Today’s deflationary fundamental news on the economic calendar for the Eurozone will pose a significant problem for the ECB and their interest rate decision on Thursday and given that we will also have the Non Farm Payroll data at the same time owing to Friday’s national holiday, there is one thing we can safely say “hang on to your lock-nuts, we’re in for a bumpy ride”. The problem for the ECB is that this morning’s data paints a deflationary picture which of itself is bad enough with the spectre of growing choking off economic growth leading to even more insolvencies, but any hint of tighter monetary policy (ie raising interest rates) can only lead to a stronger Euro and all the problems that that would bring. This delicate balance is reflected in the daily chart for the Eurodollar which continues to edge upwards within in the pennant pattern envelope, with yesterday’s candle confirming this indecision, ending the day with a lower wick and narrow body. The low of the day found support from the 9 day moving average which helped to ease the euro vs dollar higher, but given that the 9 and 14 day are now enmeshed this signal has less validity than otherwise would be the case. The technical picture is still building towards a breakout from the pennant formation and at some point we will see an explosive move on a wide spread bar and Thursday at 13.30 GMT may well prove to be this trigger when the ECB press conference and NFP data collide.
Pounds To Dollars - GBP vs USD Daily Chart 30th June 2009
Dollars To Pounds - GBP/USD Daily Chart 30th June 2009
Yesterday’s doji candle on the pounds to dollars chart continued to reinforce the triangle pattern which is now extremely well defined and converging in an ever tighter point towards the 1.65/1.66 price region with the 9 and 14 day moving averages now superimposed. This picture has been dented somewhat by this morning’s price action where a severe dose of reality has suddenly shaken the markets following the Pound’s attempt to break out of this narrow trading range and may well have been dealt a body blow by the truly appalling GDP figures released this morning. The numbers confirmed that the UK economy has contracted at a much faster pace than initially thought (some much for those pesky green shoots”) and fell at its fastest rate for almost 50 years in Q1. Over the year GDP fell almost 5% on the year - again the worst since records began. Even the somewhat benign Nationwide HPI data failed to stop the runaway train which has seen the pound to dollars fall almost 300 pips. In addition Cable was not helped by comments from the OECD who have stated that any recovery for the UK depends on stability returning to the financial sector and the Government coming up with a “credible” plan to deal with the budget deficit. All the US data is covered on the main Eurodollar site.
Technically as mentioned in yesterday’s market commentary for any bullish higher we need to see a break and hold the 1.66 price region which has now become the defining technical level for this currency pair. Had this morning breakout managed to hold then this may well have been considered the defining day for the pattern but given the likely conclusion to today’s trading session, this now seems highly unlikely.
Yen To Dollar - USD vs Yen Daily Candle Chart 30th June 2009
USD vs JPY - Dollar Yen Daily Candle Chart 30th June 2009
The yen to dollar currency pair never fails to exasperate and bore in equal measures and yesterday’s candle came completely out of the blue ending the day as a wide spread up bar racing through the 9 day moving average while finding some resistance at the 14 day average. This week is turning into a reality for many in the markets as the various items of fundamental news on the economic calendar are released revealing that the so called “green shoots” are turning into a figment of most people’s imagination. For Japan this week sees the release of the all important Tankan Survey which is due out during the early hours of the Asian trading session and the markets will be looking for any sign that the worst of this recession is over following the worst reading on record last time around. Broadly speaking the Tankan falls into two elements and in simple terms is a diffusion index, the first of which is based on large manufacturers and the second of which is based on large businesses (excluding manufacturing). It is a closely watched piece of fundamental news and something that the BOJ factor into their interest rate decisions and fiscal policies and is therefore highly significant. The forecast for tonight is for the manufacturing side to come in at -43, better than last time at -58 whilst the non manufacturing is forecast at -26, against a previous of -31. Both are therefore indicating a slow improving picture but with still a long way to go to break above the critical crossover line at zero which then begins to indicate an amelioration. Meanwhile all the US data is covered for you in the euro to dollar fundamental site.
USD to CAD - USD vs CAD Daily Chart 30th June 2009
US Dolllar vs Canadian Dollar - Daily Chart 30th June 2009
The usd to cad pair is currently finding it hard work to break through the 1.16 price region and for the sixth day in a row the closing price of the day failed to hold above this technically important level. Whilst the moving averages are suggesting a move higher, particularly with the 40 day having crossed the 14, until we see a definitive break from the current trading level at 1.1580 then the sideways consolidation will continue. The resistance level now in place between 1.16 and 1.17 may prove to be the graveyard for this particular rally, but much will, of course, depend on the fortunes of the US Dollar on Thursday following the collision between the NFP data and the ECB interest rate decision and statement. Technically the Dollar Index daily chart is currently looking weak although, of course, this could change in the blink of an eye should the NFP numbers be better than expected with a consequent shift in sentiment for both equities and commodities. Meanwhile for Canada today saw the release of the monthly GDP figures (to my knowledge Canada is the only country in the developed world to release GDP on a monthly basis) and again this showed a contraction once again of 0.1% in April, the 9th straight decline. This adds weight to the evidence that the world’s 8th largest economy extended its contraction as the global slump further reduced demands for Canada’s exports with the economy shrinking at an annualised rate of 5.4%, the biggest fall since 1991. At the same time the RMPI data was released which measures the change in the price of raw materials purchased by manufacturers and this came in at 2.2% against a forecast of 2%, largely as a result of the rising price of crude oil.
