Tomorrow includes a heavy dose of economic reports that will affect currency markets, reports Bill Baruch.
Fundamentals: After stronger than expected U.S. Q2 GDP Friday, the U.S. Dollar Index secured its second highest weekly settlement of the year, the highest region since May 2017. The front-month September contract reached a new high on Friday, trailing the euro’s timeline, which set a new September low Tuesday. On Thursday, ECB President Mario Draghi stabilized the euro at its continuous front-month low by saying he does not see a recession as likely. Both currencies are lurking at extremes and awaiting a catalyst this week for a direction breakout, breakdown or rejection.
Although it was a quiet start to the week, the economic calendar is jam-packed. Early dollar gains dissipated after Dallas Fed Manufacturing decreased by more than expected. Things pick up quickly and early tomorrow. French GDP is due tomorrow at 12:30 am CDT. German Consumer Climate follows at 1:00 am CT. Broad Eurozone reads on Confidence and Climate are due at 4:00 am CT. German CPI is out at 7:00 am CDT. The closely watched Core PCE Price Index, the Federal Reserve’s preferred inflation indicator, is released at 7:30 am CDT and accompanied by Personal Spending, Income and Consumption data. Q2 PCE on Friday came in at 1.8%, below expectations of 2.0% that align with the Fed’s target and this softened the Dollar’s gains. Case Shiller Home Price Index is out at 8:00 am CDT and follows a slew of underwhelming housing reads in recent weeks. The closely watched CB Consumer Confidence is due at 9:00 am CDT along with Pending Home Sales. The Fed is expected to cut rates on Wednesday.
Technicals: Price action is showing signs of stability, trading nearly a half penny from early session lows as it builds a base at major three-star support at 1.11265-1.11565. Friday’s settlement was 1.1170, this is our pivot. First key resistance aligns at 1.1213, which is the .618 retracement from the 2018 high down to the 2016 low. Rallies could easily test 1.1254-1.1276, multiple technical indicators align here including a trend line from the June 28 low.
Resistance: 1.1213-1.1226**, 1.1254-1.1276***, 1.1316-1.1332**
Support: 1.11265-1.11565***, 1.1011-1.1050***, 1.089***
Japanese yen (JYU)
Fundamentals: The Bank of Japan concludes their policy meeting tonight with a statement due around midnight. With the Fed expected to cut 25 basis points on Wednesday and the ECB expected to introduce fresh measures in the near future, what can the Bank of Japan do to stay in lock step? At this point, not much. They have already exhausted all conceivable options; the central bank hasn’t only purchased bonds to keep rates tethered to zero or lower, it owns more than 75% of the Japanese ETF market and is reportedly a top 10 shareholder in 50% of Japanese companies. It will certainly be interesting to hear what the BoJ has in mind.
Technicals: The Japanese yen is testing directly into major three-star support at .9212-.9221. Just below here you have the 100-day and then the 200-day moving averages; below these levels, there is no reason to think the selling will stop before .9100 as the nearly 2:1 leveraged net-short position liquidates. To the upside, a move back above .9261 will help secure a bottom, reinvigorate our bullish bias and invite buyers to the table.
Resistance: .9261**, .9294**, .9343-.9360***
Support: .9212-.9221***, .9188-.9196**, .9100***
Australian dollar (ADU)
Fundamentals: The Aussie dollar has now lost ground for seven straight sessions and today’s settlement was the lowest in more than a month. Global data has not been helpful to commodity prices, a key component in this commodity currency. Furthermore, there is no end in sight for the U.S-China trade war. Remember, China is Australia’s number one trade partner and as China’s growth slows, it weighs on the Aussie. The RBA cut rates at their meeting on July 1 and although the cut brought a wave of relief to the currency which already priced such in, other central banks planning to take the same action is seen to pave the way for the RBA to cut again before the end of the year. Building Approvals data is due tonight at 8:30 pm CDT. Tomorrow evening will be pivotal with Chinese PMIs and Aussie CPI.
Technicals: On July 18, the Aussie ran headfirst into a trend line from last June and has since dropped precipitously. First key support and first key resistance are tight, but the Aussie’s range today stayed contained. Price action is a little oversold and if it gets above .6943, we could easily see a move back to the .7000 mark and the bottom side of a trend line it broke through on Friday. This would bring a good sell opportunity.
Resistance: .6926-.6943**, .7000-.7009**, .7064-.7094***
Support: .6907**, .6809-.6861***, .6300***
Canadian dollar (CDU)
Fundamentals: The Canadian dollar snapped a seven-session losing streak today with crude oil gaining about 1.5%. Price action slipped on Friday nearly pinging a crucial level of support, a level in which we have called a buy opportunity. Tomorrow’s deluge of data will be pivotal for the currency as we head into Fed-day Wednesday. With others easing policy or planning to, the Bank of Canada has seemingly diverged from all other major central banks and this brings an interesting dynamic over the coming months.
Technicals: Price action tested what we called a buying opportunity at .7562-.7566 with a low of .7582 before grinding higher today. The tape will signal a bottoming process if it can hold above .7608 through tomorrow and will become bullish on a close above .7624-.7632.
Resistance: .7624-.7632**, .7649**, .7685-.76915***, .78355***
Support: .7562-.7566***, .7500***
Bill Baruch provides technical levels on all markets throughout the week at BlueLineFutures.com.