After a relatively uneventful session yesterday, the New Zealand dollar (NZD) breached the 0.7215 level in European trading, signalling a breakout of the downward trend channel that has been in play since October 2009.
This triggered a wave of stop loss buying in both NZD and NZD/AUD as traders scrambled to cover shorts with model and momentum players also noted as active buyers. Up went the bird. Behind this, risk trades were again supported by buoyant Asian bourses, with the Nikkei finishing up 2.7%, while Intel reported record earnings after hours.
Overnight saw a mixed bag of data released. US retail sales fell more than anticipated for June, while the core, ex-auto measure, slipped 0.1%. It’s hard to see US consumer spending rising when employment remains soft as it is, The FOMC minutes, also published overnight, saw the Fed revising down its view on US GDP growth and inflation, albeit at the margin. From the UK, employment data improved but given the prospect of a softening public sector gains may be hard to maintain.
Singapore registered annual GDP growth of an astounding 19.3% in Q2. As for the local data, yesterday’s NZ retail sales were obviously disappointing, especially with the ex-auto measure down 0.2% against expectations of a 0.6% rise. The REINZ housing numbers were also soft.
Today sees the release of June’s BNZ Performance of Manufacturing Index; has it retained a decent growth pulse having slowed slightly in May? The price movement overnight still indicates a market that is looking at global themes, rather than local data, however. Chances are that this will continue for the meantime. The NZD, while showing signs of being overbought, may still have enough momentum to test the 0.7300 region before this recent move upward runs its course.
From here we would expect the 0.7180-0.7200 level to provide short-term support but again we will be watching equities and general risk sentiment most of all.
Majors
Once again European trade was a fairly subdued affair, though there was a pick-up in activity towards the close with a break of recent range highs against the USD in some major pairs potentially setting the scene for a more directional move in sessions to come. Although the positive equity backdrop following Alcoa and Intel Q2 results and standout Q2 GDP from Singapore helped FX risk appetite hold up, there was an initial reluctance to push major currencies in either direction, let alone higher.
With what looked like reasonable selling interest in EUR/USD around 1.2725-30 and unsubstantiated talk of SNB sales here (presumably exchanging some of its huge stock pile of EUR from EUR/CHF intervention), the idea of a narrow range-trading environment set in. Buyers were found between 1.2680 and 1.2690 and ahead of rumoured European stop-losses at 1.2670.
European CPI data for June was uneventful, showing subdued price pressures with m/m inflation flat and annual CPI pulling back to 1.4%. Eagerly awaited US June retail sales data were moderately weaker than forecast but was insufficient to act as a catalyst for a range break. After a look at 1.2730 again, the failure saw more concerted attempt at the downside and 1.2680. Stocks recovered from a minor slip and helped pull major currencies back up, eventually forging a break of 1.2735 for a session high of 1.2777.
We note rising channel resistance off the 6 June low (1.1877) comes in at 1.2782 today. We have noted the 1.27-1.28 area as important but are increasingly mindful of the fact the DXY has broken down through rising trend support from December 2009 lows (at 84.3) and former resistance from 2001-2002 (at 83.73).
Chinese GDP, industrial production and retail sales data, due today (2pm NZT), will be influential in whether this potential break higher in EUR/USD has legs – with some talk of a move to 1.30-1.31.
Elsewhere GBP/USD ratcheted higher through most of the session. Cable’s steady climb to 1.5290 was aided by what looked like a reasonably strong UK labour market report for June.
However, while both claimant count and ILO measures of unemployment fell and employment rose (by 160k to its highest since August 2006), the latter was aided by a 142k surge in part-time jobs. Still, GBP/USD steady grind higher helped EUR/GBP ease to 0.8315-20. USD/JPY continues to trade a broad 88.0-89.0. In the current environment we see the upside as more vulnerable.
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