LONDON (SHARECAST) - A slight return in risk appetite yesterday ebbed away late in New York on concern that the US recovery may not be as strong as first thought. Bernanke’s comments that US growth is “not as fast we would like” and appears to be constrained by the ailing property markets.
The Beige Book economic report of all 12 district banks reported an improvement for the first time since 2007; however with fears of a knock on effect from the European debt crisis Bernanke acknowledged that the US economy faces risks that may require further Fed action.
The US is expected to publish its latest trade figures for April where it is expected that the deficit will be around $40bn, while US jobless claims are expected to continue their downward path and fall below 450k for the first time in a number of weeks.
Chinese exports surged 48.5% in May suggesting that demand was holding up well, however property prices also rose 12.4%, the second largest rise on record, keeping alive concerns that the Chinese could take further measures to tighten lending policies.
Today’s central bank meeting in the UK is not expected to signal any change in policy by the Bank of England, however the European Central Bankmeeting is likely to be slightly more interesting, with speculation that the ECB may well extend its bond purchase program to much longer term periods, given that the overnight funding facility is being used extremely regularly and in record amounts. The Trichet press conference promises to be an illuminating affair.
German and French governments have also joined forces to call for a European wide ban on the short-selling of government debt and some shares, urging the European Commission to bring forward the proposals to next month instead of October as originally planned, suggesting perhaps that they are concerned about further financial skeletons in the European closet.
EURUSD – a return of risk appetite has seen the Euro squeeze back above 1.2000 hitting 1.2075, falling short of the key break-out level around the 1.2135 level. This is now the resistance which has to be overcome to prevent a move towards the 2005 lows around 1.1650.
In the longer term the overall objective now becomes 1.1210 which is the 61.8% Fibonacci retracement of the up move from the 2000 lows at 0.8230 and the 2008 peaks at 1.6040.
GBPUSD – the pound as expected remained fairly well supported rallying to trend line resistance from the 26th April highs of 1.5500 at 1.4610, before slipping back. A break of the trend line would target last week’s highs at 1.4780. While above the recent lows around 1.4350 the 1.4300/1.4800 range play remains intact.
The pound should remain fairly well supported on dips while above the key support around the 1.4230/50 level and remains the key barrier to any further sterling declines in the short term. The 1.4000 level remains a key support on a monthly close.
EURGBP - the Euro traded broadly lower yesterday falling away from Tuesday’s highs and resistance around the 0.8340 area.
It should continue to remain weak, while below this level and is on target to hit the all important 0.8170 area which is the 50% retracement of the up move from the 2007 lows at 0.6537 to the 2008 highs at 0.9801
Tuesday’s highs around 0.8340 should continue to provide resistance. The 0.8400 break-out level remains key resistance behind that.
USDJPY – the recent range support at 90.70/80 continues to hold and remains the key area preventing further dollar declines.
Yen strength should be contained by this support level though there is a concern at the lack of upward momentum on the rallies of this support area. A break back below 90.70/80 has the potential to re-target the 89.30 area.
The dollar needs to overcome yesterday’s highs at 91.67 to provoke an attempt on 92.20, and behind that a move to 93.00.
