Jackson Hole Imminent, European Markets Jittery

The day has finally rolled around when Fed Chairman Ben Bernanke will deliver his much anticipated speech at Jackson Hole; but we are already feeling the event has been over-hyped and that there is large scope for disappointment. The thing which has kept everyone on their guard up until now is the potential that Bernanke could announce a third instalment of quantitative easing in the US (an undoubtedly significant event if it were to take place); but as we’ve asserted all along, US CPI is already unsettlingly high and probably at levels that would be prohibitive for further easing. As such, consensus seems to be shifting in favour of a disappointment this afternoon, and in turn, investor participation in the market seems subdued. If anything, the only trend in the currency space is that USD inflows seen late yesterday are now reversing, with virtually every major currency gaining ground on the USD in early trade.   All three ratings agencies took the opportunity yesterday to affirm Germany’s AAA credit rating, but the fears about Eurozone debt and potential contagion dragging down German growth still seem to concern this fragile market. A number of European countries (including France and Spain) announced that the ban on short-selling of financial stocks would be extended until the end of September; but in spite of this measure to stabilize markets, risk appetite has still been languishing, and most European bourses are trading in the red today.   On the data front, this morning’s releases have largely passed without much reaction from the currency market. Eurozone M3 money supply dipped to 2.0% YoY (2.2% expected, 2.1% prior) in July, while the second reading of UK Q2 GDP affirmed the first estimates at 0.2% QoQ, 0.7% YoY. This afternoon will see the second reading of US Q2 GDP, where consensus forecasts are predicting a downward revision to 1.1% QoQ annualized rate, compared to the preliminary estimate of 1.3%.   With speculators likely to be sidelined until Jackson Hole is safely out of the way, expect month-end flows to dominate FX price action, with GBP-selling touted to be amongst the biggest trends.

12:30 USD Real GDP, % q/q saar Q2-s; exp: 1.1, prev: 1.3
12:30 USD GDP price index, % q/q saar Q2-s; exp: 2.3, prev: 2.3
12:30 USD Core PCE price index, % q/q saar Q2-s; exp: 2.1, prev: 2.1

The Risk Today: EurUsd A sharp drop-off in risk appetite yesterday led to a steep plunge in EURUSD; but the sell-off halted at 1.4329, without threatening the broader uptrend channel support below. Since that point, we have rebounded encouragingly, and still feel that a bullish bias is appropriate. Nearest resistance above is eyed at 1.4475 (yesterday’s high), followed by 1.4536 (27 Jul high), 1.4577 (4 Jul high), 1.4653 (9 Jun high) and 1.4696 (7 Jun high). On the downside, uptrend channel support now moves up to 1.4330, with further technical levels seen at 1.4250 (last week’s range floor), 1.4151 (12 Aug low), 1.4103 (11 Aug low), 1.4057 (5 Aug low), 1.4015 (18 Jul low), and 1.4000 (psychological support).

GbpUsd The bearish engulfing candlestick on yesterday’s daily chart proved to be correct, as GBPUSD resumed its rapid descent during the afternoon session, smashing through every support on the way down until it met the 15 Aug low 1.6257. We have since rebounded modestly, but the ongoing downward pressure on GBP and GBP-crosses ahead of month-end suggests the downside is still vulnerable to a further sell-off. Key supports are the previously mentioned 1.6257 (15 Aug low), 1.6167 (12 Aug low), 1.6112 (11 Aug low), and 1.6104 (200-day moving average). Sellers are expected to cap any rallies back to 1.6397 (yesterday’s high), with further resistance eyed at 1.6435 (former support now turned resistance), 1.6534 (24 Aug high), and 1.6618 (19 Aug high).

UsdJpy A strong surge of USD demand yesterday eventually pushed USDJPY up through 77.23 resistance (a level which had capped the pair for over 2 weeks), and took us all the way to highs of 77.70. The rally could not however manage to overcome headwinds ahead of the 6-week downtrend channel ceiling (currently also 77.70), and since then we have slipped lower rather quickly. Nearest supports below us are noted at 76.85 (yesterday’s low), 76.48 (23 & 24 Aug low), 75.96 (the all-time low set on 19 Aug) and major psychological barrier 75.00. In the meantime expect downtrend resistance at 77.70 to keep a lid on further rallies. Should Bernanke’s speech today provide enough stimulus for a strong move higher, next topside levels seen at 77.86 (9 Aug high), 78.47 (8 Aug high), 79.42 (5 Aug high), 80.38 (12 Jul high), 80.83 (11 Jul high) and 81.49 (8 Jul high).

UsdChf USDCHF continues to meander sideways just above 0.7900, with the pair disappointingly making little progress on the topside in spite of a symmetrical triangle pattern on the hourly chart that suggests a target of 0.8155. Resistance levels above us have not changed, with first ones noted at 0.8018 (17 Aug high), 0.8083 (25 Jul high), 0.8278 (19 Jul high), 0.8331 (13 Jul high) and 0.8398 (12 Jul high). If the triangle pattern turns out to be wrong, expect supports on the downside at 0.7771 (16 Aug low), 0.7549 (12 Aug low), 0.7182 (10 Aug low), 0.7070 (all-time low) and the major psychological support at 0.7000.

Similar Posts:

• Sovereign Bond Markets Continue To Attract Attention
• Daily Chart Art – February 2, 2011
• Daily Chart Art – June 17, 2011
• Daily Chart Art – June 13, 2011
• Daily Chart Art – July 5, 2011