Friday, June 25, 2010

Pressure On Treasury Yields As Equities Struggle


Forex News And Events:

The recent equity market losses make for gloomy analysis, and coupled with renewed fears over US growth prospects, US Treasury yields have found themselves under immense pressure in the past week. For the currency trader, the decline in risk appetite should broadly favour the USD, but the drop in yields is something to keep an eye on in terms of USDJPY in particular. Historically there has been a decent correlation between Treasury yields and USDJPY, and unsurprisingly the activity in the Treasury market this week has coincided with a profoundly bearish downtrend for USDJPY that threatens another look at 88.00 levels. Should the pressure on yields continue, the JPY is therefore likely to outperform the USD, and expect EURJPY, AUDJPY and other JPY-crosses to give the most bang for your buck on the downside. Looking at today’s calendar, there is not a great deal to get inspired about; the only major economic release will be the third reading of US Q1 GDP; but no surprises are expected and the rate is likely to be confirmed at 3.0% QoQ annualized. The latest G20 summit is due to begin imminently in Toronto, but one can’t help but feel the bristle of excitement surrounding these meetings has waned considerably as past incarnations have rarely produced concrete outcomes. High on the agenda will be the various suggestions and recommendations for a bank tax or levy to address the need to recoup some of the costs of the financial crisis from its perceived perpetrators, but we certainly won’t be holding our breath for a unified agreement on that one. The wires will no doubt be cluttered with quotes from various politicians asserting their own views on the matter, but in the currency space this will likely play second fiddle to the Brazil-Portugal match this afternoon and Spain’s must-win clash with Chile later on.
Daily Forex News

Today's Key Issues (Time In GMT):

12:30 USD GDP (Q1-3rd); exp: 3.0% QoQ ann. prev: 3.0% 
12:30 USD Core PCE (Q1-3rd); exp: 0.6% QoQ, prev: 0.6% 
13:55 USD U.Mich consumer confidence (Jun); exp: 75.5, prev: 75.5


The Risk Today:

EurUsd Morning all, after the thrills and spills of Slovakia vs. Italy yesterday, the developments in EURUSD over the past 24 hours seem rather humdrum. As nasty short squeeze across the EUR-crosses yesterday afternoon made light work of violating the 1.2328 resistance (23.6% fibonacci retracement of 1.1876 – 1.2468) and subsequently the 1-week downtrend around 1.2360; but as of yet we haven’t seen buyers gather enough momentum to sustain the break higher. We now perceive a very short-term uptrend that has been in play since the middle of this week, and which now threatens to overthrow the 1-week downtrend as the dominant short-term trend. Expect uptrend support at 1.2295-1.2300, and given the breach of 1.2350-70 once already, we predict another push higher through the 1-week downtrend at 1.2335, which should allow a second crack at yesterday’s high 1.2388 and 1.2450-70 (28 May high at 1.2452, recent double top highs 1.2468). Should the sell-off continue back through this uptrend (i.e. a resumption of the 1-week downtrend), next pockets of support are due around 1.2260 (yesterday’s lows), 1.2209 (the low water mark this week) and 1.2170 (where the 15 Jun lows coincide with the 50.0% fibonacci retracement).
GbpUsd The short/medium-term trend for GBPUSD remains upward, but as we anticipated, there was some paring back of recent gains in yesterday’s session. At the present time we linger towards the upper edge of 2 different uptrend channels which does not make fresh long entry attractive from a risk-reward perspective, so instead we look to wait for a deeper correction before buying back in. Those with itchy trigger fingers should probably hold fire until 1.4850 levels before re-loading longs, but for the more cautious, the next best area for buyers will be around trendline support currently 1.4780. This latter area does however, currently sit below Wednesday’s ledge of support at 1.4800 and the 50-day moving average at 1.4817, so we feel 1.4820-30 levels presents the best compromise (especially as the trendline support will only drift higher as the session progresses). 1.5000 still represents a major psychological barrier for rallies, but the latest surge to highs of 1.5012 does suggest to us it will not remain so for long. Above there the 100-day moving average is hovering at 1.5044 and the 10 May high at 1.5055.
UsdJpy The pressure on US Treasury yields has weighed heavily on USDJPY this week, and after the break of 89.80 crucial support, we have seen an extended collapse to lows of 89.23. Thus far the sell-off has been caught by demand around 89.26 (25 May low), but given the tremendously bearish tone of late we would not be surprised to see another dip to the vulnerable supports below; 88.95 (20 May low), then 87.99 low from 6 May). For the time being, price action will be very sticky above 89.75, with further sellers predicted around 90.00, the 200-day moving average 90.88, Monday’s 91.48 high, then last Wednesday’s highs at 91.82.
UsdChf After Wednesday’s short squeeze came to an abrupt halt at 1.1138 (identical to Monday’s high), the bears have jumped all over this pair and pushed it below 1.1000, touching a low of 1.0985. Our directional bias in the very short term is neutral (with a bearish preference in the medium-term), so we would expect a bounce off this 1.0985-1.1000 support, then look to sell rallies towards 1.1138. We ultimately believe that after this period of consolidation, the bearish trend will extend further; next major support is expected at 1.0924-44 (10 May lows and 100-day moving average) – and as such should be respected as a likely platform for a rebound on the first visit.

Resistance And Support:

EURUSDGBPUSDUSDJPYUSDCHF
1.24701.510090.901.1200
1.24501.505590.001.1140
1.23501.500089.751.1035
1.22751.488089.651.1020
1.22101.485089.251.0990
1.21701.480088.951.0925
1.21451.469087.991.0800
S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot

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