1. Review.
I said “The Greek saga is closed to a critical phase: the 30 will vote the 78 billion austerity package; if pass, it will probably trigger a EURUSD rally to 1.4450/45 area. I will use this rally to enter short EURUSD at 1.4450/50 area; a daily close above. 1.4710/20 will invalidate this bearish view. Key level to watch is the 1.41” The austerity package passed and EURUSD rallied to 1.4550 with all other risky assets
“Closely watching CRB index to confirm risk aversion on positive EZ news.” CRB index did not posted gains at the end of the week; as proxy of global recovery is signaling that the risk rally should be something short related to Greek saga conclusion.
“I will look at recent lows in stocks, commodities and JPY crosses to trigger further weakness.
I will use this USD weakness as a buying opportunity, looking if technical levels hold. That means short AUD, CAD and NZD against USD and JPY, from just above currents levels that offer attractive opportunities.” I did not, but it should be next week. ” USDJPY flat; I think that 80.00 support holds.” Yes. “Reverse CADJPY at 83, sell AUDJPY at 86” I will do next week at current levels (84, 87)
Trades
Exited long CADJPY at -90 pips.
2. Analysis.
"Fundamental analysis data"
US CB Consumer confidence 50.5 60.8 61.7
CAD Core CPI 0.5% 0.2% 0.2%
US pending homes sales 8.2% 2.4% -11.5%
German retail sales -2.8% 0.6% 0.0%
Unemployment claims 428k 219k 429k
CAD GDP m/m 0.0% -0.1% 0.3%
JPY Tankan -9 -7 6
CNY Manufacturing PMI 50.9% 51.6% 52%
US ISM Manufacturing PMI 55.3 51.9 55.3
"Fundamental analysis"
Incoming data and forecast continues to point to a moderate growth. CNY and EZ PMI weaker than expected. US ISM PMI is rebounded because of the resumption of JPY supplies. We think that major economies remains in a soft patch at least and we don’t see any sign of increase of growth expectation anytime soon.
US debt debate hit an impasse; the 22nd of July is the date when we will see if it will be avoided a shutdown the 2nd of August.
Trichet send signals for a new rate hike the at the next 7 July ECB meeting. For him the underlying growth is positive and medium term outlook for prices is on the upside. This does not mean a clear hike path. Anyway latest EZ PMI data show a contraction path (bat the ECB sole mandate is price stability). EZ CPI is at 2.7% (above the 2% ECB target); PPI and retail sales are due next week.
Approval of new cut by Greek Parliament the 30 allowed IMF to release the founding . Anyway long term outlook is that Greece, with debt load increasing and negative growth, will be not able to repay its debt. Moody’s has placed Italy under review.
With EZ growth peaked before, EZ debt will burden EUR and peripheral debt continues to rumble on; Spain and Italy had a poor auction in the week.
Risk assets (stock and commodities) continue to slide lower this week.
Falling commodities prices could increase consumer demand, but high unemployment, austerity measures and exit of fiscal stimulus point to a major slowdown. This will bias risk assets further to the downside.
This week action confirmed that risk aversion remains.
Silver and Gold falling this week.
My big picture view is:
- commodities and risk asset are turning negative
- US growth is slowing
- global growth is slowing
Long term outlook:
The actual extreme in the bearish USD sentiment can be a reversal sign, and it is starting to apply now.
| Id | Driver | Comments | Immanency |
| 1 | On-going global recovery | EZ slowing, US slowing, China slowing (risk aversion) | Yes |
| 2 | Divergence in FED and BCE monetary policy | FED will be on hold for this year; | Yes |
| 3 | EZ break up | France and Germany supporting EUR | No |
| 4 | PIIGS | More PIIGS related then only Greece | No |
| 5 | QE3 | Requires: | No |
| 6 | Commodity rise | Falling prices confirming slowdown | No |
| 7 | US debt | Debt ceiling | Moderate, 22 July |
| Currency | Short term view | Long term view |
| USD | Bullish, extreme short and risk aversion | Bearish (2, 5, 7) |
| JPY | Bearish | Bearish |
| CHF | Bullish | Bullish |
| EUR | Bullish | (2) |
"Technical analysis"
EURUSD rallied to 1.45 without any dip. Still in the range 1.40-1.46/7. A daily close above 1.4710/20 will signal a uptrend (unlikely event).
USDJPY failed to break above the 81.50 barrier and still ranging in the 80/1, now at 80.82
AUDJPY break the 85.3-84.3 range, now at 87; 90 resistance looks still far at the moment. Next resistance is 87.5. EURJPY break the 116 resistance, now 117.4, still in the 114/8 range
COT data suggest that is time for a reversal for the dollar.
COT AUD up 46k (-8k), OI 93k (-7k)
COT USD at 4.9k (-1k), OI 46k (-8k)
COT EUR at 32k (+3k), OI 183k (-7k)
COT JPY at 13k (-20k), OI 95k (-5k)
COT CHF at 9k (-2k), OI 51k (-0k)
German/Greece at 13.3% (-0.5%)
German/Spain at to 2.5% (-0.5%)
Bunds at 3.03%. (+0.2%)
JGB at 1.14% (+0.03%)
"Market dynamics”
The risk rally may have more room to go in the short run (FX Live sees EURUSD to 1.47 in the next week). We remain in high alert for failure and reversal. Risky pairs have rebounded to recent range highs and it would need a clear break to become more bullish. Given the risk ahead (US debt, EZ debt, SNP) I think recent bounds can be hard to broken, if any unexpected good news.
I will use this USD weakness as a buying opportunity.
I will enter short EURUSD at 1.4450/50 area after further gains in the 1.46 area; not a daily close above 1.4710/20 will invalidate this bearish view. Key level to watch is the 1.41
Closely watching CRB index to confirm risk aversion on positive EZ news.
I will look at recent lows in stocks, commodities and JPY crosses to trigger further weakness.
If technical levels (range highs) hold I will:
Reverse CADJPY at 84.0/5, resistance at 85.0
Sell AUDJPY at 86.5/87.0, resistance at 87.5
USDJPY flat in the 80/1 area; I think that 80.00 support holds.
Key events:
Tuesday: RBA cash rate
Wednesday: US ISM PMI, CAD building permits m/m
Thursday: German Production, ECB bid rate, US Unemployment claims
Friday: US Unemployment rate, NFP
Median grid
EURUSD GRID 1.400 - 1.460, down bias
USDJPY GRID 80.00-84.00, neutral bias
AUDJPY GRID 82.00-90.00, neutral bias
USDCHF GRID 0.8225-0.8725, down bias
Prices and Risk on/off view
| Risk Indicator(+/-) | Status | Comments |
| AUDJPY (on) EURJPY | 87.0 (+2.7) | Q3 |
| US TYN (on) | 3.18% (+0.30%) | Recent highs |
| Dollar Index (on) | 74.6 (-1.6$) | Near May 76.44 top |
| US futures | 1263 (-2$) | Q2 |
| Gold | 1486 (-15$) | Q3 |
| VIX | 15.8 (-4.8) | |
Risk view is on:
- US 10YN at higher levels
- US index at 74.6
- Gold /Silver ratio strong
- JPY rebound to recent trading range highs
- CHF weak versus EUR and USD
3. Plan
Exit long USDJPY long with even a small profit, trying to avoid losses.
EURUSD
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USDJPY
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AUDJPY
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EURJPY
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USDCHF
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CADJPY
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4. Trades
Positions
USDJPY +2
EURUSD 0
USDCHF 0
AUDJPY +0
EURJPY 0
CADJPY 0
