporting that the GDP release is expected to show the biggest contraction in economic activity since the global financial emerged. If confirmed, there is high potential for the USDJPY to recover all losses from the prior week.

The technicals on the Daily timeframe showcase that the bullish trendline that emerged in the previous week, turned out to be just a short-term bull. Other than that, there are no other technical patterns evident at present. Support can be found at 101.525 and 101.230.

If this pair moves to the upside, resistance is located at 102.270, 102.540, 102.798 and 103.093. The latter remains a psychological ceiling for the pair and a clean finish above 103 is required to confirm the USDJPY is set for a bull run.

AUDUSD: Aussie suffers following dismal employment report

The Aussie began the week impressively, following the news that Australian Retail Sales for June rose by double the market expectations. The Australian Bureau of Statistics said that sales increased by 0.6%, above the 0.3% expected. This raised some hope that the Australian economy could still move away from mining/export reliance and transition towards domestic consumption.

However, the AUDUSD declined by nearly 100 pips towards the latter end of the week, following an extremely disappointing employment report. Unexpectedly, the Australian unemployment rate rose to 6.4% (the highest for a decade). This news enticed the pair to close below 0.93 for the first time since the 4th June.

Next week sees a lower quantity of Australian economic data announced, with the only noticeable releases being Business Confidence on (Tuesday morning) and Westpac Consumer Confidence (Wednesday morning). During a recent Reserve Bank of Australia (RBA) Monetary Statement, the Australian Central Bank signaled that consumer confidence levels are noticeably declining. The RBA have previously warned on many occasions that the Australian Dollar was overvalued and now that we have had a break below 0.93, the time for an AUD decline could be approaching.

In regards to the technicals on the Daily timeframe, a bearish trendline has now emerged and as long as downside movement is the next path this pair is heading, the trendline looks a contender to control the future direction of this pair. If so, upside moves will likely be capped to the trendline, with found at 0.9289, 0.9311 and 0.9333. Support is located at 0.9239 and 0.9202. If the AUDUSD is heading for a decline, a downside break below the latter support level would signal the weakest AUDUSD valuation since the 2nd May.

NZDUSD: A signal for the RBNZ to pause rate hikes

Last week represented a very quiet week for the pair. The only economic release that encouraged any market reaction was Wednesday’s employment report, where the response was mixed.

On one hand, the New Zealand unemployment rate fell to its lowest level in over five years (5.6%) which should of course be viewed positively. However, seasonally adjusted employment failed to meet expectations. During Q2, seasonally adjusted employment rose by 0.4%, below the 0.7% economists hoped for. This resulted in downside pressure and at one stage, the NZDUSD fell to a two-month low (0.8421).

If wondering why the NZDUSD declined, seasonally adjusted employment failing to meet expectations is an indication that New Zealand corporations are feeling the effect of higher borrowing rates. The employment report could be used as a reason for the Reserve Bank of New Zealand (RBNZ) to pause monetary tightening.

Next week is low in New Zealand economic data. The only noticeable releases are Business NZ Performance of Manufacturing Index and Retail Sales excluding inflation, both on Wednesday morning. Unless a RBNZ statement emerges confirming that the Central Bank will pause monetary tightening (raising rates), not much movement in this pair is expected. To be honest, the Kiwi currently appears to be in a consolidation stage.

No clear technical patterns on the Daily timeframe are apparent right now. The Stochastic Oscillator is also currently ranging, further suggesting that the NZDUSD is consolidating. Support can be found at 0.8451 and the two-month low, 0.8425. A potential future low (4th June) is located at 0.8401.

If this pair moves to the upside, resistance is located at 0.8523 and 0.8564.

Ahmad is chief market analyst at FXTM.